"Whatever happens, happens."
"Market failure" (depending on which economist you ask on which day) is when the market "fails" to provide the optimal outcome for society. It is NOT at its peak efficiency, NOT delivering the most utility to the people, NOT delivering its maximum goods and services, and therefore is failing the population.
This then gives rise to the call for (wait for it!) "government intervention."
You see, with this magic medicine called "government intervention" we can repair the market, making it efficient once again. So we lower interest rates here, jack up taxes there, perhaps regulate or deregulate an industry (again depending on which economist you ask and what time zone he's in), and POOF! All better.
Historical examples of market failure are:
The Bank Panic of 1907
The Great Depression
The Stagflation Days of the 70's
The Dotcom Bubble and
The Housing Bubble
Those gosh darn stubborn economies of those times just weren't behaving like they were supposed to damnit! And by gum, the federal government had to go in there and set things right either through inventing a central bank, or implementing the New Deal, price controls, massive expansionary fiscal policy, or good ole fashioned trillion dollar bailouts.
Immediately, leftists, socialists, internventionists, Keynesians, and other varied sorts of parasites are quick to point out the recovery that invariably ensued after these market failures. And if you were to dare ask "well, what if we just left the market alone" they all hold hands and sing in a cappella that old, standby classic tune "It Would Have Been Worse If We Did Nothing."
But while we can debate (impossibly) about whether or not intervention in these various financial crises accelerated recovery and remedied "market failure," I want to pose a different argument that is much less theoretical, much more logical, and simply one of definition. And that is calling into question if there can even be a thing called "market failure."
While true theoretical economists can debate about the technical definition of it, the operational definition of market failure, the one we have witnessed in the real world, has been one not of "a non-optimal use of resources," but rather "the government should prevent bad things."
FDR will blow billions (by today's standards trillions) on the New Deal.
Nixon will just simply institute "price controls!" See, all better now!
Bush will bail out the banks, while Obama will piss away thrice that amount on poor unproductive people.
But the problem in having the government "just prevent bad things" is that it is antithetical to a free market. The nanosecond the government intervenes the market is no longer a market, but a hybrid, that neither operates nor behaves as it normally would if it were completely void of government interference. Ergo, if the government is constantly intervening, we never get around to finding out if there is such a thing as market failure or that markets can, and will, inevitably heal themselves no matter how severe the "failure."
The real issue, however, is not whether governments should intervene to prevent "bad things from happening." It's an issue of pain avoidance and speed.
Very much like slowly peeling versus rapidly ripping off the bandaid, most humans are cowards and fear the immense and immediate pain of the rip. Therefore they prefer "government intervention" in the form of taking the time to gently and meticulously peel the bandaid away. However, this only delays the inevitable, amortizing the pain over a much longer time period than had you just ripped the bandaid off. But in either case, the bandaid would have come off and you would have gone out to play as you normally would anyway.
Regardless, the exact same scenario played out with the Great Recession.
We COULD HAVE let markets work their magic. CRUSH the bankster scum that deserved to have their fortunes and careers destroyed. Let the banks fail teaching them a lesson they'd at least remember for a generation. Have the financial system go into disarray, and send the economy into a much deeper and harsher recession than we endured.
But prices would have dropped rapidly.
Assets would have become cheaper.
Labor much cheaper as well.
And soon it would be profitable once again to start ventures, business, companies anew, bringing about a quick end to the economic recession.
Instead (again, the cowards that we Americans have become) wanted to believe the lies and poppycock of an "intelligent affirmative action hire Harvard man" who assured us he would pull the bainaid off slowly, and gently, and if there was going to be any pain it would be those rat bastard rich people. And so, now 7 years later (of still-significant economic pain mind you) we are FINALLY getting back to (what can at best be charitably called) "normal" in terms of unemployment, jobs, economic growth, and income....A place we could have been at 6 years ago had we just bit the bullet.
The point is not one of whether Barack Obama's, FDR's, Bush's, Nixon's, or any other presidents' fiscal policies were correct. The point is that if left alone, the economy would have recovered just fine without government interference. Ergo, "market failure" does not really exist. But our fear of paying the full price for our economic sins, and our naivety to think politicians can some how "wash them away" does. And that, my fine young junior, deputy, aspiring, official, or otherwise economists, is the true definition of "market failure."