Quite true about externalities and market failures. However, that only addresses what's wrong with markets, not what's right about any other system. Externalities are also a problem in ANY system of figuring out who gets what in society, and, because of the information asymmetry problem, a system that restricts sources of true information can almost never be better at accounting for externalities than a market-based system.
Bluntly put, Joe Q. Median has a vote in a parliamentary system. In a great many parts of the political economy, he has no vote under a market system, because Joe Q. Median is not a market actor. So for the majority of the population accountable democratic government is superior to market economics simply on the count that the latter disenfranchises them while the former does not.
A lot of successful regulation is about cutting the big market players down to a size where Joe Q. Median can become a genuine market player. But this requires continual political vigilance, because markets are better at forcing market actors to cease being market actors than they are at making room for new market actors.
And then of course there are the sectors where there can be no "market" because the logistics of the production won't permit it. That could be due to the returns on economics of scale being sufficiently high that any gains from market forces would be offset by the cost of maintaining sufficient numbers of separate systems to have a meaningful market. Or it could be due to the risk of cascading failures making the independence of market actors impossible. Or it could be due to the ability of large market actors to take the political system that maintains the market hostage. Or some combination.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
