No no no no no no no no no no no noooooo!
Market failure is the situation where the free market price system fails to price a product in relation to its supply and demand. This CAN happen, but is rare, and usually easily fixed with common sense.
Your definition is a dealing entirely with public goods which we have already discussed necessitate some form of government contribution.
You're extending that definition all the way to cover all goods. Then you're saying 'when common goods are not allocated'. Let's take an orange for example. How many oranges are enough in a group of 1000 people? Should each have 5? 10? 2? At what point are there too few oranges and we need the government to intervene?
I hope you see the fallacy.
I said "among other things". So, public goods bring ONE FORM of market failure.
And an orange is not a common good, not even remotely and not in any sense. That example is bullshit in this context, really.
Examples of market failure:
Crime. Crime in an area has a direct cost in terms of crime suppression (hiring security guards/alarm systems and such), but it also has hidden costs like devaluing of houses in the area, which is not easily reflected immediately.
The fix to market failure:
Time. Not government. Over time, the price in the market adjusts to reflect what people value. The reason crime reduces property value is that people, in general, want to be in a crime free area. Given enough time, people with capital will either move away or will work to eliminate the crime, which will increase the property values, or in case they leave, will reduce the value even more.
In cases like this, government can play a great role.
Proper role of government in such cases:
The government should move to fulfill its role of crime prevention and suppression swiftly and strongly. This will eliminate the core problem.
Bad government policy:
The govt instead today subsidizes loans in such areas, and tries to attract people to such areas despite the crime. This perpetuates the problem instead of solving it. This makes the prices of the houses in the area go up artificially because govt. has created an artificial demand for the houses. Next, the interest on loans goes up because of the artificial demand for loans, which eventually crash due to lack of payments by people who couldn't have afforded them without govt. subsidies.
And this is precisely what happened in the housing collapse.
It's interesting that you name Pollution as an example but don't cover it later, since pollution is not a problem that can be solved with that logic. While criminals will not actually form a public opinion/faction about having commited a crime (assuming we have a working state) pollution or similar problems will divide the population into two parts. There are those that benefit from pollution in one way or another – normally those that cause it or work for those that do, and on the other side the majority, those that have a problem with it. But what will be the solution? Simple majority decision? Why should the minority listen? Boycott? Would only work in smaller settings given that bigger companies don't rely on one region alone Burn down the factory? Really? There are plenty of problems here which the state could solve more easily.
While I theoretically agree with your statement that profit motive won't provide everything, by and large such goods are few and far in between. Remember we already agree that it is the State's responsibility to provide protection to individuals against the elements and other people. So firefightning/peacekeeping/courts and such don't fall under profit motive categories. However, private security teams, alarm systems, fire alarms, sprinkler systems and such things all have a profit motive which have resulted in lower costs and efficient services. With some effort it is possible to privatize many other services and goods that the government controls as well. But that's a whole other topic.
So you agree that the market won't provide certain goods and the government is the better option for them. Alright.
Btw, were should that „some effort“ come from? What rational actor in a free market would possibly invest while most likely not getting paid out properly?
No, it can't.
There hasn't been a single truly consistent economic model proposed ever that would quantify a market failure. Yes, it's quite obvious to see when an industry or market is suffering, but not a single legitimate benchmark that justifies government intervention, let alone one that explains just how much government should intervene.
This matter has always been left up to pure instinct and emotion, and lack of reason or any objectivity, leading to future "disasters" of which "solutions" exacerbate the suffering in the long term.
Two pairs of shoes, actually. To diagnose a disease you don't have to know how to cure it.
As for the second part, you randomly exagerrate. First you state "there is no truly consistent model" (ok), then you state that all decisions ever "lack of reason and objectivity". Stop thinking in such hilarious extremes,please. And no, I don‘t need to prove that politicians are more than just farting monkeys.
Thanks to imprecise definitions, the mere categorization of goods through property rights is debatable, which leads to inevitable exploitation.
You can always criticize the method to secure yourself from the implications, sure, but it is an economic standard model nonetheless
I believe that government should manage the production of public goods. Such government policy must be efficient and remain strongly principled. Due to the incredible dangers of private exploitation and uncertainty in efficiency (since government is non-profit), a willing free market would still be much more optimal. However, free-riding drastically decreases incentive for individuals to offer efficiently produced public goods, largely removing it from the equation.
No real objection here, though I think that the free market could (just because of free-riders etc.) not work at all. But ok.
In either 1-0 or 0-1, depletion of resources for goods forces the industry to self-adjust to meet rising demand. On the outside, the industry can be appear to be suffering during this transitional period, as major competitors are no longer able to offer their products at a consumer-friendly price. Resource depletion, much like indiscriminate loans of which we've seen the fabulous results of in 07-08 are collective bad business decisions that hurt all involving competitors.
This isn‘t what the model proposes though, your point doesn‘t have much to do with the problem we are discussing. If nobody can be excluded, how can there be a price in the first place? If there is no rivalry and the initiate monopoly I will explain below again, why would the price end up „consumer-friendly“?
Oh, and regarding monopolies: Many people mistakenly understand competition to be constrained within divergence parameters by the structure of a market whose competitors possess absolute knowledge. In reality, no knowledge regarding a business venture in an industry (for ex. the science of product quality, here being a common good) is absolute, and they are all subject to rivalrous behavior, which promote new ways at attempting to find alternatives. This is why the formation of monopolies is almost impossible, especially in today's information age.
The monopolies in the model are of different kind, so your point doesn't really hold true here. What is proposed is that once a good is established in the market (by an inevitable „first“ provider, since it‘s unlikely that two firms will enter the market at the exact same time and place), nobody else will enter the market anymore under practically all circumstances, since the majority of the population is already completely satisfied with the first or can be satisfyed fastly once an enemy-provider appears, while the entrance for the second would be extremely expensive as well for most goods this applies to.
You either misunderstood Ostrom or incorrectly assumed her proposed commons management is intended to function at a federal level. Within a localized system (say, a county/province/state), her applications do make sense. Communities are left to self-regulate management of resources, and that management acts as private competition of its own when you consider the existence of other communities managing similar resources.
Not on federal level, but Ostrom requires the existence
of a higher levels above the level she refers to.
Of course. The laws of supply and demand determine whether a car of a certain model is available to consumers of income brackets. Resale allows for consumers to sell used cars at affordable prices for those who can't afford the recent models.
Your logic assumes that people have an inherent right to possess a car.
Good lord, these are examples, man.
Anyhow, people do have a guaranteed right for education. See the UN-Human Rights Charta.
And that's precisely when government steps in, to offer public goods. Aside from the dangers that I outlined for government intrusion, a willing free market would always be more efficient in the industry of public goods.
Though like I said, I don't think that there is a "willing" free market in itself.
I'm neither Makaze nor Rifle, as I'm sure you noticed. Plenty of people who espouse your philosophy (if I'm understanding it correctly) are happy to call themselves socialist.
If you don't want to be called a socialist, don't call me an anarcho-capitalist.
A socialist wouldn't support the free market, which I do. Really, I‘m not even for taxing financial transactions...
You might mistake social-democrats for classical socialists though.
Oh, and "There are people" =/= "You".
Edited by Oben, 13 November 2013 - 04:11 PM.