This is a great article and a must-read for economics students. The title–Markets fail. That’s why we need markets–pretty much tells the story, but you need to be at least slightly familiar with market economics to understand.
The article begins by describing the never ending macroeconomic debate–classical market theory, where the market can do no wrong–vs. interventionist theory, where government is needed to prevent market imbalances.
markets are unpredictable, prone to booms and busts, characterized by bouts of exuberance that are rational or irrational only in hindsight.But markets are also the only reliable mechanism for sorting out this messy process quickly. In spite of the booms and busts, markets drive genuine long-run innovation and wealth creation.
When governments attempt to impose order on this chaotic and inherently risky process, they immediately run up against two serious dangers.
The first is that they strangle new innovations before they can emerge. Thus proposals for a Consumer Financial Protection Agency, a systemic risk regulator, a public health insurance plan, a green jobs policy, or any attempt at top-down planning may do more harm than good.
The authors claim that both sides of the debate are wrong and that a new view is taking hold–market economics is good because it allows failure.
I would argue only that this is not new at all, but has always been a part of classical theory, at least since Carl Menger and the rest of the Austrian school.