Defining and Illustrating Market Corrections

This chapter defines and illustrates how market corrections occur in the book, Market Corrections not Government Interventions: A Path to Improve the US Economy. A useful definition of a market correction is an improvement in market performance that enables markets to address an alleged failure that motivated or could have motivated a government policy intervention. A market correction may be facilitated by an increase in competition or a technological advance or both. Market corrections may offset the cost of government failure by providing an opportunity for policymakers to withdraw their costly intervention in a market or by improving market performance even though government continues to intervene in a market. Some market corrections, however, may be possible only if the government withdraws its intervention. I use a series of stylized graphs to illustrate how the forces of competition and technological advance could address market failures that motivated government to implement policy interventions to address those failures. Market corrections are shown for a monopolist’s abuse of market power, natural monopoly, imperfect information, a negative externality, and public production.