On Friday July 15th, Professor David D. Friedman of Santa Clara University gave a presentation entitled “Market Failure Considered as an Argument both for and Against Government”. Professor Friedman is one of the leading libertarian thinkers in the USA and, together with Murray Rothbard, the most influential proponent of so-called anarcho-capitalism.
Before Friedman’s presentation, Professor Florian Biermann of ISET gave an introduction to libertarian political and economic ideologies and clarified some terms and concepts that later came up in Professor Friedman’s presentation. Professor Friedman himself started his presentation by briefly explaining the concept of market failure and showed that it provides arguments against both private markets and any political alternatives.
Economists generally assume that individuals are rational, and take actions which best serve their self-interest. If people simply do whatever they want, the outcome will likely be attractive for everybody else. Moreover, it has been proved that the outcomes of individual choices cannot be improved even by an effective and responsible social planning mechanism.
However, market failure is a phenomenon that casts doubt on these assumptions. Professor Friedman further explained the main reasons as to why free markets sometimes fail. Individuals are given to making decisions based on individual benefits and ignore the consequences of their actions for others; therefore, individual rationality cannot be expected to lead to any form of group-based logic.
Moreover, Friedman claimed that this is only half of the story, as market failure is also the reason why different alternatives to a free market can fail. Government intervention, Professor Friedman said, does not necessarily lead to better outcomes; there must also be reasons and incentive for a government to do it.
He then argued that an individual who makes any decision bears most – but not all – the responsibility for their actions, but also receives most of the benefits. However, he stated that in the political market this is only rarely true. Professor Friedman concluded that shifting control from a free private market to a political market is likely to increase the problems related to market failure rather than solving them.
The presentation was followed by interesting questions and a lively discussion around the topics and issues raised by Professor Friedman. ISET would like to thank Professor Friedman for his wonderful and engaging presentation.
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