market failure

Market failure has been in the news again this week. It reminds me of the failure of communism. The American's decided they had won the cold war when the Soviet system collapsed-until their system started to collapse.

The reason for market failure is the vulnerability of markets themselves and the blinkered view that de-regulating markets will produce a self-regulating system. Nothing could be further from the truth. Firstly, there is no such thing as a free market. All markets are based on property rights which set the framework for the market. The market will behave differently depending on what rights are recognised. A good example is carbon trading. It works by restricting the right to pollute and therefore creating a market for carbon credits. Without the "distortion" of restricting rights in the first place, the market would not exist.

It's easy to see that there is no such thing as a free market. All markets are the product of their environment. When those in charge of the markets forget this they are doomed to fail.