NationStates Jolt Archive

This thread is a refocusing of the arguments presented on the What do you think of Austrian Economics thread? (http://forums.jolt.co.uk/showthread.php?t=504718) I wish to refocuse debate on the subject of "market failure," whichs seems to be a fairly contentious issue deserving of its own thread.

The argumentation suppossedly "refuting" the idea of market failure by proponents of the Austrian school on the thread has basically boiled down to an appeal to authority of past right wing economists. Well two can play at that game.

Proponents of markets have silenced their opponents in ingenious ways. External effects are so pervasive that open debate was unthinkable. Yet failure to finesse the issue threatened over two hundred years of economic theory. The solution was to bury the problem of external effects within a traditional paradigm regarded as necessary for generating any welfare theoretic conclusions whatsoever. The message was: those who ask just how "exceptional" external effects really are had best be prepared for early retirement.

Those with other employment opportunities who argued that the emperor had no clothes, such as E. K. Hunt, were simply ignored. Pure theoreticians, who tackled problems as they proved susceptible to new theoretical toys, such as Theodore Groves and Co., were potentially more dangerous since they have special status within the establishment. But theorists are seldom politicians. They do not devote much time to debating the importance of the mind games they play and are easily distracted by new toys that appear with a new holiday season which lend themselves to a different set of gedanken experiments. 4

There are other reasons why market failures have gone so remarkably undernoticed. Losses due to "market failure" have, until very recently, been much less visible than other kinds of waste. Market failure does not appear in the form of 1,000 lb. nails or people working one hour out of eight on the job, which provide vivid images of the inefficiency of central planning. And it is the inefficiency of market disequilibria, not market failure, that is stamped in people's minds by unemployment lines coincident with stockpiles of unsellable goods. Market failure does not even show up as slow economic growth rates, which current Soviet developments demonstrate can shake even long-established economic orders. Losses due to market failure are not subtracted from GNP estimates. Vivid reminders such as Three Mile Island, Chernobyl, and Valdez, Alaska, are still recent, and the ecology movement that seeks to publicize the most heinous examples is still in its political infancy. But irrespective of its relative lack of notoriety, the fact remains that in postfeudal history a plausible case can be made that no economic failure has contributed more to the waste of productive resources than misallocations of markets uncorrected for external effects.

Our formal contribution to a critical reevaluation of markets is contained in Theorems 7.1 and 7.2.

Theorem 7. 1. Markets overcharge purchasers of goods with greater than average positive external effects.


Theorem 7.2. Not only will markets misallocate resources initially undersupplying goods with greater than average positive external effects but there will be a cumulative divergence away from optimal allocations over time as individuals "rationally" adjust their personal characteristics to diminish their needs for goods with greater than average positive external effects.

{Michael Albert & Robin Hahnel, A Quiet Revolution in Welfare Economics, (Princeton, NJ: Princeton University Press 1990) Chapter 10 - Conclusion, http://www.zmag.org/books/10/10.htm}

What the problem of market failure boils down to, in my opinion, and judging by the source of the above, is that market failure is not some rapid, catastrophic event, but a slow, creeping disequilibria. All current means of measuring the strength of the market are inherently biased against the real negative costs of production. Over time, these negative costs accumulate in the form of misallocation. As indivduals attempt to adjust for misallocation, the adjustments only move the market further from optimum, and results in more misallocation.

I'm still waiting for the concept of "market failure" to be shown to be correct.

I'm still waiting for the concept of "market failure" to be shown to be correct.


Then you really should take a break off your daily dose of "Mises.org" and take a look at any history book. 6th grade will do.


Oh Austria, why aren't you the richest country in the world?

Then you really should take a break off your daily dose of "Mises.org" and take a look at any history book.
I've looked. There's nothing which supports the notion of "market failure".

I know that I will be waiting until I die, since there simply is no such thing as "market failure". There are only issues based on a lack of coherently defined property rights and issues based on government intervention in the first place.

There's also the issue of the Nirvanna fallacy--comparing some Platonic ideal (which simply cannot exist) to reality and then declaring that reality got it wrong. That's another reason why "market failure" simply doesn't exist.

Define misallocation.

Define misallocation.

The non-optimum distribution of investment, goods and services. In short, money spent on the wrong things in the context of a market setting.

The non-optimum distribution of investment, goods and services.
"Optimum"/Non according to what standard?

The non-optimum distribution of investment, goods and services. In short, money spent on the wrong things in the context of a market setting.

What are the wrong things?

The non-optimum distribution of investment, goods and services. In short, money spent on the wrong things in the context of a market setting.
Who decides what the wrong thing is?

In a free market, it's not possible to spend money on the wrong thing unless you've been defrauded. You decide what to buy, and you cannot buy something you don't want to buy unless you've been lied to about what it is you're buying.

Who decides what the wrong thing is?

In a free market, it's not possible to spend money on the wrong thing unless you've been defrauded. You decide what to buy, and you cannot buy something you don't want to buy unless you've been lied to about what it is you're buying.

This comes from an objective view of the economy. In this case, the "wrong" things are things that are bought or sold that further move the market out of optimum. The point of laissez-faire economics is to provide a system by which the market remains in an optimum balance. It fails at this because of the creeping costs of externalities-- the "invisible foot of laissez-faire," if you will.

The fundamental assumption behind optimum distribution is that if each does according to their own self-interest, society will collectively be improved. However, the advancement of self-interest creates the passing off of costs to others, the "externalities" of the economy. Everyone acting in self-interests means that everyone is competing to pass off as much externality to his/her neighbor. These costs accumulate, and are never taken into account in modern capitalist theory.

The point is not that any individual made the "wrong" decisions, it was the fact that they made the "right" decisions that creates the problem. The decision motivated by self-interest passes off costs to others. This slow accumulating unbalance and misallocation builds over time. It finally manifests in something like this quote.
And it is the inefficiency of market disequilibria, not market failure, that is stamped in people's minds by unemployment lines coincident with stockpiles of unsellable goods.

This comes from an objective view of the economy. In this case, the "wrong" things are things that are bought or sold that further move the market out of optimum. The point of laissez-faire economics is to provide a system by which the market remains in an optimum balance. It fails at this because of the creeping costs of externalities-- the "invisible foot of laissez-faire," if you will.

The fundamental assumption behind optimum distribution is that if each does according to their own self-interest, society will collectively be improved. However, the advancement of self-interest creates the passing off of costs to others, the "externalities" of the economy. Everyone acting in self-interests means that everyone is competing to pass off as much externality to his/her neighbor. These costs accumulate, and are never taken into account in modern capitalist theory.

The point is not that any individual made the "wrong" decisions, it was the fact that they made the "right" decisions that creates the problem. The decision motivated by self-interest passes off costs to others. This slow accumulating unbalance and misallocation builds over time. It finally manifests in something like this quote.
But externalities are typically created by the absence of relevant property rights. If no one owns something, people abuse it.

The trick is to find a way to eliminate common property.

edit: This also means I'm denying the relevance of pecuniary externalities.

But externalities are typically created by the absence of relevant property rights. If no one owns something, people abuse it.

The trick is to find a way to eliminate common property.

edit: This also means I'm denying the relevance of pecuniary externalities.

What is being abused by market disequilibria and externalities is not common property. This is not the "Tragedy of the Commons." The abuses are primarily directed towards less sucessful property owners, and common wage workers. Even if one were to eliminate all common property (how does one exactly go about buying something like the air? that's "common" property), the abuses would still accumulate.

I don't really see how externalities can affect common wage workers. They work for wages, to which they agreed.

As for less successful property owners, that's just the market. They're being affected by their own decisions.

I don't really see how externalities can affect common wage workers. They work for wages, to which they agreed.

As for less successful property owners, that's just the market. They're being affected by their own decisions.

Pollution is an externality. The production of luxury items involves externalities especially when basic needs of certain people are not met. Depletion of resources is an externality. Misallocation of goods is an externality. It is impossible to seperate the private aspect of goods with their social costs. Buying Nike shoes encourages the exploitation of Chinese labor, which in turn damages the wages in the US. Externalities are everywhere, and all pervasive.

Pollution is an externality.
Hence my "no more common goods" angle.
The production of luxury items involves externalities especially when basic needs of certain people are not met.
If there is money to be made meeting their needs, their needs will be met.
Depletion of resources is an externality.
Again with the common goods.
Misallocation of goods is an externality.[quote]
I still don't know what that means.
[quote]Buying Nike shoes encourages the exploitation of Chinese labor, which in turn damages the wages in the US.
That's not an externality. Plus, those are all positive outcomes.

A free market requires that some people fail. Freedom means some people will make bad decisions. If your goal is to show that some people get left out in the cold by the free market, that's not news. Nor is it a bad thing. Remember the basic tenet of laissez-faire economics - you said it yourself: "society will collectively be improved". And collectively, these things do improve it. Some people, however, do suffer.

Hence my "no more common goods" angle.

Unless you can show that the negative costs of pollution can be accurately assessed and compensated by litigation, it is both an externality and a misallocation.

If there is money to be made meeting their needs, their needs will be met.

But if there is no money to be made, or if more money can be made makeing useless things, than those who can't pay enough can just hang?

Again with the common goods.

Again with the inabilty of litigation to compensate comepletely for the costs, and thus misallocation.

I still don't know what that means.

Distribution of resources and goods away from the optimum for general welfare. Thus, if there is a ware house full of food, and people are starving in the streets, that's a misallocation. If a millionaire has a new mansion, but thousands have no homes, that's a misallocation.

That's not an externality. Plus, those are all positive outcomes.

Low wages and economic exploitation are not postive outcomes for those who have to collect those wages.

A free market requires that some people fail. Freedom means some people will make bad decisions. If your goal is to show that some people get left out in the cold by the free market, that's not news. Nor is it a bad thing. Remember the basic tenet of laissez-faire economics - you said it yourself: "society will collectively be improved". And collectively, these things do improve it. Some people, however, do suffer.

But the majority do not benefit. That's the key. The minority passes off social costs to the majority, thus we have the "invisble foot" of laissez faire.

But if there is no money to be made, or if more money can be made makeing useless things, than those who can't pay enough can just hang?
As I said, some people fail.

However, do you honestly expect that somehow the demand for luxury goods is so great that it will crowd goods like food and shelter out of the market?
Distribution of resources and goods away from the optimum for general welfare. Thus, if there is a ware house full of food, and people are starving in the streets, that's a misallocation. If a millionaire has a new mansion, but thousands have no homes, that's a misallocation.
And that's bad why?
Low wages and economic exploitation are not postive outcomes for those who have to collect those wages.
You're arguing against sweatshops now?

Sweatshops significantly improve the lives of the people working in them. Otherwise, why are those people working in them?

Exploitation is a value-neutral term. Just because cheap labour is being exploited doesn't mean those workers are being harmed. Sure, sweatshops entail long hours of hard, sometimes dangerous work for very little pay. And guess what? That's what those people's lives are like before the sweatshop arrives - that's why the sweatshop sets up business there.
But the majority do not benefit.
I think they do. Can you find data to back up your position? I'm fairly sure I can. After all, if it matters, measure it.

This comes from an objective view of the economy. In this case, the "wrong" things are things that are bought or sold that further move the market out of optimum.
Optimum ACCORDING TO WHAT STANDARD?

Optimum ACCORDING TO WHAT STANDARD?

By the standard laissez faire defintion of "market optimality." The proper distribution of goods and services. Laissez faire economics is based entirely on the concept that a free market can distribute all resources optimumly and maintain a position where if one person is better off, and none worse off, then the whole will benefit. The reality of externalities flies in the face of laissez faire theory.

I'm still waiting for the concept of "market failure" to be shown to be correct. When the market 'fails' so to speak. Usually it occurs when there is a lack of property rights or some kind of external intervention, or occasionally in relation to human failings. Examples of maket failure (some catastrophic, others minor):

Cigarette companies. (They are selling an addictive substance, which screws with that whole 'all trade is mutually beneficial" thing)
Salmon in the atlantic ocean. (Nobody owns the salmon of the atlantic ocean, so every bastard over fishes the fuck out of them before the other guy does, as per the tragedy of the commons).
The ozone layer (Nobody owns the ozone layer, so people can burn holes into it for free.

Market failure usually requires some counteractive measures by a government of some sort. Further, many instances of market failure could be solved, but as you know, governments aren't into that whole 'solutions' game. Some people contest that market failure is inherent within the capitalist freemarket, other profess that the capitalist freemarket is perfect on paper, and market failure is a consequence of imprroper application, or human flaws. I am a part of the latter group personally, but I am currently re-evaluating as I study economics at uni.

Cigarette companies. (They are selling an addictive substance, which screws with that whole 'all trade is mutually beneficial" thing)
If the consumers are buying the product, then the exchange must be mutually beneficial.
Salmon in the atlantic ocean. (Nobody owns the salmon of the atlantic ocean, so every bastard over fishes the fuck out of them before the other guy does, as per the tragedy of the commons).
And we should be able to fix that by eliminating common goods. This is also why the Canadian Navy keeps shooting at Spanish and Portuguese fishing boats.

By the standard laissez faire defintion of "market optimality." The proper distribution of goods and services.
But what is proper? Hint: by definition, whatever is a proper definition of goods and services in laissez faire is that which is done by consent.


Laissez faire economics is based entirely on the concept that a free market can distribute all resources optimumly and maintain a position where if one person is better off, and none worse off, then the whole will benefit. The reality of externalities flies in the face of laissez faire theory.
That's pareto optimal. And the reality of externalities (that is that my actions can have consequences) is just a fact of reality, and does not fly in the face of laissez-faire unless you believe in the Platonic Forms.

When the market 'fails' so to speak. Usually it occurs when there is a lack of property rights or some kind of external intervention, or occasionally in relation to human failings. Examples of maket failure (some catastrophic, others minor):
The lack of property rights, in most cases, is due to governments claiming certain things are out of the realm of private ownership.


Cigarette companies. (They are selling an addictive substance, which screws with that whole 'all trade is mutually beneficial" thing)
But it is mutually beneficial. The people who purchase them derive some satisfaction from their use.


Salmon in the atlantic ocean. (Nobody owns the salmon of the atlantic ocean, so every bastard over fishes the fuck out of them before the other guy does, as per the tragedy of the commons).
Which again goes to the fact that the world's governments have declared the oceans to be common property.


The ozone layer (Nobody owns the ozone layer, so people can burn holes into it for free.
As above.


Market failure usually requires some counteractive measures by a government of some sort.
It was (if there were to be such a thing) usually actions by the government which caused it in the first place.


Further, many instances of market failure could be solved, but as you know, governments aren't into that whole 'solutions' game. Some people contest that market failure is inherent within the capitalist freemarket, other profess that the capitalist freemarket is perfect on paper, and market failure is a consequence of imprroper application, or human flaws. I am a part of the latter group personally, but I am currently re-evaluating as I study economics at uni.
I simply deny that there is such a thing as market failure. It's a concept used to either expand the powers of government or to deny property rights.

If the consumers are buying the product, then the exchange must be mutually beneficial. Indeed, however the fact that the product is chemically addictive perverts that edict by the taking advantage of our human weaknesses. This is in part why I think that anarcho-capitalism could not be achieved with stability until well after the post-humanism movement had succeeded.

And we should be able to fix that by eliminating common goods. This is also why the Canadian Navy keeps shooting at Spanish and Portuguese fishing boats. Correct. As I said, some of these problems have easy solutions. Though, the best solution is to have someone who actually owns the fish in the water, or the ocean itself. That way they can actually sell access to their resource to fishers, and you have someone whose economic interest laay in conserving the natural resources of the designated area of ocean.

Indeed, however the fact that the product is chemically addictive perverts that edict by the taking advantage of our human weaknesses. This is in part why I think that anarcho-capitalism could not be achieved with stability until well after the post-humanism movement had succeeded.
Human weakness is no excuse for irrational behaviour.

By smoking you choose to risk addiction. Any consequence is therefore your own fault.

The lack of property rights, in most cases, is due to governments claiming certain things are out of the realm of private ownership. Right. Realistically, the system should work if everything has an owner.



But it is mutually beneficial. The people who purchase them derive some satisfaction from their use.
Yes they do, however that is not why they buy them, they buy them because they are addicted, they have to. Furthermore, this addiction creates an artificial inelasticity of demand, which further empowers the cigarette company's strangle hold on their market. Governments too, mind you, no sane government doesn't have a 500% tax on cigarettes. If they started selling cigarettes for $50 a pack tomorrow demand might go down by 2%. It is unnatural, and it is bad for the economy. It is the perfect example of market failure.


Which again goes to the fact that the world's governments have declared the oceans to be common property. Right, which is stupid. If I can buy areas of land, why can't I buy areas/volumes of water?


It was (if there were to be such a thing) usually actions by the government which caused it in the first place. Often, yes. Not always.


I simply deny that there is such a thing as market failure. It's a concept used to either expand the powers of government or to deny property rights.Ok, well feel free to deny it. Market failure exists. It happens. Sometimes it is caused by governments, sometimes it isn't. Sometimes a government can fix it, sometimes they don't, sometimes that can't fix it, and sometimes they do. Usually it is used as you said, to expand government powers to treat the symptoms of the said market failure. Not because of some evil agenda (IMO), but rather stupidity (or greater politician loyalty to votes than solutions. Same thing anyhow).

Human weakness is no excuse for irrational behaviour.

By smoking you choose to risk addiction. Any consequence is therefore your own fault.

Yes yes, I can see the moralistic/ethical arguement, however, the mjorit of people are stupid. However we still need them to run the economy for us. So whilst it is indeed their own fault they are getting exploited, we really can't allow them to be exploited. Not for their sake (stuff them, they are getting what they asked for), but for the economy. It is economically unnatural and most detrimental to allow the hegemony of cigarette companies to exist. Unfortunately, the capitalist formual did not take into consideration the details of human biology, and that is why we have this problem.

Who decides what the wrong thing is?

In a free market, it's not possible to spend money on the wrong thing unless you've been defrauded. You decide what to buy, and you cannot buy something you don't want to buy unless you've been lied to about what it is you're buying.
The wrong thing might be the thing I buy where the thing I want (the right thing) isnt actually available.
It might be the thing I buy not because I was defrauded but because I lack the knowledge to know what the right thing to buy is.

The wrong thing might be the thing I buy where the thing I want (the right thing) isnt actually available.
It might be the thing I buy not because I was defrauded but because I lack the knowledge to know what the right thing to buy is.
That's not market failure; that's consumer failure. That's not something that needs fixing.

Yes yes, I can see the moralistic/ethical arguement, however, the mjorit of people are stupid. However we still need them to run the economy for us. So whilst it is indeed their own fault they are getting exploited, we really can't allow them to be exploited. Not for their sake (stuff them, they are getting what they asked for), but for the economy. It is economically unnatural and most detrimental to allow the hegemony of cigarette companies to exist. Unfortunately, the capitalist formual did not take into consideration the details of human biology, and that is why we have this problem.
I can't believe someone just said I was taking a "moralistic/ethical" position. I don't even believe in morality.

The majority of people are stupid, but if we're going to respect individual freedom then stupid people have to be free to make stupid decisions.

I can't believe someone just said I was taking a "moralistic/ethical" position. I don't even believe in morality.

The majority of people are stupid, but if we're going to respect individual freedom then stupid people have to be free to make stupid decisions.Right. Thats why we don't go after their right to buy the cigarettes, rather than the corporations right to sell them. Otherwise, the entire platform upon which property rights and individual freedoms is built upon will be undermined by a loophole.
Remember, the cigarette companies are smart and legit. They are doing exactly what a company should be doing. However, there is an inconsistancy in the playing field. The cigarette companies are selling a product to which consumers are chemically addicted. This fucks with nearly ever edict of the free market.

That being said. Whilst I consider the peddling of addictive substances bad for the economy, I agree with you in that I am not sure how one does anything about it. What we have is a loophole in the freemarket (based upon a human biological vulnerablity). We can't expect capitalist entities to behave in a manner (which some may consider 'moral') if it strays from the most economically efficient path. Furthermore, the nature of the problem of itself lies in the artificially high inelastic demand. This present problems of it's own in the approach of the problem in that with such a high inelastic demand, simply taking cigarettes of the market would result in a highly resliant blackmarket, for certain.

What needs to be done in theory is you have to make it profitable for the cigarette corporations to not sell addictive substances, and you have to kill the crystalised inelastic demand for cigarettes. Meanwhile, you have to respect all of the freedoms (civli and economic) that make the freemarket what it is.

Basically, in my opinion, it can't be done. There is nothing to be done other than pointing at the loophole and whining (which, as you can see, I make every effort to do). I think we just have to wait for transhumanism to roll around. That'll solve several problems related to the market...

I can't believe someone just said I was taking a "moralistic/ethical" position. I don't even believe in morality.


Just on a side note. I believe morality exists, just as much as humour does. The two are quite similar, actually. However, I always maintain, if people took morality as seriously as the took humour, and took humour as seriously as they did morality, this place would be a lot more enjoyable for all.

That's not market failure; that's consumer failure. That's not something that needs fixing.
The failure of the market to provide a good or service desired by consumers is not consumer failure.

The "failure" of consumers to have perfect knowledge is both necessary and desirable. It's necessary because no human is capable of perfect knowledge, it is desirable because anything else is inefficient to the point of absurdity.

If every consumer were to educate themselves on every possible medical proceedure they might need, we wouldnt need specialists known as doctors (everyone could do what doctors do given the perfect knowledge of all things medical), if everyone had perfect knowledge about their computers and software, IT specialists would be out of work. Further the acquisition of such vast quantities of knowledge is a hugely wasteful use of resources (hence one of the major attractions of specialisation).

Specialisation is an important aspect of free market philosophy, as is increased efficiency. However, increase in efficiency realised through specialisation leads to a decrease in consumer knowledge (relative to goods and services available for consumption) which leads to what you call 'consumer failure'.

Given the failure is an inevitable result of the processes of a free market, it is as much a 'free market system' failure as it is a consumer failure.

Calling it a consumer failure doesnt equate to proving it isnt a market failure, remember consumers are an important part of the market. To suggest that consumer failings that are inevitable under a particular kind of market are not market failures is akin to suggesting that a head casket failure inevitable within a particular kind of motor isnt a motor-failure.

Sufficient knowledge to buy a computer is less than sufficient knowledge to design a computer.

But there is some threshhold of sufficient knowledge to buy a computer that consumers must meet in order to make good decisions.

Sufficient knowledge to buy a computer is less than sufficient knowledge to design a computer.
What arbitary amount of knowledge is the "correct amount" or more importantly the "most efficient amount"?

But there is some threshhold of sufficient knowledge to buy a computer that consumers must meet in order to make good decisions.
And what is that threshhold, and how do people know what that threshhold is? The retailers often dont have a clue themselves - I've had two retail workers in the same store give me entirely contrary statements about the same computer, neither of which actually turned out to be true I might add.

Write ups in various media are quite often the result of cooperative relationships between the publisher and the producer and are not necessarily free from bias. Further they tend to concentrate on already well-known brands. The actual 'best products' available dont necessarily even get a rating.

Friends and family often give conflicting advice, retailers are often clueless, and media can't be trusted to be giving a full or even a bias-free account. So how is the novis computer buyer to know which advice to take, whose information to believe, and how much of that information it is efficient to acquire?

It's not as simple as going to a reliable unbiased source of information, figuring out who is a reliable unbaised source of information is a challenge in itself. This doesnt just refer to computers of course. There is a heap of information out there, but only so much of it is sound and the more there is to sift through, the less efficient it is to acquire the information.

Even before things reach the point where knowing next to nothing and going on chance or popular fashion is as efficient as researching to any degree, inefficiency is being generated. According to free-market tennets the generation of inefficiency is itself a market failure.

That's not market failure; that's consumer failure. That's not something that needs fixing.

So now you've resorted to blaming every consumer for being human and thus wrecking the efficiency of your precious market machine?

The point remains that the very fundamental paradigm of the market system-rational self interest- does not create a net benefit for society if everyone follows rational self-interest. What it does is that it allows some group, by luck or ruthlessness, to pass of the costs of production and exchange to others. These negative costs outweigh the positive benefits rational self interest affords the "victors" if you will.

Laissez faire is fundamentally based on Pareto optimality. Its whole basis is based on the promotion of the general welfare by rational self interest. This is a deeply flawed position however, because rational self-interest hampers the general welfare, rather than promoting it. The negative externalities are inevitably greater than the amount of benefit that property owners reap. Thus, laissez faire violates even its own flawed utilitarian creed, by promoting the general social misery via E.K. Hunt's "invisible foot", which overbalance's Adam Smith's "invisible hand."

Yes they do, however that is not why they buy them, they buy them because they are addicted, they have to.
Some people are addicted to coffee. Does that mean that Starbucks is taking advantage of people? No.


Furthermore, this addiction creates an artificial inelasticity of demand, which further empowers the cigarette company's strangle hold on their market. Governments too, mind you, no sane government doesn't have a 500% tax on cigarettes. If they started selling cigarettes for $50 a pack tomorrow demand might go down by 2%. It is unnatural, and it is bad for the economy. It is the perfect example of market failure.
Actually, it's not. There is absolutely no way that this could be construed as "market failure". Each party is getting something that is desired. That one party is committing slow suicide does not factor in at all. Might as well then say that breweries are in the same boat, helping people to commit slow suicide. But we don't, because we know that while there are addicts (alcoholics), it was all done by choice.



Ok, well feel free to deny it. Market failure exists. It happens.
I've yet to see one shred of evidence or proof that it happens.

*snip*
I'm not going to keep argueing this point by point with you any further as you seem to be forming a habit of meeting my arguements with assertions, and reverting to 'arguementum ad nauseum'. Thats ok, you seem to have something you want to believe in, for whatever reasons you have. If you want an example of market failure it can be found clearly and concisely explained in any of my above posts (or an economics textbook, if you prefer). If however you would prefer to remain in denial, you are most welcome.

In the unlikely situation that you genuinely do not understand the definition of market failure, I apologise if I made you out to be stubborn. You should be able to find a longer, more learning based approach to understanding market failure on wikibooks, or even wikipedia.

What arbitary amount of knowledge is the "correct amount" or more importantly the "most efficient amount"?
You tell me.

You're comparing the efficiency of the free market to the efficiency of some unattainable perfectly efficient system where all the experts are perfectly trustworthy and we all have perfect knowledge of who they are.

But we don't. If you don't want to get ripped off, learn enough about whatever you're buying to avoid it. That's not inefficient; that's necessary.
And what is that threshhold, and how do people know what that threshhold is?
Does it matter?
The retailers often dont have a clue themselves - I've had two retail workers in the same store give me entirely contrary statements about the same computer, neither of which actually turned out to be true I might add.
Thus proving that perfect efficiency is unattainable.

You tell me.
Why would I make your argument for you? You claim no market failure, you ignore one market failure and try to dress another up as consumer failure then try to have me argue how to address the failure so it's not a failure, for you...:confused:

You're comparing the efficiency of the free market to the efficiency of some unattainable perfectly efficient system where all the experts are perfectly trustworthy and we all have perfect knowledge of who they are.
No, I'm not. I'm not comparing the efficiency of the free market to anything whatsoever.

I'm looking at only one system, you can argue that 'there is no better system I know' if you choose, but that is an entirely different arguement to 'there is no market failure in this particular system'. You were arguing the latter, the earlier does not suffice to prove the latter.

But we don't. If you don't want to get ripped off, learn enough about whatever you're buying to avoid it. That's not inefficient; that's necessary.
Whether or not it is inefficient cannot be determined without the actual values involved. That you suggest that we can know whether or not X is or isnt efficient without knowing the costs and benefits of X suggests that you are not qualified to comment on the issue. To be able to comment usefully you first need to understand that the efficiency of any action is determined by a cost to benefit ratio. If you understand that, how do you explain the clearly incorrect comment "that's not inefficient; that's necessary" as applied to a case in which neither cost nor benefit value is known?

It is a matter of fact that at some point the time spent researching a product can supercede the benefit of ensuring you are 'not getting ripped off' when making the purchass. That fact follows from (ie is a necessary implication of) the facts 'time is a resource and spending it is a cost' and 'the cost of goods or services being purchased is finite'.

Does it matter?
Yes it does matter a great deal. If you dont comprehend how and why, then your understanding of the issue isnt sufficient to enable useful commentary on your part.

Thus proving that perfect efficiency is unattainable.
Thus proving no such thing. What is proved is that the market is not able to secure optimal efficiency in every case where it operates unrestrained, and since the founding tennet of free market ideology is that the market left unrestrained will achieve optimal efficiency, we can easily discern that free market ideology is unsound.

Why would I make your argument for you? You claim no market failure, you ignore one market failure and try to dress another up as consumer failure then try to have me argue how to address the failure so it's not a failure, for you...:confused:
It's not market failure because that's how the market is supposed to work.
What is proved is that the market is not able to secure optimal efficiency in every case where it operates unrestrained, and since the founding tennet of free market ideology is that the market left unrestrained will achieve optimal efficiency, we can easily discern that free market ideology is unsound.
You haven't shown that at all. The optimal level of inefficiency is not zero.

It's not market failure because that's how the market is supposed to work.
No it isnt, in fact not only is it not an integral aspect of how the market should work, it is contrary to how the market should work. To suggest that the market works by not making available the goods people want to buy is just too wack...which drugs are you on exactly?

You haven't shown that at all.
Yes I have...I'd like to compliment you on your ability to at least present some kind of argumentation (sound or otherwise) to back up your assertions, but you've headed me off at the pass on that one. :rolleyes:

The optimal level of inefficiency is not zero.
Hahahaha....too precious!:D


Get me back to me when you feel capable of discussing the matter in a productive manner. You know a productive discussion - it's that thing where people offer supporting arguments for what they say rather than blithely making assertions they are apparently not able to back up.:rolleyes:

I'm not going to keep argueing this point by point with you any further as you seem to be forming a habit of meeting my arguements with assertions,
You haven't provided a valid argument.

I do understand the "definition" of market failure. I reject it because it's simply not valid for the reasons I've shown. Period.

Hahahaha....too precious!:D
I don't understand why that's funny. The optimal level of inefficiency isn't zero. The optimal level of suffering in the world isn't zero. The optimal level of terrorism isn't zero.

At some point reducing inefficiency further becomes counter-productive - that point is the optimal level.

I'm not the one making wild claims, here. You're the one who insists that it's somehow possible to produce a more efficient economic system. I can't support negative claims, but you need to support your positive claims in order for them to be persuasive.

Hahahaha....too precious!:D


Get me back to me when you feel capable of discussing the matter in a productive manner. You know a productive discussion - it's that thing where people offer supporting arguments for what they say rather than blithely making assertions they are apparently not able to back up.:rolleyes:
The entire argument against market failure rests upon the fact that market failure does not exist due to the imperfections of the world and that the market, as opposed to being the source of error, rather tries to fix these problems of imperfect information and of disequillibrium through the market process.

I don't understand why that's funny.
Which only provides further amusement. Of course the optimal amount of inefficiency is zero!

The optimal level of inefficiency isn't zero.
Hurrah for unsupported assertions, especially obviously false ones.

The optimal level of suffering in the world isn't zero. The optimal level of terrorism isn't zero.
Some people would argue otherwise; even if they were wrong so long as they argued rather than merely made unsupported assertions, they'd still be up on you.

At some point reducing inefficiency further becomes counter-productive - that point is the optimal level.
Er, no.

I'm not the one making wild claims, here.
Oh yes you are.

You're the one who insists that it's somehow possible to produce a more efficient economic system.
Nice wild claim, but no I'm not.

I have not made such a claim anywhere in this thread or on this forum. Being realistic and honest about the flaws of a system is not the same as insisting that it's somehow possible to produce a better or more efficient system - economic or otherwise.

If the best 'defence' you can come up with for the system you advocate is wild accusatory claims about what others are claiming, I can only conclude the flaws in the system you advocate have got you beat.

The system is what it is, flaws and all. If you cannot face those flaws, cannot even admit them to yourself, then what you are supporting isnt that system at all, it's some far-fetched fantasy that happens to resemble the system.

Whether or not there is a better system doesnt make the system at issue more or less flawed. "Is free-market ideology flawed?" and "is there a better economic system than free-market ideology?" are two entirely different questions. There is no reason why the answer to the latter cannot be "no' at the same time that the answer to the earlier is "yes".

I can't support negative claims,
Nor even the positive claims you've made apparently....

but you need to support your positive claims in order for them to be persuasive.
I've supported my claims, you choose to cut and paste and only address portions of my comments, that's if you can describe making unsupported assertions and blatently false accusations as 'addressing' something.

The entire argument against market failure rests upon the fact that market failure does not exist due to the imperfections of the world and that the market, as opposed to being the source of error, rather tries to fix these problems of imperfect information and of disequillibrium through the market process.
Yeah, that's the argument. If only that bitch those of us in the know call reality would conform to the theory, everything would be hunky dory.

One market process people ought to be familiar with is the cooperative relationship that forms between media publishers and businesses/companies that advertise in the media. What effect do you think the multi-million dollar advertising account Microsoft has with publisher X has on reviews of software that appear in publisher X's publications?

Another market process is the drive to reduce costs. Training workers is a cost. What effect might this have on the training and therefore knowledge base of retail workers who are supposed to give consumers advice about the products they are selling?

Market processes in the above two cases do nothing to address imperfect information, in fact quite the contrary.

Yeah, that's the argument. If only that bitch those of us in the know call reality would conform to the theory, everything would be hunky dory.

One market process people ought to be familiar with is the cooperative relationship that forms between media publishers and businesses/companies that advertise in the media. What effect do you think the multi-million dollar advertising account Microsoft has with publisher X has on reviews of software that appear in publisher X's publications?

Another market process is the drive to reduce costs. Training workers is a cost. What effect might this have on the training and therefore knowledge base of retail workers who are supposed to give consumers advice about the products they are selling?

Market processes in the above two cases do nothing to address imperfect information, in fact quite the contrary.
Reality and theory are not too far off when dealing with this though, and markets offer a better solution than other systems, other than omniscient beings deciding optimal organization of course.

Yes, and if people are not satisfied with that information they can easily turn to other sources. In many cases one can get this type of information from the internet and from people who might know something and other sources not affiliated with corporations. Bad information is not completely indistinguishable from good information and sources that habitually give out bad information tend to become distrusted while sources that habitually give out good information tend to become trusted and markets are better at dealing with this than others as people have an interest in getting good information as opposed to government officials and other groups.

Right, and that is because knowledgeable employees are not something worth the effort. Profit-seeking works because in the long run people recognize who gives them what they want and who gives them crap. Perhaps the reason why it is tolerable that these employees are poorly informed is because the people who care about good information recognize that it is a lot better to get information elsewhere and work off of that, and the people that don't care so much are willing to deal with the greater risk of paying more for a product that isn't as good. It is simply a trade-off.

Market processes tend to be the ideal way to deal with information, as even though it is difficult to sort out good info from bad info, that problem exists with everything dealing with information. At the very least with market processes, those who fail consumers lose them.

The entire argument against market failure rests upon the fact that market failure does not exist due to the imperfections of the world and that the market, as opposed to being the source of error, rather tries to fix these problems of imperfect information and of disequillibrium through the market process.

Even markets given perfect preconditions will not produce optimum results. Markets are inherently flawed. Even assuming perfect competion, perfect information and no outside intervention, market's will still fundamentally imbalance.

The system of the market is inherently imbalanced because of the means of passing off externalities to others. Even with its perfect preconditions, a market will inevitably stray from its flawed utilitarian paradigm, as each person promotes their rational self interest at the cost of the greater social misery. Social costs are passed among the great majority of people. Thus while some are better off, most are worst off. Face it. Market failure is pervasive and unavoidable.

Which only provides further amusement. Of course the optimal amount of inefficiency is zero!
You're clearly using some strange definition of optimal of which I'm unaware.

The optimal amount is the most favourable or desirable amount. If reducing the amount of inefficiency beyond a certain point creates negative side effects which overcome the value of the reduced inefficiency, then you've identified the optimal amount of inefficiency as being greater than zero.

Optimal is not some sort of platonic ideal.
Nice wild claim, but no I'm not.

I have not made such a claim anywhere in this thread or on this forum. Being realistic and honest about the flaws of a system is not the same as insisting that it's somehow possible to produce a better or more efficient system - economic or otherwise.
If the optimal level isn't zero, that's exactly what you're claiming (forgive me for treating you like you knew what the word meant). If the free market fails to achieve the optimal level of efficiency, then clearly there is some other achievable level of efficiency that is optimal.
The system is what it is, flaws and all. If you cannot face those flaws, cannot even admit them to yourself, then what you are supporting isnt that system at all, it's some far-fetched fantasy that happens to resemble the system.
But they're not flaws. If the system claims to achieve the optimal level of efficiency, that can only be shown to be false if the system fails to achieve optimal efficiency, but the optimal level and the theoretical ideal are different things.

Reality and theory are not too far off when dealing with this though,
There are numerous examples from the real world that demonstrate otherwise.

and markets offer a better solution than other systems, other than omniscient beings deciding optimal organization of course.
That may be true, or perhaps it isnt. I suggest we cannot determine the truth of your statement so long as we refuse to consider the system at issue objectively. That means being honest about its flaws.

Yes, and if people are not satisfied with that information they can easily turn to other sources.
No they cannot necessarily turn to other sources. Further how are people to know that the information isnt satisfactory? How are people to be certain that article X is biased, or that retail clerk Y is incompetent?

In many cases one can get this type of information from the internet and from people who might know something and other sources not affiliated with corporations.
This is not the case where a person is a novice computer buyer who has no previous internet experiance and further is not able to differentiate between nutty ranter Y, knowledgable blogger X and biased internet publisher Z. How is the novice to know who is knowledgable amongst there acquaintances? As I discussed earlier in the thread, when one gets contrary advice from various retail clerks (in the same store) from various media and from various family and friends, they really have no way of knowing whose information is correct.

Bad information is not completely indistinguishable from good information
Correction, not all bad information is necessarily completely indistinguishable from all good information, however, not all bad information is necessarily completely distinguishable from good information either.

and sources that habitually give out bad information tend to become distrusted while sources that habitually give out good information tend to become trusted
That isnt necessarily the case. It's not necessarily true that people know a particular source of information is a bad source or an incomplete source or a bias source. Further how many consumers have to suffer before it can be known in those cases where it does become known?
The fact is there are only so many sources out there. When it comes to published media, consumers have no way of knowing if the information is biased by cooperative relations between the publisher and a particular goods and service provider. They have no way of knowing which of the contrary advice given by friends and family is correct, nor which of the retail clerks (if any) have got their act together. How are consumers to know that the information source is poor rather than the problem lying with their operation of a product (particularly as concern with computers where the computer manufacturer can blame the software producer who likes to blame the internet provider who in turn passes the buck onto the computer producer)? The fact is even once it becomes clear that something isnt working, one doesnt always know who to blame, much less whose information led them into striking up a trade relationship with the party at fault.


and markets are better at dealing with this than others as people have an interest in getting good information as opposed to government officials and other groups.
Except you forget to account for the fact that one of the groups who can be opposed to consumers have robust information are the providers of goods and services who often are in a position to muddy the waters better than any government could.

Right, and that is because knowledgeable employees are not something worth the effort.
Which again leads us to an example of market failure. People will go with the price tag without considering the long-term effects. By the time everyone realises that the 10% saving on their computer goods means they cant get an accurate answer about anything from their computer retail clerks, it's too late. By the time the consequences become apparent all the computer stores have had to cut back on training to remain competitive and no one is willing to take the risk of changing things back even though consumers might wish they would.

Profit-seeking works because in the long run people recognize who gives them what they want and who gives them crap.
I dont see that as being evident out in the real world. In fact many market studies have shown that complacency will prevent consumers changing banks even when they are highly dissatisfied. Frankly any objective look at human behaviour indicates to me that 'in the long run' people dont give a great deal of consideration to the 'long run'. In fact most unintended consequences are not entirely unpredictable, people just didnt bother to think ahead in order to predict them because people are not 'long run' thinkers.

The reason why it is tolerable that these employees are poorly informed is because the people who care about good information recognize that it is a lot better to get information elsewhere and work off of that,
I disagree. I know plenty of people who complain that they cannot get good accurate information about computer goods for instance.
The reason why it occurs is because some businesses saw a way to cut costs for their consumers. Consumers saw the lower prices and didnt realise that this came with the cost of poor service, or failed to adequately understand the cost of that poor service. Other businesses were faced with the choice of going out of business or making similar cuts. By the time the cost was realised by consumers, it was too late.

and the people that don't care so much are willing to deal with the greater risk of paying more for a product that isn't as good. It is simply a trade-off.
It isnt that simple. People are notoriously short-sighted and notorious for failing to ascertain the consequences of their own and others' actions. When people go to a store to buy a product the price label doesnt list costs such as 'poor service'.

Market processes tend to be the ideal way to deal with information, as even though it is difficult to sort out good info from bad info, that problem exists with everything dealing with information.
That argument is utterly unsound. The fact that problems exist with information dissemination and acquisition, does not necessitate that market processes are the ideal way to deal with information.

At the very least with market processes, those who fail consumers lose them.
Not necessarily.

Even markets given perfect preconditions will not produce optimum results. Markets are inherently flawed. Even assuming perfect competion, perfect information and no outside intervention, market's will still fundamentally imbalance.

The system of the market is inherently imbalanced because of the means of passing off externalities to others. Even with its perfect preconditions, a market will inevitably stray from its flawed utilitarian paradigm, as each person promotes their rational self interest at the cost of the greater social misery. Social costs are passed among the great majority of people. Thus while some are better off, most are worst off. Face it. Market failure is pervasive and unavoidable.
I am not somebody who denies the existence of externalities, and ultimately I think that damage to others and their property rights should be dealt with as that is an externality, however, that is something that most people agree to and something that most market theorists try to work with. However, much of what you called externalities AREN'T externalities as you claim that individuals are harmed by certain transactions simply because they are not involved in them. Nobody is hurt by the production of a luxury good if they aren't involved with it anyway and nobody is hurt by the loss of a resource they never had access to in the first place. Markets succeed, and that is because every individual seeks their own gains and manages their own part of the economy in order to make things work and this whole claim of costs being passed along can only work with an imperfect property structure as otherwise there is no way for people to pass onto you a cost you don't want.

You're clearly using some strange definition of optimal of which I'm unaware.
It's not impossible, although my first guess was that the word you failed to comprehend was 'inefficiency'.

The optimal amount is the most favourable or desirable amount.
Ok, then I'll return to my first guess - that you fail to comprehend inefficiency.

If reducing the amount of inefficiency beyond a certain point creates negative side effects which overcome the value of the reduced inefficiency, then you've identified the optimal amount of inefficiency as being greater than zero.
Really? Other than a failure to gain the greatest benefit per cost (ie inefficiency), what exactly would be a negative effect in this context? :confused:

Optimal is not some sort of platonic ideal.
Neither is my left-foot. We now return you to the subject at hand (or foot as the case may be).

If the optimal level isn't zero, that's exactly what you're claiming (forgive me for treating you like you knew what the word meant).
No it is not what I am claiming at all.

If the free market fails to achieve the optimal level of efficiency, then clearly there is some other achievable level of efficiency that is optimal.
I would expect that might be so.
It is necessary, however, to understand under what circumstances (if any) free markets achieve optimal efficiency. To do that we need to know how and why a free market might generate or facilitate inefficiency and whether or not the nett result is an optimisation of efficiency. That cannot be done so long as people refuse to ignore the flaws and faults that characterise the operation of free markets.

But they're not flaws.
Of course they are flaws. The free market is premised on claims that are in at least some cases simply not true. If inefficiency is generated in some cases, the only way to determine if the free-market generates nett inefficiency (ie is less efficient than some alternative), is to first objectively evaluate the flaws and inefficiencies that characterise free markets. It is highly unconvincing to pretend that the flaws dont exist. If the system is so much better than any alternative, then admitting its flaws wont change that. What it will do is increase the credibility of those advocating it.

If the system claims to achieve the optimal level of efficiency, that can only be shown to be false if the system fails to achieve optimal efficiency, but the optimal level and the theoretical ideal are different things.
Actually if the system's advocates claim the system achieves anything, this need not be shown as false, rather the onus is on its advocates to demonstrate that the claims they make are true.

I am not somebody who denies the existence of externalities, and ultimately I think that damage to others and their property rights should be dealt with as that is an externality, however, that is something that most people agree to and something that most market theorists try to work with. However, much of what you called externalities AREN'T externalities as you claim that individuals are harmed by certain transactions simply because they are not involved in them. Nobody is hurt by the production of a luxury good if they aren't involved with it anyway and nobody is hurt by the loss of a resource they never had access to in the first place. Markets succeed, and that is because every individual seeks their own gains and manages their own part of the economy in order to make things work and this whole claim of costs being passed along can only work with an imperfect property structure as otherwise there is no way for people to pass onto you a cost you don't want.

Economists E.K. Hunt and Robin Hahnel disagree with you, as do I.

Markets do not succeed even under perfect preconditions. This is why.

Here, we formalize the only conclusion we require from the previous section and reformulate it as a theorem in a slightly unusual form that will be useful in the analysis that follows.

Market institutions have an inherent tendency to provide a relative overabundance of private goods compared to public goods. More exactly, markets can be expected to allocate too much of society's scarce productive resources to the production of private goods, goods with negative external effects, and public "bads," and too little of society's resources to the production of public goods and goods with positive external effects, resulting in a relative oversupply of the former kinds of goods and relative undersupply of the latter.

The usual way of seeing this is to note that social efficiency requires that output of every good be such that the marginal social cost of production be equal to its marginal social benefit. In private goods the marginal social benefit is simply the additional benefit enjoyed by a single purchaser. But for public goods the marginal social benefit incorporates the benefits enjoyed by everyone when the supply is expanded by one unit. Because free markets, even in conjunction with voluntary associations, are unable to overcome the free-rider problem, the effective demand expressed for public goods underestimates the true marginal social benefits.

Albert & Hahnel, A Quiet Revolution in Welfare Economics (Princeton, NJ: Princeton University Press, 1990), 7.8 - An Imperfection Theorem.

Furthermore, allocations in market systems, even granting optimum preconditions, are increasingly non-optimal. This is why.

We are finally ready to combine results here with results from chapter 6. The insight that markets overcharge purchasers of goods with positive external effects and consequently misallocate resources should not surprise traditional theorists. The claim that this is general, rather than occasional, is more novel. But there is reason to believe the situation is worse.
In chapter 5 we argued preferences are endogenous to economic systems, and in chapter 6 we explained that people can be expected to orient their future needs toward goods and activities that will be relatively easy to obtain and away from goods and activities that will be hard to obtain. We proved Theorem 6.6, establishing that if there is a bias in the conditions of supply of a good or activity, the resulting degree of nonoptimality in the economy will be greater than indicated by a traditional welfare theory that treats preferences as exogenous, and that the divergence will "snowball," or grow, over time. In Theorem 6.7 we demonstrated that "rational" people can be expected to influence their own development in a direction that mirrors any bias in the conditions of supply, or that individual rationality dictates a kind of "self-warping" in response to biases in the functioning of economic systems. And in Theorem 6.8 we demonstrated that any such biases will tend to be disguised to the economy's inhabitants to the extent that their "rational self-warping" is unconscious or forgotten after the fact. We have just reformulated a well-known theorem regarding public goods and externalities as our Theorem 7.1 that markets generate a bias in conditions of supply for goods with external effects.

But the sum of these theorems implies that if people have reason to believe that markets will be used as allocative institutions in the future, they also have reason to expect a bias in the conditions of future supply of goods with external effects. Combining yields the following result:

THEOREM 7.2: SNOWBALLING NONOPTIMALITY OF MARKET ALLOCATIONs. Not only will markets misallocate resources in some initial time period-undersupplying goods with greater than average positive external effects as compared to goods with less than average positive external effects-but there will be a cumulative divergence away from optimal allocations in future time periods as individuals "rationally" adjust their personal characteristics to diminish their needs for goods with positive external effects and expand their needs for goods with few external effects and negative external effects.

Albert & Hahnel, A Quiet Revolution in Welfare Economics (Princeton, NJ: Princeton University Press, 1990), 7.9 - Snowballing Nonoptimality.

What this all adds up to is one thing: the failure of a free market to obtain an optimum allocation of goods and services.

There are numerous examples from the real world that demonstrate otherwise. I would say that there aren't


That may be true, or perhaps it isnt. I suggest we cannot determine the truth of your statement so long as we refuse to consider the system at issue objectively. That means being honest about its flaws. I am honest about the flaws of the market, it is just that others are dishonest about the strengths.

No they cannot necessarily turn to other sources. Further how are people to know that the information isnt satisfactory? How are people to be certain that article X is biased, or that retail clerk Y is incompetent? Yes they can, there is usually not one source of information on anything. Also, information that is bad will be contradicted by other information or it will be shown by bad results. Individuals will then learn from trial and error or from their efforts to understand the best choice which one is actually the best.

This is not the case where a person is a novice computer buyer who has no previous internet experiance and further is not able to differentiate between nutty ranter Y, knowledgable blogger X and biased internet publisher Z. How is the novice to know who is knowledgable amongst there acquaintances? As I discussed earlier in the thread, when one gets contrary advice from various retail clerks (in the same store) from various media and from various family and friends, they really have no way of knowing whose information is correct. People learn, he can try to get on the internet, he can ask about what is best and although he might stumble at first he will find out what he needs to know. It is most likely that he can find out something from somewhere that will put him on the right track to finding a decent computer.

Correction, not all bad information is necessarily completely indistinguishable from all good information, however, not all bad information is necessarily completely distinguishable from good information either. Yes, it tends to be. Bad information leads to bad results, good information leads to good results.

That isnt necessarily the case. It's not necessarily true that people know a particular source of information is a bad source or an incomplete source or a bias source. Further how many consumers have to suffer before it can be known in those cases where it does become known?
The fact is there are only so many sources out there. When it comes to published media, consumers have no way of knowing if the information is biased by cooperative relations between the publisher and a particular goods and service provider. They have no way of knowing which of the contrary advice given by friends and family is correct, nor which of the retail clerks (if any) have got their act together. How are consumers to know that the information source is poor rather than the problem lying with their operation of a product (particularly as concern with computers where the computer manufacturer can blame the software producer who likes to blame the internet provider who in turn passes the buck onto the computer producer)? The fact is even once it becomes clear that something isnt working, one doesnt always know who to blame, much less whose information led them into striking up a trade relationship with the party at fault.
It tends to be true, good sources tend to have good records when it comes to their predictions and bad sources have worse records, as well, good sources are usually good because they want to provide good information. If there is no way to determine what is good information and what is bad information then there is no way to deal with this information problem in the first place. On the question on the number of consumers, that is difficult to ascertain as typically for any information to get out on anything there has to be feedback and feedback is reports on an issue. Like I said earlier, nobody can deal with this error of information, all that market processes can do is try to lead people to good sources, not magically find out what is true and what is untrue, nothing can do that and markets should not be blamed for the lack of good information, however, usually if there is something bad a better case can be ascertained by going to a good source.

Except you forget to account for the fact that one of the groups who can be opposed to consumers have robust information are the providers of goods and services who often are in a position to muddy the waters better than any government could. Their competitors will be doing the opposite, truthseekers will seek the truth, etc, as well, governments are not much better with that and would be the first group bribed in the first place.

Which again leads us to an example of market failure. People will go with the price tag without considering the long-term effects. By the time everyone realises that the 10% saving on their computer goods means they cant get an accurate answer about anything from their computer retail clerks, it's too late. By the time the consequences become apparent all the computer stores have had to cut back on training to remain competitive and no one is willing to take the risk of changing things back even though consumers might wish they would. People will complain or others will open up their own store based upon better methods of running things. Somebody will challenge the status quo because it is in their interest to, unless you are arguing that people are fundamentally stupid and that a government run by other fundamentally stupid people who actually have no incentive to do well will do a better job.

I dont see that as being evident out in the real world. In fact many market studies have shown that complacency will prevent consumers changing banks even when they are highly dissatisfied. Frankly any objective look at human behaviour indicates to me that 'in the long run' people dont give a great deal of consideration to the 'long run'. In fact most unintended consequences are not entirely unpredictable, people just didnt bother to think ahead in order to predict them because people are not 'long run' thinkers. Yeah, that is a part of revealed preferences. If people don't view an action as beneficial enough to justify doing it then it really must not be that important to them.

I disagree. I know plenty of people who complain that they cannot get good accurate information about computer goods for instance.
The reason why it occurs is because some businesses saw a way to cut costs for their consumers. Consumers saw the lower prices and didnt realise that this came with the cost of poor service, or failed to adequately understand the cost of that poor service. Other businesses were faced with the choice of going out of business or making similar cuts. By the time the cost was realised by consumers, it was too late. Yes, and that is because businesses thought that they were doing the best job they could by doing the same. If customers really thought this was important then they could start their own business by getting investors and the like, which although hard, could pay off if it was really that important, or they can simply file a complaint to the company in question about this issue. Companies WANT to satisfy their customers and have every incentive to do so, it is just that information is imperfect and it is under imperfect information that every market struggles.

It isnt that simple. People are notoriously short-sighted and notorious for failing to ascertain the consequences of their own and others' actions. When people go to a store to buy a product the price label doesnt list costs such as 'poor service'. So, people are too stupid to make their own choices, come on, given that logic they are too stupid to do anything and need a benevolent dictator to govern them. Poor service is something that people often dislike and will often try to avoid. I mean, I hate poor service too and might pay more to not deal with it, however, there is no better way to deal with imperfect information about such things than consumer choice and no way to get around that fact.

That argument is utterly unsound. The fact that problems exist with information dissemination and acquisition, does not necessitate that market processes are the ideal way to deal with information.

Not necessarily. The fact that markets help information dissemination and acquisition by having competition of sources does mean that they are ideal in most cases.

It's not impossible, although my first guess was that the word you failed to comprehend was 'inefficiency'.

Ok, then I'll return to my first guess - that you fail to comprehend inefficiency.

Really? Other than a failure to gain the greatest benefit per cost (ie inefficiency), what exactly would be a negative effect in this context? :confused:
How about the unattainability of the greater level? Searching for greater efficiency then becomes a fool's errand.
No it is not what I am claiming at all.
It's logically required by your previous statements (assuming my definition of optimal, which you now appear to have accepted). In fact, in your remarks that follow you appear to have accepted my assertion that a superior system must exist in order for the free market to be said to have failed.
I would expect that might be so.
It is necessary, however, to understand under what circumstances (if any) free markets achieve optimal efficiency. To do that we need to know how and why a free market might generate or facilitate inefficiency and whether or not the nett result is an optimisation of efficiency. That cannot be done so long as people refuse to ignore the flaws and faults that characterise the operation of free markets.

Of course they are flaws. The free market is premised on claims that are in at least some cases simply not true. If inefficiency is generated in some cases, the only way to determine if the free-market generates nett inefficiency (ie is less efficient than some alternative), is to first objectively evaluate the flaws and inefficiencies that characterise free markets. It is highly unconvincing to pretend that the flaws dont exist. If the system is so much better than any alternative, then admitting its flaws wont change that. What it will do is increase the credibility of those advocating it.

Actually if the system's advocates claim the system achieves anything, this need not be shown as false, rather the onus is on its advocates to demonstrate that the claims they make are true.
If I assert that the free market has acheived some optimal level of something (anything, really), I've made a universal claim. It's universal because to be optimal it must be the absolutely best possible level acheivable (not all else being equal - related factors need to be weighed accordingly). Universal claims cannot be shown to be true.

It's like if I claim I have the biggest rhinocerous in the universe. The only way to prove that true is to find every other rhinocerous in the universe and show that they're all smaller, and even if I did that I couldn't know for sure I'd found them all (there could be giant invisbile rhinos that live in deep space). But you could prove me false by finding a single rhinocerous bigger than mine.

Economists E.K. Hunt and Robin Hahnel disagree with you, as do I.

Markets do not succeed even under perfect preconditions. This is why.



Furthermore, allocations in market systems, even granting optimum preconditions, are increasingly non-optimal. This is why.



What this all adds up to is one thing: the failure of a free market to obtain an optimum allocation of goods and services.
Yes, socialist economists do disagree with markets!!! WOW!! Should I list economists whose views I like too? Ok, I really don't know about economist E.K. Hunt, he is a guy that is not very famous.

The only problem is that most goods are not public and most negative and positive externalities can be dealt with in relative ease through pigovian taxes and/or better defined property rights the latter being preferred by Austrians, however, with externalities there is a problem of seeing externalities where they don't exist which is all too common and ultimately a very large threat to the market.

No system has a completely perfect allocation, however, markets do a better job with allocations than most systems as markets allocate with a mind on incentives and on increasing prosperity. There is nothing wrong with a millionaire buying a mansion while others are homeless if he obtained that wealth through legitimately selling his ideas and creating benefit to people in excess of the cost of the house, which tends to be the case as in order for people to part with money they must in return get a good/service whose value is in excess of what they pay for it.

Really, I don't see markets as being disasterous.

I would say that there aren't
Even having been provided with an example? The fact is, it is very difficult to acquire and know that one has acquired sound information about IT goods and services if one begins from a position of IT-novice.

I am honest about the flaws of the market, it is just that others are dishonest about the strengths.
I dont make any claims about your honesty or otherwise. You replied (when you initially quoted me) to particular comments that were addressed at what I percieve to be a failure (on the part of earlier posters) to objectively analyse the functioning of free markets. My comments regarding honest, objective analysis were a clarification of the intent and context of my earlier comments that you were replying to when you quoted me.


Yes they can, there is usually not one source of information on anything.
Of course there is more than one source of information for most things. However barring retailers, media and acquaintances (all of which I have already discussed), I fail to see what other source of information is available short of specialised training.

Also, information that is bad will be contradicted by other information or it will be shown by bad results.
For the first premise, that has already been accounted for in my earlier commentary and is in fact an aggravating factor (it gets very confusing for a consumer when every which way they turn they get contrary information). That various sources give contrary information does not necessitate that the person seeking information can ascertain which of the contrary information is correct and which isnt.
As for the latter premise, that defeats the whole purpose of seeking information prior to purchass of goods or services.

Individuals will then learn from trial and error or from their efforts to understand the best choice which one is actually the best.
Small comfort when they are stuck with a couple of thousand of dollars of IT equipment that doesnt do what they wanted it to do.
In fact you are conceeding the point. The point is that people need to be able to make determinations about the value of goods or services prior to purchass, not afterwards (if the free market theorem is to work as it is premised). Your advice that we can figure it out after we have been screwed conceeds the point that it isnt necessarily efficient or plausable to seek and confirm the information prior to the purchass. You may not realise (I dont know if you've read all the preceeding posts or not) but that in fact was my point - that consumers often are reduced to finding out after they are out-of-pocket.

People learn, he can try to get on the internet,
Given the example consumer in this case is (as was made clear in earlier posts) a novice computer user/purchaser, learning how to use the internet and getting the information could be more inefficient than simply taking a gamble.

he can ask about what is best
Of course, we've covered this already, he or she asks and gets as many contrary responses as people consulted.

and although he might stumble at first he will find out what he needs to know.
With a huge volume of contrary responses, how will that person know which is true and know when they know which is true? I dont agree that it works out as neatly as you suggest. I know far too many people who went out of there way and spent quite some time trying to make the right IT purchass and still got screwed.

It is most likely that he can find out something from somewhere that will put him on the right track to finding a decent computer.
Right, and they'll know that they've come across the something how exactly? The novice computer consumer will know they are onto sound information how exactly?

Yes, it tends to be. Bad information leads to bad results, good information leads to good results.
No it doesnt tend to be. Keep in mind that the results dont occur prior to the purchass but after and that the consumer needs to know which information is good prior to the purchass, rather than after.

It tends to be true, good sources tend to have good records when it comes to their predictions and bad sources have worse records, as well, good sources are usually good because they want to provide good information.
If this were true then all the computer magazines that only ever review well known products (that tend to advertise in their pages) would be out of business, yet when I go to my local bookstore/magazine retailer that's not the evidence that confronts me.

If there is no way to determine what is good information and what is bad information then there is no way to deal with this information problem in the first place.
It isnt that there is no way to determine. It is the efficiency of making the determination that is at issue. If you go off to university and spend several years studying computer and IT systems, you would probably be able to work out what info was good and which was bad. However, it is very inefficient to spend several years at university just to figure out what computer system you wish to buy.

On the question on the number of consumers, that is difficult to ascertain as typically for any information to get out on anything there has to be feedback and feedback is reports on an issue. Like I said earlier, nobody can deal with this error of information, all that market processes can do is try to lead people to good sources,
What reason is there to assume market processes 'try' to do anything whatsoever? Market processes lack intent so far as I can tell. There is nothing about the free market that leads me to conclude that it 'leads people to good sources' anymore than it leads people to bad sources. Nothing you've said indicates that I should review my conclusion in this regard.

not magically find out what is true and what is untrue, nothing can do that and markets should not be blamed for the lack of good information,
The market isnt being blamed for people not being informed. Free market ideology is being called out for operating on a false premise. I'm not suggesting markets are the sole cause of lack of information or the existence of disinformation (although I do believe certain aspects of the free market can encourage or facilitate these things). The point is free market theory works on the premise that consumers are adequately informed to make sound purchassing decisions, I contend that this premise does not universally hold true. It should go without saying that any theory that is falsely premised isnt sound.

however, usually if there is something bad a better case can be ascertained by going to a good source.
Except that it isnt always clear what is or is not a good source. In some cases only specialised expertise is adequate to ascertaining the soundness of particular information. Attaining such expertise simply to make a purchass is not necessarily efficient.

Their competitors will be doing the opposite, truthseekers will seek the truth, etc, as well, governments are not much better with that and would be the first group bribed in the first place.
You can seek but you will not always find. Competitors do collude to misinform when it is in their collective interest to do so. Quite what the government will do depends on a variety of factors, certainly in a free market there are plenty of entities that have the financial where-with-all to bribe the government or even to influence the government simply by pointing out the economic facts (such as the tax revenue of number of jobs involved).

People will complain or others will open up their own store based upon better methods of running things.
I wont hold my breath on the latter, the former happens constantly. I hear a lot of people complaining about the incompetence of computer store retail clerks, the only stores opening are ones where the clerks are equally incompetent. As has already been explained it isnt necessarily true that someone with the capacity to offer a good or service will take the risk to offer it at a greater dollar-per-item cost than their establised competitors....

Somebody will challenge the status quo because it is in their interest to,
Well actually that isnt what behavioural studies of primates (ranging from monkeys to humans) indicates.

unless you are arguing that people are fundamentally stupid and that a government run by other fundamentally stupid people who actually have no incentive to do well will do a better job.
Non sequitor. It doesnt follow that because people wont take a particular risk that has a potential for gain, that I am arguing that the government will do something (be it better or worse than others).

Yeah, that is a part of revealed preferences. If people don't view an action as beneficial enough to justify doing it then it really must not be that important to them.
Here's the problem. The free market is premised as delivering the goods and services people most desire. If however people dont consume the goods and services they most desire then clearly the market isnt likely to magically supply the goods and services most desired (since they are not sufficiently consumed). The notion of revealed preferences (inserted to deal with the plain obvious fact that people do not always maximise their benefit and minimise their costs) undermines the premise that the consumption patterns of consumers will generate the production of the goods and services they most desire. People for whatever reason dont always purchass what they most desire even when it is plausable to do so.

Yes, and that is because businesses thought that they were doing the best job they could by doing the same.
Only if you define best job by 'staying in business' as opposed to 'provide best goods and services and/or value for money'.

If customers really thought this was important then they could start their own business by getting investors and the like, which although hard, could pay off if it was really that important, or they can simply file a complaint to the company in question about this issue.
You are ignoring reality. Firstly the free market is premised as providing the goods and services most urgently desired, not premised as providing the goods and services most urgently desired providing people happen to care 'enough' about the deficit between what is most desired and what is currently available.
Secondly if everyone went and started a business to provide what they needed, then we return to inefficiency, you'll recall the market is premised as eliminating (or minimising) inefficiency, in part by encouraging specialisation, it is not premised as providing inefficiency by requring everyone to become a jack of all trades capable of starting any and every kind of business every time the market fails to adequately deliver.
Complaints to the company at issue are hit and miss. Firstly different companies place different value on the individual satisfaction of consumers, secondly many consumers dont see that it will achieve any purpose so they dont bother, thirdly companies do not operate in a vacum - they might want to better please their customers but are unwilling to take the risk of raising prices to do so when their current practises are profitable (given the lack of anyone offering an alternative).

Companies WANT to satisfy their customers and have every incentive to do so, it is just that information is imperfect and it is under imperfect information that every market struggles.
I disagree. Companies want to maximise their profits, otherwise they would be charities rather than companies. Maximising customer satisfaction may or may not be necessary in order to maximise profits. If it isnt then guess what?

So, people are too stupid to make their own choices, come on, given that logic they are too stupid to do anything and need a benevolent dictator to govern them.
Maybe they do need a dictator. I personally dont think so given that I know of no plausable benevolent dictator that wouldnt be a person and thus unsuited to the job. You can call it stupidity if it pleases you although I have to wonder by what standards you make such a call. I dont know of creatures any better at forward planning than humans, but that doesnt mean we are consistent performers in that area. If that makes us stupid by your standards, then so be it.

Poor service is something that people often dislike and will often try to avoid. I mean, I hate poor service too and might pay more to not deal with it, however, there is no better way to deal with imperfect information about such things than consumer choice and no way to get around that fact.
And we should all see this is true because you state as much? Wouldnt you be able to substantiate as well as assert if this were necessarily the case?

Either way it still doesnt prove that the free market ideology isnt flawed.

Free market ideology asserts premises that require consumers be adequately informed, but we can demonstrate that this doesnt hold universally. If a theory is falsely premised in any respect, the theory isnt entirely sound - it is flawed.

You keep referring to the 'best way' to get around things, however my argument never contended any heirachy of possible solutions, I simply state that flaws do exist in the free market system. Again I dont see how what is or is not better or the best can be argued in the absence of objective analysis of particular systems. To argue that the free market system is best when we have not determined its inherent strengths and weaknesses is to put the cart before the horse.

To clarify, I contend that free market ideology is flawed, not that it is worse than some alternative; until we have free market ideology objectively analysed, how can we credibly claim that it is better or worse than 'some other thing or things'?

The fact that markets help information dissemination and acquisition by having competition of sources does mean that they are ideal in most cases.
Competition of sources might in this context be helpful if the competition were solely focussed on the goal of being the provider of good and accurate information, however in many cases this is only one goal or not even a goal at all.

How about the unattainability of the greater level? Searching for greater efficiency then becomes a fool's errand.
Whether or not it becomes a fool's errand it certainly at such a point become inefficient...quite which aspect of this escapes you is a mystery to me.

It's logically required by your previous statements (assuming my definition of optimal, which you now appear to have accepted).
No it isnt. Optimal efficiency in a particular case or circumstance is not identical to optimal nett efficiency. In one case we are looking at isolated incidents, in the latter we are looking at the nett effect of all incidents occuring within a particular system or framework. It is a fact that the free market generates inefficiency and does not in every case achieve optimal efficiency, it is debatable whether or not the nett effect of the free market is the optimisation of efficiency. We cannot determine (one way or another) the latter while disregarding or denying (in spite of emprical evidence) the former.

In fact, in your remarks that follow you appear to have accepted my assertion that a superior system must exist in order for the free market to be said to have failed.
I guess appearances are decieving you then.

If I assert that the free market has acheived some optimal level of something (anything, really), I've made a universal claim.
It's universal because to be optimal it must be the absolutely best possible level acheivable (not all else being equal - related factors need to be weighed accordingly). Universal claims cannot be shown to be true.
That doesnt make it universal, that makes it absolute, the two are not the same. It can be absolutly true that a woman is stronger than a man without being universally true that women are stronger than men.
It's like if I claim I have the biggest rhinocerous in the universe.
The only way to prove that true is to find every other rhinocerous in the universe and show that they're all smaller, and even if I did that I couldn't know for sure I'd found them all (there could be giant invisbile rhinos that live in deep space).
Oh I see this is a disengenious attempt to deny that the onus of proof is on the person making the positive assertion, despite having already yourself made the claim that the onus of proof is on the positive assertion....:rolleyes:

But you could prove me false by finding a single rhinocerous bigger than mine.
Clearly you have no interest in engaging in productive discussion....never mind HolyAwesomeness has come to the party instead.