Skip to main content

What market failure?

The front page of today's print FT reveals a masthead intro for yet another article/editorial on the supposed "market failure" that has brought about the recent global financial panic and a synchronized world recession.

Rather than bore you with the details of the entire piece, entitled, "Let us put markets to the service of the good society", allow me to reproduce one excerpt which purports to show that "market-generated monopolies" have driven out smaller competitors and led to the growth of "too big to fail" firms in banking and retail.

The following is the author's description of the modern oligopoly system at work in retail shopping today:

"If markets tend to monopoly, creating banks too big to fail, it follows that similar cartels exist elsewhere. Indeed, such “Chicago school” monopolies predominate.

In Britain, four supermarkets control more than 70 per cent of food retailing, while in the US, Wal-Mart has eviscerated competition. Local businesses from pubs to post offices are eroded by conglomerates that benefit from hidden subsidies and whose costs to society are not priced in. They out-compete everything else on economies of scale."

There is no question that the large chain stores have come to dominate the American retail landscape. But is this a good example of a market-generated monopoly or a "market failure" at work?

As Timothy Carney and economist Robert Higgs would point out, the success of a firm like Wal-Mart might actually highlight big business' skillfull use of government and taxpayer subsidies and business regulations in defraying operating costs and reducing competition.

As both Carney and Higgs illustrate in their discussions on the alliance of big business and big government, these companies and the "too big to fail" financial firms are not, as popularly supposed, true champions of laissez faire economics. They are merely opportunists who will use free-market rhetoric when it suits their purpose and cry out for government assistance when the threat of failure (or even just a bit of honest competition) looms.

Related articles and posts:

1. Tim Carney on big business & big government - Finance Trends.

2. Boudreaux on market failure, government failure - Econtalk.

Popular posts from this blog

Finance Trends 2019 Mid-Year Markets Review

Email subscribers of the Finance Trends Newsletter receive the first look at new articles and market updates, such as the following piece, sent out to our email list on Sunday (6/14).   Hello and welcome, everyone! If you received our last email notice over the July 4th holiday, you'll know that this weekend's newsletter will serve as a mid-year market update and a follow-up to issue #29, " How to Reinvest in a Rising Market ".   Ladies and gentlemen, without further ado, let's start the show...  Finance Trends Newsletter: Our Mid-Year Market Review When we last spoke, back in February, the U.S. stock market was rallying off its December-January lows. As the S&P 500 and Nasdaq reclaimed their 200 day moving averages in February and March, it became increasingly apparent that a lot of retail investors (and perhaps some institutional investors) were left under-invested while watching this recovery move from the sidelines.  The U.S. stock ...

Jesse Livermore: How to Trade in Stocks (1940 Ed. E-book)

If you've been around markets for any length of time, you've probably heard of 20th century supertrader, Jesse Livermore . Today we're highlighting his rare 1940 work, How to Trade in Stocks (ebook, pdf). But first, a brief overview of Livermore's life and trading career (bio from Jesse Livermore's Wikipedia entry). "During his lifetime, Livermore gained and lost several multi-million dollar fortunes. Most notably, he was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively. He subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one's position as it goes in the right direction and cutting losses quickly. Ironically, Livermore sometimes did not follow his rules strictly. He claimed that lack of adherence to his own rules was the main reason for his losses after making his 1907 and...

How to "Pull the Trigger" on Your Trading Ideas

In our last post, I quoted hedge fund manager, Jim Leitner on the importance of following up on your investment ideas.  Today I'd like to follow up and share some thoughts on how you can learn to consistently "pull the trigger" on your best trading setups and investing ideas. In order to help you do that, we'll take from the best and offer up key insights from interviews with top traders and trading psychologists like Alan Farley, Brett Steenbarger, and Doug Hirschhorn .  Now before we get to their key insights on overcoming trading anxiety and pulling the trigger on your trading ideas, let's remember what Jim Leitner said in his interview: "Learn to love to listen to people and when you hear something interesting, follow up on it. Don't just think, "Well that's an interesting idea" only to find out a year later that the company you could've bought shares in is now up 500-fold. You never want to say woulda, coulda, shoulda...