The free market is a wonderful thing. It’s remarkably good at supplying the goods and services people want and need, and the alternative of top-down planning has been shown pretty conclusively not to work.

(I should admit my bias here: I’m a capitalist in every sense of the word. The older I get, the bigger the share of my income I derive from savings and investments, which means I’m not earning it by my own talent and hard work but by exploiting that of the proletariat. Hee hee hee.)

This isn’t just my opinion; it’s widely accepted in economics, even among former Marxists. There’s an introductory on-line economics course on YouTube, Crash Course Economics, with some good episodes about this. In particular, see the episodes on “Markets, Efficiency, and Price Signals” and “Price Controls, Subsidies, and the Risks of Good Intentions.”

Good as it is, though, the free market isn’t God (though some self-styled Libertarians and enthusiasts of Ayn Rand do seem to rate it pretty close). As mentioned in a previous post (link), even John Locke and Adam Smith, who laid the foundations of capitalism and free-market thinking, acknowledged that markets don’t get everything right.

(And while sports fans may rail against officials, everybody acknowledges that fair competition requires rules and people to enforced them.)

So I was glad to see that the folks at Crash Course Economics have just released a new episode explaining various ways in which markets do indeed fail and why the government sometimes has to step in and regulate things or even take over. (Even libertarians tend to agree that the government should have a monopoly on fighting wars, if wars get fought at all.) In fact, sometimes the best approach to regulation uses the market itself to achieve the desired goal (essentially by correcting pricing errors when the market doesn’t incorporate all the real costs). Here it is:

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