The notion that markets are efficient without government intervention is as antiquated as laissez fair capitalism. All throughout the capitalist nineteenth century there were boom and bust cycles. Additionally, markets are always inefficient in two ways; they always produce too much pollution, and too little basic research.
On the part of research, I'll let a friend from another forum explain(I hope this is all within the rules):
Quote:
Originally Posted by Edgewaters
The free market, I think, is definately useful in allocating resources. But it's also very poor at maximizing economic potential. Subsistence economies and black market ghetto economies in the Third World are far more free from government influence than the traditional economy, and yet, they are terribly poor at generating wealth: for the simple reason they lack, almost totally, any capability to generate the public infrastructure upon which a strong market economy depends. The free market just isn't any good at building roads, raising literacy rates and educating the workforce as a whole, generating electrical power, public transportation, and so on.
Also while it's very good at copying and refining technological developments, its not very good at taking big risks to make major breakthroughs. Many of the really big developments that make our modern world what it is - jets, the internet, helicopters, computers, nuclear power, radar, GPS, satellites and space exploration - were funded and developed by governments. A private corporation simply can't afford to gamble. While they're very good at refining these things, it's often up to the public to develop them initially.
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On pollution, I'll give an example. Recently, tea partiers wanted to repeal cement regulations in California that were costing cement companies hundreds of millions of dollars a year. The Environmental Protection agency estimated that the additional health care costs caused by the neurotoxins and carcinogens that would be released into the environment without those regulations would be 13-18 billion dollars a year. So the regulations actually increase the efficiency of the overall macroeconomy by over twelve billion dollars. I could go more in depth and debunk the assumptions behind the efficient free market economy, perfect competition, perfect information, and perfectly rational decision makers, but this is not the thread for that.
It is true that there can be corruption and inefficiency in government regulation, but to conclude from that that there should be no regulation or government oversight is a hasty generalization. That would be like saying that because some governments have been oppressive, all governments must be oppressive, or because some businesses fail, all businesses must fail. Of course there will be efficiencies, but there are also inefficiencies in the market as well. There is no perfectly efficient system, but a private-public synergy creates the most efficient system that we know of.