Monday , October 23 2017

Why Markets Fail

Summary:
" I will make here a simple but strong claim. Free trade in competitive markets does not, in general, lead to a Pareto Optimal outcome. I will show that that there are two reasons why markets fail. The first is a systemic failure of financial markets. The second is a systemic failure of labor markets. In the following sections I will explain why both financial markets and labor markets fail, and I will present a policy that can improve the standard of living for all of us. Laissez-faire capitalism is a good deal better than the central planning that was implemented in Maoist China or Soviet Russia. However, unregulated free markets can sometimes go very badly wrong. There is no excuse for a society that condemns 50% of its young people to a life of unemployment.  We can and must seek prosperity for all."Prosperity for All, Page 9.

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" I will make here a simple but strong claim. Free trade in competitive markets does not, in general, lead to a Pareto Optimal outcome. I will show that that there are two reasons why markets fail. The first is a systemic failure of financial markets. The second is a systemic failure of labor markets. In the following sections I will explain why both financial markets and labor markets fail, and I will present a policy that can improve the standard of living for all of us. Laissez-faire capitalism is a good deal better than the central planning that was implemented in Maoist China or Soviet Russia. However, unregulated free markets can sometimes go very badly wrong. There is no excuse for a society that condemns 50% of its young people to a life of unemployment.  We can and must seek prosperity for all."

Prosperity for All, Page 9.

Roger Farmer
ROGER E. A. FARMER is a Distinguished Professor of Economics at UCLA and served as Department Chair from July 2008 through December 2012. He was the Senior Houblon-Norman Fellow at the Bank of England, January-December 2013.

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