I’ve spoken a lot about prices and how they act as signals. I’ve spoken a lot about how individuals are more likely to make productive choices than governments. However, I do want to stress one point so that no one among you, dear readers, may be accidentally lead to an incorrect conclusion based upon my own sin of omission.
Markets are not perfect. Prices act as signals, yes, but it is not always a perfectly clear message. Individuals generally make better choices than governments, but they still mess up.
All too often, we free-marketers tend to focus on bubbles, how they lead to recessions, and how government messed it all up. But even in a perfectly free-market society bubbles would still happen. There will still be bouts of irrational exuberance. There still will be people who spend too much for too little. There will still be bad bank loans and debt problems. None of that would go away. Why? We’re all human, folks. We make mistakes and those mistakes do have consequences. What is likely, however, is those bubbles would be smaller, more confined. Government tends to turn localized crises into national problems. Free markets would be more likely to contain the problems.
Markets are not perfect and until God Himself comes down and directs everything, they never will be. But that is not an argument against markets. It is merely the acceptance that we are all humans.