Michael Spence surprises me by making many of the points about markets I've been trying to emphasize lately (and help making these points is more than welcome), in particular that markets are not very good at addressing stability, distributional equity, and sustainability issues:
Mind over Market, by Michael Spence, Commentary, Project Syndicate: In the 66 years since World War II ended, virtually all centrally planned economies have disappeared, largely as a result of inefficiency and low growth. Nowadays, markets, price signals, decentralization, incentives, and return-driven investment characterize resource allocation almost everywhere.
This is not because markets are morally superior... Markets are tools that, relative to the alternatives, happen to have great strengths with respect to incentives, efficiency, and innovation. But they are not perfect; they underperform in the presence of externalities (the un-priced consequences – for example, air pollution – of individual actions), informational gaps and asymmetries, and coordination problems when there are multiple equilibria, some superior to others.
But markets have more fundamental weaknesses. Or, rather, most societies have important economic and social objectives that markets and competition are not designed to achieve. In today’s rapidly globalizing world, the most important of these objectives – expressed in various ways through the political and policymaking process in a wide range of countries – are stability, distributional equity, and sustainability. ... Stability, equity, and sustainability challenges have become crucially important, and the role of the state in relation to markets may need re-thinking as a result. ...[continue reading]...