Market Failures
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- Опубліковано 10 вер 2009
- From a lecture given by Dr. Milton Friedman at the University of Rochester in 1978.
Excerpt from Milton Friedman Speaks: Lecture 05, "What Is Wrong with the Welfare State?"
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@DavidHilll Yes, when you mentioned the term I did look it up and made the connection between the recent financial crisis and the notion of individual financial institutions being "too big to fail". The same logic is behind the past, current and in all likelihood future auto bailouts.
@Bfisher14 For some roads (e.g. small roads in remote areas) it may be best for local governments to handle them. In other cases, like motorways, it has been possible for private companies to create and maintain roads using the proceeds of charging people for the use.
The latter is preferrable, whenever possible, because it means that the people who use a utility (the drivers) are the people who pay for it, in proporition to how much they use it.
As Friedman says, there is no easy answer.
A real and worrying difference between having a government do something that private companies previously did is that when a government does something by replacing private institutions it often is a monoply. Also it results in a situation whereafter there is no way anyone can make an accurate assessment of the efficiency or comparative cost of the government's actions since the previously existent basis of comparison to like goods/services across suppliers is no longer existent.
What he was trying to say at the beginning is that the are public goods. Which are non-exclusive, that is are free for all peole. A stronger example is say a footpath or street lights. These contribute to market failure because no revenue can be made off of them and the wouldn't even exist without the government stepping in to contract companies to provide them.
Seeing it again now, the questioner actually gave an important question at 2:17, about social goods and private goods. If a particular part of nature, say a river, is a social good. This means no private property right is assigned to the river. Then firms or even individuals would have no incentive in keeping the river clean. This results in externality.
Friedman first agrees with the problem, and says it's a hard one to answer. He basically says that gov intervention will bring more problem
@eric5335 That is true, all that is really left in Denmark is "income transfer," from healthy to sick, and working to retired. Also, the total tax curve is almost flat, due to the regressive nature of the VAT.
Is there a greater irony than a man espousing the "freedom to choose", than a man sponsored by Pepsi?
Seeing how all governments around the world are giving efforts to reduce carbon emission, I assume all these countries have already considered the possibility of government failures as well and have all concluded that it is better for the gov to regulate rather than the market to operate.
@LouieArrighi Oh boy, here comes an intellectual to school Milton Friedman again
@DavidHilll Thank you for introducing me to a new term (systemic risk) but I do not believe I can learn anything from further discussion with you on this topic. Please have a pleasant evening.
I think the problem was that the questioner didnt really have a clear or coherent question, and so there wasnt a specific query for Friedman to really respond to.
My understanding of his point was that Sure, you can say 'the market failed in so and so area', but you should not assume that the government taking it over wouldn't fail itself. He posits that any good that is difficult for the market to provide is equally (if not more) difficult for the government to provide.
It makes me wonder, if at the point voters are becoming more and more concerned about externalities like pollution and decide to do something politically about it, will the gov't be performing a redundant (and less efficient) function that the market would be doing by virtue of increased public awareness and thereby increased market awareness? Afterall, there'd be an increased demand for cleaner goods and services. Therefore, would the market already be self-regulating externalities itself?
@DavidHilll "Friedman pursued a slippery slope to a straw-man when he suggested Rochester U pay people whose shirts have been dirtied by heating"
No he didn't. He was using that as an example of an acknowledged market failure. He was compelled to provide an example since the questioner seemed disinclined to provide one of his own.
Perhaps the most reasonable thing I've ever heard Friedman say.
When you have a nobel prize, call him what ever you want.
@DavidHilll "Friedman's ridiculous solution to combat pollution"
You mean effluent charges? Isn't that basically what a carbon tax or cap and trade is? Just because he used a specific, understandable, human-sized example doesn't mean the same logic can't be applied on a much larger scale.
And pollution IS an example of the tragedy of the commons. That's not dismissive, it's an understanding of a problem that needs to be addressed.
right on!
can you give an example of a right that must be PROVIDED? and how a free market does not ALLOW rights?
The kid didn't ask about market failures. He asked about "social goods" by which I suppose he meant what are also called public goods. You could contract with a fire company, but don't you like public fire departments better? How do you contract with a police agency or an army or an air force or a navy? And courts--if the parties will agree to arbitration, that's fine, but what if they won't? How does an aggrieved party get justice? Shall I independently avenge wrongs done to my family or shall we have criminal courts? Do you want to pay admission to every public park? Today we have transponders in our cars, but where there are still toll booths they're a terrible nuisance. It doesn't make sense to run two sets of wires in your neighborhood, so do you want the wire stringers to charge whatever they can get away with or do we need utilities commissions to regulate rates? Food safety, workplace safety, and it goes on. Dr. Friedman is right on the big things but he pushed this one too hard; it doesn't go that far.
Excellent. This oil spill is an example. Obama is going to want to set up a permanent government agency for "cleaning up oil spills". Better to simply require these large oil companies to have even MORE insurance against such disasters so there can be no doubt that if and when it happens again it will be dealt with (including all the secondary costs such as lose of tourism). Also, if it is true that criminal negligence was committed by some officers of BP then the justice system should deal.
@DavidHilll
A hypothetical situation isn't a straw man.
Nice how the questioner could not think of one 'social good' that the market is unable to provide - you'd think he'd have prepared at least a few before asking a question like that.
@lachylolHamish certainly Friedman would not support cap and trade.....
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Jaffles, street lights would exist. I like the street in front of my house or business to be lit, I put in street lights. They wouldn't necessarily be uniform throught a city, but that is an asthetic issue rather than a functional issue. Also the value of street lights is debateable. In most cases they do nothing productive and are only a cost burden.
@LouieArrighi In actuality, before governmnet git involved, mechanisms to deal with the pollution externalities were quite effective. Friedman is well aware of this (and its no accident that so many economists are, in fact, libertarians). If your "causes climate change" is any indication your last comment brings to mine glass houses and throwing ... 500 pound diasy cutter bombs.
And that 'intelligent' reply is based on what principle?
well, look at states. They charge differently for tolls. And yet the states then are charged by the federal government because its interstate. So what are we doing. It would actually be benefical to all if certain private enterprises bought those roads and they could even contract individuals to fix the roads which the state already does. This would keep the costs down. 10 years ago in IL we paid 35 cents a toll. Now 2.00 ;) You think privitization wouldnt create more jobs and low cost?
@SenileRonaldReagan
What logical fallacy did Friedman use?
@jimbo525SE yea, you're prolly right. In democracy the gov. is just a referee, but nowadays seeing how gov. spending is 45% of our GDP, I don't see a big difference between North Korea's Kim Jung Il and Obama except that we often like to use the word justice.
Where is this country heading....
I don't understand what your replies are saying.
And you don't like my answer so you start with the abuse - Emotional reaction - Flight or fight - you flew. Free speech is ok any time but in your case it is pure abuse because you can't handle what someone has said in free speech.
honestly i don't think Friedman answered very clearly about externalities. that speech was way too long without any strong solid statement.
if i may ask, so what's his point?
@DavidHilll So you think pollution is a "ridiculous" problem unworthy of serious consideration?
See, now what I just wrote is an example of a strawman. The example Friedman used was a valid example of a very real and serious market failure, pollution. The same logic can be applied to what I assume you would consider serious examples of pollution.
"And how a free market does not ALLOW rights?"
"Free Market" Friedman forced fascist military coups.
"Free Market" deregulation makes for fire-water (frack)
"Free Market" means when US economy is in the toilet,
Banksters abroad can move on to India, China (already have).
@EGarrett01 What logical fallacy did Friedman use? :: duh ... one example that is more-or-less acceptable is avoiding the scenarios that do not fit his ignorant and limited model of control. For example, what does he suggest when government & private sectors BOTH fail in massive ways to provide BASIC constitutional rights/services allowed every citizen. Why. Because he did not give a rat's hairy ass about humans, just their production and encouraging worker indebtedness for his own benefit.
BS, MR. Friedman, and Mr.student. Shame on Milton for abandoning the free market. Pollution is not a market failure- it is a government failure to enforce private property rights; pollution is trespassing. Look up Walter Block's work on the matter, he hits the nail on the head.
This poor questioner never stood a chance.
you're off the mark, though, trying to make out the real world to be the "libertarian unicorn".