Market failure exists when the competitive outcome of markets is not
efficient from the point of view of the economy as a whole. This is
usually because the benefits that the market confers on individuals or
firms carrying out a particular activity diverge from the benefits to
society as a whole.
How extraordinary it is, that representatives of the great names in global finance that have recently bitten the dust
were lately paraded on television as the supreme experts on the global
economy. Until today, few serious programmes on TV about the financial
outlook were complete without some hireling from Bear Stearns, Lehman
Brothers or Merrill Lynch pontificating on what governments should do,
on how to ease the tax burden, on ensuring the health of the economy, on
the fundamental soundness of the system, and so on.
Free markets, the Washington consensus, liberalisation
– ideas that have resounded around the world – are suddenly shredded,
although the fortunes made in their benign shadow have no doubt been
carefully stashed away in unreachable "havens". Where governments had
been pleased to acknowledge their relative unwisdom in the presence of
the superior knowledge of the markets, they are now being bidden to
"step in", to re-regulate, to tame the beast they were so proud to
unleash, and in the presence of whose "performance" they were only too
willing to efface themselves.
It seemed to the fallen experts and discredited knowalls that
government had become an obstacle to the further creation of wealth.
Guilty of imposing stealth taxes, inhibiting the free play of market
forces, governments were spoilsports, shackling enterprise and
undermining business. Obligingly, governments sought to withdraw with
becoming modesty, avowing themselves powerless in the presence of such
mighty forces, in order that the financial system should work smoothly
and effortlessly for the benefit of everyone, including the poorest, who
would be wafted to plenty on the coat-tails of the super-rich. The
daily plebiscite of free choice in the marketplace seemed a reasonable
substitute for a democracy in which quarrels over how to run the economy
had been laid to rest.
What a beautifully simple and plausible story it was, the rich
miraculously transformed from grinder-down of the poor into their
philanthropic rescuers – a metamorphosis that coincided with the
rehabilitation of capitalism and its own mutation into something called
"the economy". Wealth itself became the oracle, and people listened
avidly to fairytales of win-win, economic miracles, market magic and the
supremely precious life of geese that laid golden eggs.
Attempts to assimilate the workings of capitalism to the equivalent
of a natural phenomenon have been so successful that even the words used
to describe the present "downturn borrow a lustre from primeval nature:
we hear of mortgage famine, credit drought, floods of bankruptcies,
contagious insolvencies, epidemics of repossessions: the language evokes
biblical plagues and last days. Is not nature red in tooth and claw? Or
was that capitalism?
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