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To: CalculatedRisk who wrote (53219)	2/9/2006 12:55:52 PM
From: GraceZ	Respond to of 110194

Yes, free markets fail. Asymmetrical information is an example No one doubts that asymmetrical information exists, what is debatable is whether government or a free market is better at eliminating it. This subject has been debated quite successfully by the Austrian school, again. mises.org The essential defect in the literature on asymmetric information is that it centers on incentives relating dispersed data regarding products themselves rather than on information on the institutions and procedures that enable us to deal with this dispersion. The notion that we can expect central authorities to correct market imperfections assumes that these authorities can know what procedures work best outside of real world experience. It is experience of this kind, in markets with profit and loss, that reveals data on underlying economic conditions so that we can know how best to deal with these problems. Rather than indicating a need for government intervention, asymmetries in information make the free operation of markets all the more important. With profit and loss statements as a guide, entrepreneurs will determine the least costly methods of dealing with informational problems. Mandates by the government may make some feel that these problems have been solved, but the absence of real profit and loss calculations, not to mention pressure by interest groups, make economically efficient outcomes via intervention a matter of little more than chance. Since we cannot know which contractual arrangements will work best in advance of experience in markets, we are best served by markets in dealing with these problems. Abandoning markets means abandoning the means by which we learn what procedures work best. This being the case, it is obvious that these so-called market failures in fact call for the unimpaired workings of the market process.