Shit Happens

Markets are not perfect.  They are filled with mistakes, failures, and missteps.  What’s more, disruptions (like a flood wiping out food crops) happen.  Free market advocates, such as myself, do not disagree nor do we think that markets are this always-perfect, never disrupted, recession-proof process.  Indeed, quite the opposite: the fact markets can fail, and are subjected to natural forces, is why we advocate for markets over other forms of resource rationing.

The market process is extremely flexible:

-Market participants need not wait for a diktat from On High to enter (or leave) a market; they get signals (such as profit) that help guide those decisions.  If a firm cannot earn enough profit, they leave a market.  Likewise, if firms are earning very high profits, firms will seek to enter the market.

-Market participants need not wait for directions from some governing body on how to react following a disruption. Signals from prices(and good ol’ fashion human kindness) help drive that.  If a flood in Louisiana destroys the city’s stores of food and other goods, firms not affected can and do send aid immediately.

-Market participants need not have perfect information, guided by an omnipotent governing agency, to make rational decisions.  They need only the knowledge of their own goals to accomplish this.

-Market participants need not wait around doing nothing until a government agency saves them from recession.  Through the signals of price and profit, people can (and will) do what they need to do and determine a way to survive.

Yes, bad things happen.  Such is life.  But the mere fact that bad things happen does not justify intervention by a governing body or outside force.  The reason is simple: such intervention has no promise to make things better; in fact, it often makes things worse.  Government intervention is inherently rigid.  Governments are inherently rigid.  It is not dependent upon the type of government, nor even the people who make it up; you could have a social democracy filled with the purest men and women who ever walked the face of the Earth or a totalitarian dictatorship lead by Satan himself, and the outcome would still be worse than the market process because they do not have the flexibility or knowledge to handle ever-changing (and sometimes dramatically changing) situations.

Markets have failed.  Long live markets

2 thoughts on “Shit Happens

  1. Plus, the fact that bad stuff happens often stimulates ideas for new industries or innovative products. Safety products like Smoke Alarms and renter’s insurance evolved on the market to protect people from misfortune, and even more trivial things like self-checkout protected people who only need a few things from standing in line for a long time.

    In addition, as you implied and as other prominent economists have mentioned, markets are a profit and loss system, losses (signals of failure) being just as important as profits for guiding behavior.

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