The Market Economy Answer.

Has the Market Economy Failed?

Questions have been continually made about the failure of the market economy.

 To make sense of the question we need to first review what we mean by market economy. Recently we have heard about the failure of the energy market. Energy is not sold on the free market, if it were individuals would be able to buy the energy they want from the source of their choice. It is not possible to buy coal powered energy of wind powered energy you have to buy a complex mix from the grid.

Secondly, there are energy inputs that are subject to different taxes and different subsidies, no free market to be seen. 

Thirdly, the market is heavily regulated, and therefore cannot operate as a free market. 

Without going into detail in the energy industry or any other industry it is clear that a vast proportion of the economy is not market driven. If we are to look at the economy as a whole we find that 36% of the economy is Government and not market driven. 12% is the financial sector which is heavily regulated and therefore not market driven. 21% of the economy is the construction industry that is regulated to the point that small contractors get no chance to even enter the market. 

We can conclude by saying that a minor percentage of the Australian economy is market driven, and therefore the Australian economy cannot be used as an example for market failure.

How Would the Market Economy React?

In the purest form the market economy recognises both Pareto and Matthew. It would therefore maintain the same amount of money in the economy and wait until the 20% secure the 80% of assets, and then set the assets to work. The assets would start to return 10 – 15% in both capital and income. That is the size of the economy will grow as the assets grow. This allows 20% of the growth of 2 – 3% to flow down into the hands of the 80%

For this to happen there would have to be major changes to our governance systems from regulation to education. For example, in the:

Financial Industry. 

If it were driven by education not regulation then the educated consumers would know that they were looking for a return of about 10.4% per annum from a balanced portfolio. The consumer would then go about finding a service provider that could provide that return with a reasonable risk profile. It is not that difficult but has been made difficult by a lack of desire and risk aversion.

Energy Industry.

Suppliers would supply electricity into the grid and find retail customers that wanted to buy their product.