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Friday, May 20, 2005

Is There Market Failure in the Loanable Funds Market?

Here's something I've been wondering about and I hope someone can help me. I hear repeatedly that the national saving rate it too low. I am not arguing against that idea, one that has been around since the mid 1990's, but why is this?

The right is a strong proponent of using Social Security reform to increase the saving rate. What market failure justifies such intervention into the private sector? Why doesn't this market produce the proper amount of saving? What market failure are those on the right, and others (many on the left embrace this as well), trying to correct in their call to increase saving through Social Security reform such as add-on accounts?

Is it due to a distortion arising from the federal budget deficit, low interest rates from Fed policy, or some other government policy? If so, why not fix the distortion rather than try and further manipulate the market to increase saving?

Before intervening, shouldn't we at least identify the market failure? And if there is no market failure, if markets always work as many believe, should we call for intervention?

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    Posted by on Friday, May 20, 2005 at 09:41 AM in Economics, Market Failure, Saving, Social Security | Permalink  TrackBack (0)  Comments (0)

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