Mark Thoma on keeping the public sector involved in markets (excerpt):
7 Important Examples of How Markets Can Fail
By MARK THOMA, The Fiscal Times
Many people on the political right believe that free markets are the solution to most any problem. For example, Senator Pat Roberts (R-KS) introduced yet another attempt to repeal Obamacare with a call to “start over … with true, market based reforms.”
Free, unregulated markets are not always the answer, however. It’s true that competitive markets have desirable properties, but very special conditions must be present for competitive markets to emerge. When these conditions are not met, as is often the case in the real world, free markets can perform very poorly. In these cases – as illustrated in the following examples – government intervention that eliminates troublesome “market freedoms” can often be used to move these markets closer to the competitive ideal...
He’s absolutely right, in principle anyway. Some of the examples quoted won’t have any meaning to Malaysians, but the idea that government regulation are an evil necessity doesn’t always hold true – sometimes, it is only government intervention that makes having a “market” possible in the first place.
In fact, at least one source I have read claims that government procurement in ancient times resulted in the first organised markets, perhaps a precursor of how government debt today forms the foundation of private debt capital markets.
Nevertheless, agree or disagree, Prof Thoma’s thoughts are always worth a read, and the comment debate on his blog is an education in itself.