Agreed. It's always a shame that the response to purported market failures is either (1) attempt to regulate directly or (2) do nothing, rather than (3) attempt to fix market failure through narrow means.
Regulation is one solution to market failures. It's not the only solution, but in many cases it works well. The Clean Air Act, for example, has been extremely successful at addressing the negative externalities created by air pollution.
Beyond that--the lesson that we're learning from modern economics research is that there are no touchstones. Humans aren't rational actors, the efficient allocation theories are predicated on unrealistic assumptions about the behavior of economic actors and the lack of transaction costs, etc. "Laissez faire" isn't any more of a guiding principle than "big brother knows best." The only way to proceed is empirically--use measurements to determine when government solutions are needed and when market solutions suffice.
It's a fairly uncontroversial claim that the market naturally under invents in R&D. It's something you'll see in any basic economics 101 textbook. So why shout "laissez faire" to a government initiative addressing such a market failure?
Regulation by a centralized entity, to restrict people's freedom to engage in voluntary transactions, doesn't fix market failures. It makes them worse.
You make many claims in strong langauge, but that's not itself meaningful. They are at odds with what I learned from economists, and from what I believe is the very widely accepted consensus in the field (though I might have a few details wrong). Regulation is a normal, effective response to market failures, which sometimes result in shortages.
Of course, I'm not providing any citations myself!
Yes, that's exactly what I'm trying to point out! I'm not providing a solution, but merely saying that it's folly to treat all regulation as the enemy of free markets.
How's it a market failure (markets not working properly) when bad regulation/ regulator regime is to blame. One should properly term it as 'Government Failure', don't you think so?
Oh sure, I will readily accept market failure as an improvement over regulations that are actively corrupt or otherwise specifically working against the public interest.
It certainly is a market failure, not a lack of a market, unless you define market differently than the convention I'm familiar with.
This specific form of market failure is a failure in market structure. Of course regulatory failures exacerbated this problem (or at least didn't fix it), but it's not the main "cause" of the failure, by which I mean "would it naturally without any regulation at all?"
Regarding your second paragraph, yes, that is a regulatory burden and it's true that it increases the barriers to entry into the industry, and I suppose that's an argument for why regulation caused market failure. But is it the main cause? I think it's because this particular market structure is inclined to a natural monopoly (or something close) because of the high-fixed-costs nature of the business.
The problem is that in many situations the market doesn't operate efficiently at all in it's natural state. There's a long litany of reasons markets are inefficient (imperfect information on either side, externalities, and monopolies, just to name a few). Interventions, such as regulations are there to protect the consumers in the case of these market failures. In this case a competative market protects consumers much better than a monopolistic one so regulations that foster a more competative market would be able to protect consumers better than no regulations. I'm not saying that these specfic regulations are amazing but there is definitely a good theoretical framework for regulations being good for consumers in certain cases.
> "Market" isn't magic fairy dust that spontaneously causes efficiency to appear from nowhere.
Neither is regulation. While it is true that "market failures" (imperfect markets) are common, it does not follow that regulation will improve them. In fact regulation usually makes things worse due to a combination of imperfect information (the regulators can't find out what they need to know to regulate efficiently) and regulatory capture (the regulators end up acting in the interests of the regulated industry instead of the consumers).
I was suggesting that regulations have to exist in general. Over the entire market. But what you said just flat out confuses me. That we shouldn't implement something because we currently don't have regulations for it? Why would we? We haven't implemented it. I mean with that kind of attitude we can't get anything done.
Do I expect hiccups and bumps in the road? Yeah, why wouldn't I? Humans aren't perfect. Never have been, never will be. But just because there are speedbumps in my neighborhood doesn't mean I should never go to the store. I still need to eat at the end of the day.
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