The Virtue of Market Inefficiency

The Virtue of Market Inefficiency:

Markets are often rightly characterized as extraordinary problem solvers. Under the right rules of the game (including private property, free exchange, and the rule of law) people following their own self-interest can coordinate their plans with one another more or less successfully, generating an overall order without being aware, or needing to be aware, of how it all gets done. That’s why economists sometimes say that markets are a lot “smarter” than any single person.

As marvelous as the market economy is at problem solving, in a sense the real genius of the market process is in how it brings problems to people’s attention in the first place. Before you can solve a problem, you have to be aware that there is a problem ..it is a process of entrepreneurial discovery of error.

So a living economy needs to create inefficiencies, and lots of them, to set the stage for greater efficiency and ongoing innovation. And that’s just what the market process does all the time – thank goodness!