Among Arnold’s themes that I especially like is this one: “Markets fail. Use markets.” The idea is the vital one that the case for markets does not depend on markets being perfect—or to use economists’ terms, the case for markets doesn’t collapse simply because of the existence of some “market failures.”
.. in reality markets aren’t perfect. They’re just not. Markets do sometimes fail because of (bear with me as I parade before you a band of fancy economics terms) “asymmetric information,” “moral hazard,” “time inconsistency,” “free-rider problems,” “opportunism,” “strategic behavior,” “empty cores,” “lumpiness,” “transaction costs,” “bounded rationality,” and other features of reality that prevent markets from performing ideally.
.. Too many people—including economists—remain stubbornly unaware that even the proven existence of a “market failure” is only a necessary condition to justify government intervention; market failure is not a sufficient condition.
.. market institutions are better than political institutions at minimizing the frequency, intensity, and ill consequences of uninformed, emotion-ridden, and otherwise fallible decision-making.
Arnold Kling endorses free markets not because they are foolproof or flawless. They aren’t. Arnold supports them because the alternative is generally much worse: an especially flawed institution that fosters unusual amounts of foolishness.