Is Market Failure an argument against government? - David Friedman

David Friedman starts speaking at 2:50.

On October 5th, 2011 David Friedman gave the following speech at The Future of Freedom Foundation's "Economic Liberty Lecture Series." The speech ""Market Failure: An Argument Both For and Against Government"" can viewed above in its entirety. The Economic Liberty Lecture Series is a co-sponsored event of The Future of Freedom Foundation and the George Mason University Economics Society. Past lectures can be viewed at FFF's "Conference Classroom":
http://www.fff.org/​classroom/​libertylecture.html

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[spmauzy]

Friedman is completely off base. What he calls "market failure" is not market failure. The poorly designed road that clogs at the intersection is not a market failure; it is government interference in free market for roads. In a private-market economy, problems are solved and production and efficiency improve -- and that includes roads. As for prisoner's dilemma, that's a case of coercion and violation of non-aggression policies combined with asymmetrical information.It's not a market failure.

[StatelessLiberty]

Friedman says right at the beginning that "market failure" applies in many non-market circumstances.

His examples of prisoner's dilemma and the busy intersection are NOT intended to show failures of the free market. They are intended as examples of how individual rationality does not always lead to group rationality, which is the definition of "market failure." He is very clear about this.

He's using those examples to illustrate an economic principle.

[spmauzy]

Markets are discovery processes undertaken by individuals. There's no such thing as "group rationality." Systems predicated on such a fiction are entrepreneurial opportunities for others, but they are not failures.

By the way, words have meaning, and to call something a "market failure" when something isn't a market is nonsensical.



[StatelessLiberty]

"There's no such thing as "group rationality.""

Ughhhhhhh. Each individual has a set of values, and rationality is when an individual acts to maximise those values. "Group rationality" is when the individuals in the group act such that the values of all its members are maximised. Simple stuff.

"to call something a "market failure" when something isn't a market is nonsensical."

No "market failure" is a technical term with a technical meaning. It's a misnomer, but the given definition is valid.

[stealthswimmer]

The Friedmans are awesome

[StatelessLiberty]

Economists have an unconventional definition of "rational". In economics, "rational" is synonymous with "perfectly self-interested" or "utility maximising".

[Andybaby]

Economics: A

Microphone Technique: F

[Skyturnip]

Friedman states that moral philosophy is a less advanced science then economics... Hmmm... Philosophy is basis all sciences so not sure how that works.

[Steven Farrall]

The traffic light controlled busy intersection analogy is not a good example of market failure. In reality such intersections are good examples of bureaucratic intervention failure, since the traffic lights are a form of bureaucratic road rationing by remote control. If on the other hand you turn off the traffic lights and make the intersection a shared space people co-operate voluntarily and the traffic flows better. This has been tested in real life, and it works.

[BeeeeeeFreeeeee]

It's irrational to trust DAs as a prisoner.

[Pingvinsvans]

Spmauzy is trying to espouse the Misessian view in which rationality is tied to an individuals thinking and thus a group rationality would be some kind of hive mind according to this view.

[spmauzy]

No need to go "ughh."I understand your point; I just don't agree.

This rationality concept is born out of the Chicago school. Thing is, you don't know the information or motivations people possess, and you never can.

Yes, with perfect information and coordination neither of us would confess, nor enter a clogged intersection. But there is no such thing as perfect information and coordination, so I don't believe it is right to call the nonexistent or the impossible a market failure.