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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.

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11 Comments

  1. Can you put a name to each photo?

  2. The upper guy is Keynes
    and the second one with a profile pic is Adam Smith
    I prefer Kenynes cuz his name sounds very hiphop~~HOMME

    • Kenya West? HAHA! that sounds more R%B~

    • Could you be a little more cold?

  3. En… it is a long story…. en….

  4. It seems that these two guys will argue this endless topic on their way to the heaven…..

    • Sorry, no offense, but I think they ARE in the heaven now(drinking beer and celebrating for the new year ahead^_^)

  5. How to see….
    From my point of view, I do believe that in long-long run (if it exsits),both Keynesian and classical hold deadly identical hypothsis. Needless to say, full employment means no more available resource. Thus, the total output, under the keynesian, depends on resources also.

  6. There’s no good or bad and right or wrong for Keynesian and classical, but which is effective and functional…

  7. You know what, when I started to study Macroeconomics, I was really confusing about it. It seems that it is much more complicated than Microeconomics! The main reason is that different schools of economists have different ideas. Keynesian and classical economists always have debates on many areas , such as solutions of employment. Well, which of thoughts we should actually accept? It depends on the realistic situation.

  8. i am on owen’s side,,,
    i dont think this debate is valuable,,,
    when we need something from keynsian,we feel free to take it
    when we need something from neo-classical, we feel free to take it,,,
    no better , but more appropriate.


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