Making a List of Privately and Profitably Exploitable ‘Market Failures’

by Don Boudreaux on August 14, 2015

in Curious Task, Hubris and humility, Myths and Fallacies, Other People's Money, The Profit Motive

While not all assertions of correctable ‘market failures’ imply the existence of profit opportunities that are privately exploitable in ways that would correct the failures, a surprisingly large number of such assertions of ‘market failure’ do indeed carry this implication.  I want here to begin to catalog the ‘market failure’ assertions that carry the implication of private exploitability, in the hope of permanently excluding each such assertion from the list of justifications for government intervention.

Here’s an example of an assertion of ‘market failure’ that likely does not imply the opportunity for profitable private exploitation: climate change caused by carbon emissions.  If and to the extent that climate change caused by carbon emissions is a real problem, it’s a problem that is too unlikely to present any private entrepreneur with the opportunity to act profitably in the private market in ways that will help to solve the problem.  Free-rider problems are sometimes real.  (Yet: As the word “likely” used at the top of this paragraph suggests, I qualify my identification of any particular plausible candidate for a ‘market failure’ that is not privately unexploitable.  I issue this qualification because history teaches us never to underestimate the creativity and drive of people acting entrepreneurially and in their own self-interest.  Do not forget, for example, that medieval merchants, acting privately, developed their own highly complex and useful system of commercial law.)

But a perusal of daily commentary in the press and on blogs or of proclamations pouring out of government buildings makes plain that large numbers of alleged ‘market failures’ do indeed imply privately exploitable profit opportunities that, if so exploited, would correct the alleged problem.  Any such assertions that these alleged examples of ‘market failure’ imply the need for government intervention should be ignored.  The reason, again, is that if the pundits, professors, politicians, preachers, and popes who make such assertions are not themselves putting their money where their mouths are, there is no reason for us to allow these people to put our money where their mouths are.

So here’s a list of just some such alleged ‘market failures’ that quite likely imply privately exploitable profit opportunities if such allegations are correct:

– underpayment in modern-day America of low-skilled workers caused by existing employers’ monopsony power in the market for low-skilled workers;

– underpayment of women (or, put differently, the so-called “pay gap”);

– underpayment of minorities;

– overpayment of CEOs;

– (related to the item immediately above) corporate-board’s excessive chumminess with CEOs;

– excessively unsafe consumer products;

– excessively unsafe workplaces.

Each of these problems might be real today, but each one implies the opportunity for reasonably competent entrepreneurs to earn profits by taking steps that have the unintended consequence of making the problems diminish or disappear altogether.

Please add to this list.  Make your suggestions in the comments section of this post.

Do note that most of the items on the list above can be challenged.  That is, in any real-world case, it might be possible to identify a genuine and germane reason why private entrepreneurs cannot act profitably to exploit the problem in ways that cause the problem to diminish or disappear.  Perhaps in some market there are strict government restrictions on the entry of new firms, or perhaps some genuine market failure is in play that is not immediately obvious.  But in the above examples – as in each of the additional examples that I’m hoping you will identity – the existence of privately exploitable profit opportunities seems to be manifest to anyone who is even moderately able to think like an economist.  The plausibility of privately exploitable profit opportunities in response to each of the above assertions of ‘market failure’ shifts the burden of persuasion to those who insist that the ‘failure’ must be addressed with government intervention.

It is high time that people of good sense become more aware of the many instances of busybodies who – either unhappy that the world does not conform precisely to their desires or misreading the actual state of reality – rush arrogantly to demand that government force people to behave as these busybodies demand that they behave.  It’s high time, in other words, to demand – in those surprisingly large number of cases where it is possible – that those busybodies whose instincts are to put other people’s money where the busybodies’ loud mouths are first put their own money where their loud mouths are.  If the busybodies refuse to pony up, we have every right and reason to tell them to shut up.


Add a Comment    Share Share    Print    Email

Previous post:

Next post: