The Failures of Markets: Capitalism’s Original Sin

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Going Beyond Incentives and Signals

  1. The assumptions underlying the notion of the free market are unrealistic and fail
  2. Externalities are inevitable and cannot truly be fully internalized
  1. The Liberal Paradox demonstrates pareto-efficiency is logically incompatible with the Individualist ideals that the market needs to even exist in the first place
  2. Pareto-efficiency is no guarantee of any kind of social good
  3. The “firm as transaction cost mediator” theory that attempts to defuse the notion of “market failures” therefore fails, as it ultimately relies on pareto-efficiency as being optimal

The Inevitability of Market Failures

Free Market Assumptions are completely unrealistic.

  1. “Perfect Information” (or something approximating it)

Externalities are Inevitable

Market Efficiency Isn’t Even Ideal in the First Place!

The Liberal Paradox

  1. be committed to a minimal sense of freedom,
  2. always result in Pareto Efficiency (a state in which you cannot make person better off without making another worse off), and
  3. be capable of functioning in any society whatsoever
  1. “Preferences are not Nosy” (i.e. people’s preferences no longer depend on the choices of others)

Pareto-Efficiency isn’t Necessarily Good in the First Place!

Is the “Transaction Costs” Notion a Way Out for Market Apologists?

Conclusion: “Fixing” Markets Requires Too Much Centralized Power. So What do we Do?




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