The Benefits of Free Markets - Assignment Example

Proponents of the benefits of free markets argue that markets create “efficiency” in the distribution of goods and services. A great example of the increased efficiency in distribution by increasing the scope of market mechanisms is the impact of internet markets in used goods, such as eBay and Craigslist. Items that might have once only been able to be resold for rock-bottom prices at garage, garden, and stoop sales are now valued more universally as they find a wider potential market on the web. Items that might be of interest to only a very few people can be much more easily located by these select few customers. In both cases, the consolidation of many small markets into a single large one increases the efficiency of valuation and distribution.

On the other hand, the stock market has provided of the pitfalls of market mechanisms, which has fuelled criticism of markets. The ongoing economic recession was launched when market speculation in real estate caused inflation of home prices and created incentives at every level of the market, from real estate agents to mortgage brokers to stock sales to sell and buy at prices far beyond the value of the properties or homeowners ability to pay. This resulted in a chain of economic collapse moving from real estate to banks to insurance companies. The impact of these perverse market incentives is still being felt in sluggish growth worldwide.

These two examples provided suggest that the apparent efficiency of markets can be judged differently over different temporal scales. In the short term, markets, and increasingly large markets are efficient on their terms at providing goods and services to those most able and willing to pay for them. On the other hand, a century-long view of market mechanisms globally suggests that markets are prone to episodes of speculation, crisis, and collapse as in the Great Depression and the current economic crisis. Read More