The idea of "market failure" long predates Krugman and Bush.
I haven't studied this in great detail but my impression is that "market failures" are more-or-less inevitable when you have a "free rider" problem, e.g., military protection, roads, police, environmental protection.
We could rely on the free market for military protection, but then we'd have the warlord problem.
We could rely on the free market to build roads, but then we'd have the toll road problem, not to mention barriers to commerce.
We could rely on the free market for police but the solution would be similar to the warlord problem, not to mention gated communities, barriers to commerce, and so forth.
And the free market has never been an adequate solution to environmental protection because the people injured by pollution are almost never parties to the commercial transaction.
I cited Milton Freedman a while back for the observation that free market economics has never done a good job of modeling those third parties except to define what happens to them as "externalities," typically "negative externalities." If the parties to the transaction can foist the costs of the transaction onto third parties, I guess that's sort of a "free rider" problem.
The aftermath of Hurricane Katrina was a perfect lesson in the failures of the free market. |
