Market Failure

The key assumption to define Market Failure is Pareto Efficiency: the allocation of resources where it is impossible to make any one individual better off without making at least one individual worse off. Pareto efficiency is a minimal notion of efficiency and does not necessarily result in a socially desirable distribution of resources: it makes no statement about equality, or the overall well-being of a society. Pareto Optimal is the state where the total available resource is allocated efficiently.

Market failure is a concept within economic theory describing when the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off. (The outcome is not Pareto optimal.)

Economists, especially micro-economists, are often concerned with the causes of market failure and possible means of correction. Such analysis plays an important role in many types of public policy decisions and studies. However, some types of government policy interventions, such as taxes, subsidies, bailouts, wage and price controls, and regulations, including attempts to correct market failure, may also lead to an inefficient allocation of resources, sometimes called government failure. (Wikipedia).

Consider Possible Historic Market Failures and Consequences

The US Constitution was the consequence of a market failure. The capitalism practiced by England was exploiting the colonies. The Declaration of Independence stated the dilemma of whether to remain loyal to England and recognize the authority of the King or to fight for a broader vision of civilization that included the moral principles that were written into the US Constitution. The Revolutionary War resolved the dilemma and the market failure.

Slavery was a market failure. The capitalism practiced by the slave owners was exploiting people and creating inequities between North and South. The conflict between the industrial North and the agricultural South resolved the dilemma and the market failure when the Civil War was won by the North.

After World War I, the major economic powers in Europe caused a market failure in Germany because of the conditions in the peace treaty. This lead to Germany starting World War II that resolved the dilemma created by the market failure of the economic powers in Europe.

Considering Possible Current Market Failure

In each of the three market failures there is a pattern. The evidence in 2013, shows that we are beginning to experience the consequences of another market failure. Each time in the past there was a major migration of people, significant chaos and destruction, and the death of many people. In 2013, we can envision that climate change will result in a significant migration of people, the collapse of governments, civil chaos, destruction and death for many people starting within 10 years.

For decades, vehicles, coal plants and the burning of natural gas by humans have allowed our common atmosphere to become transformed into a threat to civilization.  Energy companies have been allowed to keep costs down by externalizing the waste discharge cost. They have privatized profits and shifted costs for waste and pollutants to society. The failure of the market to account for pollution of our common atmosphere has resulted in a threat to civilization.

The consequences include property damage, loss of property, mass migrations north in Asia and North America, drought causing food shortages, and weak governments collapsing. These will result in wildfires, the spread of disease and death to a billion people across the globe. Just like the three American historic crises listed above, this dilemma will be resolved by a global coalition of civil institutions that create a new set of standards for civilization. Just like the three prior resolutions listed above, by 2030, the world will be organized very differently than it is in 2013.

The Transition to 2030

From about 2020, +/- 2 years, America will become engaged in a global ending of an era and the beginning of a new era. Shutting down the fossil fuel industry, and the mass migration of people because of the consequences of climate change will be a great disruption across the world.

In 2013, we are like the people on Easter Island, when they did not have a regeneration rate high enough to sustain the forest resource necessary for survival on the island. We are not regenerating a sustainable global atmosphere sufficient for survival on the earth. We are allowing the concentration of greenhouse gases to rise too high to sustain civilization as presently structured.