Free Markets: Why Governments Intervene Essay

2027 Words Aug 21st, 2013 9 Pages
Free Markets: Why Governments Intervene Free markets have often been idealized in the US, and have become a dominant tool for trade and distribution of goods and services. There have been multiple waves of government regulation and deregulation of the market in US history. Each of these trends have been grappling with the central question of how sufficient markets are at satisfying our goals. In theory, free markets are fair and efficient at distributing goods and services. In reality, however, government must intervene in the marketplace for two overarching reasons. First, because in practice free markets left to themselves are not always fair and efficient. And second, because fairness and efficiency are not our only goals and …show more content…
72). Perfect information in the idealized competitive model is central to fair, competitive, and efficient distribution. In an exchange, a consumer cannot maximize his or her consumer surplus without symmetric information about the quality of the good. Government must intervene to set standards of information disclosure. In the case of tobacco companies choosing to mislead consumers about the health consequences of cigarettes, government regulated the use of the terms “mild” or “light” (Stone p. 72). While other factors such as addiction play strong roles here, without government intervention the consumers' misinformation would lead to high unintended social costs.
In her book, Deborah Stone contrasts two models of society. One is a hypothetical fully-rational and purely market-based society which she calls the rationality project that shares many of the same idealized qualities of the Idealized Competitive Model from Weimer and Vining. In this model, society members make decisions with perfect information and with perfect rationality. Decisions are made through straight-forward selections of which option will maximize their independent self-interest. Stone's purpose in using this model is to contrast it with a more realistic value-based model of a society which she calls the polis. One of the dominant differences between these two models is the importance of

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