What is the fundamental function of the state?

To correct market failures.

To look after the weak, the incompetent and the gullible, only because the strong and productive agree that they need protection. Otherwise, there should not be a state.

BTW, there's no such thing as "market failure".

to ensure a flat tax rate, encourage enterpreneurship, strengthen national security, advance commerce, and be less intrusive on local affairs....in other words, it's fundamental function is to be Less of Itself.

to put order in this chaotic world.

You're an economist?

i don't think it's wise to "challenge" victory's assertion....i'm pretty sure victory knows what he's talking about unless you are in the mold of Galbraith, Keynes, or Greenspan.

No, I'm not an economist, I'm the SEB king. More than one economist (and several non-economists) have asserted my statement about this "market failure" cwap and I'm repeating it because I happen to agree. Tell me more about this victory_fils. Can he kill someone just by thinking about that person?

What does Wikipedia say:

"In economics, a market failure is a situation in which markets do not efficiently organize production or allocate goods and services to consumers (for example, a failure to allocate goods in a way some see as socially or morally preferable).

To economists, the term would normally be applied to situations where the inefficiency is particularly dramatic, or when it is suggested that non-market institutions would provide a more desirable result. On the other hand, to many, market failures are situations where market forces do not serve the perceived "public interest". Here, the focus is on the economists' theories of market failure.

Economists use model-like theorems to explain or understand such cases. The two main reasons that markets fail are:

the inadequate expression of costs or benefits in prices and thus into microeconomic decision-making in markets.

sub-optimal market structures"
*****************
That's terribly un-scholarly of me but the three mother statements underscored above already reek of "as-is-where-is" assumptions of the world we live in. Supposing everyone was perfectly in his right to trade with everyone and there'll be absolutely no third party intervention? Could the first highlighted situation ever happen? Is there a penultimate justification for a non-market institution to interfere with trade between two people? Last, who said there should be a consideration for public interest when it's just about two private individuals minding their own businesses?

Greenspan is interesting; we don't quite agree about the Fed's policy of raising interest rates because it feels there's some "froth" in the US real estate markets. We just spoke a couple of weeks ago.

I wish I could have spoken to Keynes. Galbraith's books are enough for me.

I do not think elke_weis is "challenging" me (are you?) -- nor am I "challenging" him. I think elke_weis has interesting ideas (see his post above). The reason I ask about whether elke_weis is an economist (and I know he's not) is because many very smart economists have indeed argued that there is no such thing as "market failures" -- in very precise, rigorous terms. But they also recognize why the idea of having markets fail is a useful construct, just like having some common language about how the world works is a necessary starting base for any sound discussion. Otherwise, magkape na lang tayo.

Do you recognize why the concept of market failure is a useful construct, elke_weis? Did you think through the concept thoroughly, before you said "there is no such thing"?

These are good "exceptions" to situations where markets fail. Bilateral relations between two equally endowed and informed individuals often result in efficient outcomes. Many situations where markets might have "failed" can in fact be resolved through costless bilateral bargaining, an idea that won Ronald Coase -- a lawyer by training, not an economist -- the Nobel Memorial Prize in Economics.

However, what if these two individuals were not equally endowed or informed? (Endowed not in the sense that might be useful in SEBs, elke_weis: Endowed in terms of, say, material wealth, intelligence, bargaining power, etc. -- although wait: All that may well be useful in SEBs, huh?) Take the case of a large corporation, well-informed about risks, probabilities and returns, dealing with ignorant, less educated customers. Caveat emptor na lang? Sorry ka na lang kasi bobo ka?

Besides, elke_weis, you of course know that providing examples through exceptions does not mean that there is "no such thing" as the general concept of "market failure." Hm?

Now that we're both here (and as long as ol mac_bolan's banned), maybe you can give me a better definition than wikepedias. I think I get your point about useful construct. Economics is, after all, a descriptive science. Some people say it's a usefule tool for management and governance but let's skip that one.

I find it hard to think that one will describe a private transaction between two parties as having an impact on the entire population. This will happen only if you put a clamp on so much individual freedom that the future lies with these two parties and what they agree on.

Information asymmetry, am I right?

I didn't look at it as an exception, but rather a quantum unit of what one would call "human interaction". You know how objectivists like me think. The only morally acceptable interaction between two reasoning individuals is a fair trade. I translated this concept towards a logical conclusion: Their action cannot result in a detrimental situation for others because they are looking after their own interests and that fairness requires one not to disadvantage the other, much less third parties. Third parties shouldn't be viewed as weaklings who cry 'foul' at nearly everything they can't control.

Yeah, many social sciences claim they start from "first principles" but even those "first principles" are very often just useful constructs, a straw man which may or may not be a good starting point for building models of how the world works, depending on what reality is truly like.

Here's a good discussion/introduction to "market failures" and why they may provide some justification for state intervention:

Elliott Parker - UNR notes on Market Economies

Note, however, that just as markets can "fail," so can there be "state failure." Even if states knew which intervention is in the social interest (doubtful to begin with), it too has incentive and informational problems.

But I don't suppose I have to convince you that there is such a thing as "government failure," do I, elke_weis?

Haha! Touche on two things. One, I broke the objectivist's first rule: Never generalize. Two, you just gave me a reading assignment.

Yep, I kind of knew where you were coming from. And I do agree with your statement that "the only morally acceptable interaction between two reasoning individuals is a fair trade." However, reality always gets in the way of such useful constructs, as you point out. Individuals do not always use reason quite correctly, and even if they did, there is no guarantee that the other party would play fair. When we simple-minded economists make assumptions about human nature, it is simply that "individuals maximize utility" (to be "rational" in the strict economic sense is not the same as "reasonable" in the objectivist sense; economists simply assume that rational individuals maximize utility). And so in this world view, individuals will play fair, use reason, be cordial, not disadvantage other people if it maximizes utility. It is equally possible that to maximize utility, individuals will cheat, lie, use guile and deception and every trick in the book. If objectivist philosophies appeal to one individual and maximizes his or her utility, then it is adopted and carried out. But we don't (and can't) assume that others will follow suit.

It is admittedly a simplistic view of the world, and arguably a dismal one. But (I think) it is also an eminently useful construct: If we come up with workable solutions (State interventions that correct market failures? Market mechanisms that solve failures of government?) for situations where utility-maximizing individuals behave in such ways that works best for society as a whole, then having reasonable, moral objectivists playing fair, living a good life, and being a good citizen is icing on the cake.

But how rare and refreshing it is to encounter interesting conversations in online fora these days! No more visits to "The Academe" in PeX for me; all I get nowadays in PeX is some amusement from reading your posts in "Intimacy and Passion" threads.

Yeah, I remember PM'ng you once about it (and Danilo Juanengo as well). The most gratifying thing about I&P (what my ex said) is that some of my posts have circulated in hard form. Get this, her uncle once came home with a sheaf of computer printouts containing 'guess what' and saying the content was simply amazing. It was all my ex could do to keep from laughing.

And her officemates talk about it. Want something funny? Here's what they say about mac_bolan00:

"Tapos may boss sya pangalan mac_bolan. Parang Dios kung mansermon. Hindi man lang niya pinagsasabihan si tyanak sa mga pinag-gagagawa niya."

That is funny! Congrats on the circulation bit!

The State's Fundamental Function is as a unit of organization. Of course, that in itself deserves an even longer explanation.

This is almost a political discussion... hehe.

What do you mean by "political"?

According to Solomon Tulbure, politics is a part of 'applicable philosophy'; along with such topics as metaphysics, epystemology, morals and ethics.

In addition, the "first" economist Adam Smith was actually a philosopher: He held the chair of logic in 1751 and the chair of moral philosophy in 1752 at the University of Glasgow.