President Javier Milei spoke for the first time at the World Economic Forum in Davos. From there, he strenuously defends the capitalist model, attacks castes again and reiterates a concept that he coins more and more often: “Market failures don’t exist.”
In his speech, the president warned that “the West is in danger” and spoke out against it “socialism, which condemns poverty”. “Those who should defend Western values find themselves co-opted by a worldview that leads inexorably to socialism and, consequently, poverty,” she said.
In this sense, he assured that “capitalism will end hunger” and made it clear “Market failures don’t exist.”
“Under the pretext of a market failure rules are introduced that only generate distortions in the price system, which impede economic calculation and consequently savings and investments”, he noted, although it was not the only time he introduced this idea during his speech in Davos. In total he did about 10 times.
In September, when the current president was only a candidate to occupy the Rivadavia seat, this concept was heard coined for the first time, at least in public and in the presidential race: “Market failures don’t exist.”
But what does it mean? This is a statement encapsulated in a ultra-orthodox tradition of economic literature and theory. From the Austrian School of 150 years ago to the theory of Public Choice even further back in time. It is part of a whole trend in favor of the free functioning of the market assign resources, tasks and prices and to which Milei clings.
The concept of “market failure” or “state dysfunction” – something that according to Milei does not exist – arises from considering that the attributes that the neoclassical synthesis attributes to the benefits of the market they are not always such. There are situations in which the capitalist system of production and allocation fails. That part is what Milei doesn’t say. That means:
First In economics there is what is called extreme failure and it is the existence of public goods. There are also other failures which are externalities, the failures of information, of competition and monopoly, of diminishing returns. In all these cases the State must intervene to mitigate the efficiency problems that the existence of these failures can generate.
In any case, Cambridge University economist Joan Robinson supports this what a perfect competition it was a specific case of the capitalist production system. Milei says the state is to blame for these failures. And the public sector is always to blame. Economic theory recognizes what the libertarian says. From the first Economics courses a student takes at university, he can start learning about all those failures. They are classified and differentiated. As you progress through your degree, you will consider different subjects in microeconomics and public finance. We recognize the Public Choice School approach (that market failures can also be caused by the state) but none of this implies that there is no optimal balance in the size of the state and perhaps this is what has broken down in recent decades . with the emergence of Kirchnerism: no country in the world has increased the weight of the state in ten years like Argentina without having gone through a war or a catastrophe. Milei is the answer.
Examples of public goods could be a square, a lighthouse or lighting, sweeping and cleaning services. They do not meet the so-called exclusion and rivalry requirements, i.e. everyone can use them and no one will be prevented from doing so by anyone else. The market cannot intervene there and, if it does, it will do it badly.
Even a company that sponsors a square is nothing more than a financing regulated or intervened by the State.
Milei also said that “a company can pollute a river as much as it wants.” Taxes to mitigate pollution (Pigou) exist and are applied in Argentina. And Chicago economist Ronald Coase worked on property rights to control pollution. He received a Nobel Prize for his theorem. But its application presupposes strong assumptions (low transaction costs and segmentation of property rights). It is a theoretical disquisition that has no application in practice in Argentina. All this is what the liberal school doesn’t say.
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Source: Clarin
