Failure means that particular actions didn’t yield the intended results. The term is often applied when bad things happen in the economy, as in “market failure.” The term implies that a market didn’t do what it was supposed to do. What is it, however, that a market is supposed to do?

An analogy to this might be called “weather failure.” A hurricane might destroy property, kill or injure many people, and leave them homeless. It is certainly bad from a human perspective, and it may prevent lots of people from achieving their goals, but who would say the weather failed? Weather can neither fail nor succeed. It is just the weather. It is simply the reality around which we must adjust our lives if we are to thrive.

Markets are like the weather. They are neither good nor bad. They can neither fail nor succeed. They are the reality around which we must build our lives if we are to thrive. The difference between markets and the weather, however, is that politicians generally don’t try to manipulate and restrict the weather.

What we see as the visible results in society are not the outcomes of a central planning authority, but rather the emergent properties of millions of people interacting and reacting to events. There is order in society, not because someone plans it, but rather because basic rules of human interaction have evolved over thousands of years. Rules, such as “don’t take stuff that doesn’t belong to you” and “don’t hurt or kill other people who are not attempting to hurt or kill you,” have been learned and passed on over time, and are sufficient for order and cooperation to emerge in a human population.

Large-scale problems crop up when many people have false expectations about the future and the results they seek. When their decisions ignore reality, the outcomes can be disastrous. When they are disastrous for enough people, there is a presumption that someone or something failed, and the reaction is often a plea to politicians for corrective measures. Those false expectations, however, usually are fostered by prior political actions. Two recent examples of the many throughout history are the Affordable Care Act and the economic stimulus and bailout programs.

For decades, because health markets didn’t meet arbitrary measures of success, government interventions were initiated to correct the supposed failures. As does any intervention, they led to unintended consequences, negative results, which called for more intervention. The ACA is supposed to be the cure-all corrective for health care, to alleviate the growing problems of prior political manipulation, but as we are seeing, it is just another vast intervention, which spawns more false expectations and more and worse problems in the future.

The Great Recession was the necessary consequence of a rapidly expanding money supply and artificially low interest rates. The politically induced inflationary credit bubble fostered unrealistic expectations of permanent rapid expansion of housing and financial markets. When they collapsed, it was not a failure of markets, but rather it was reality correcting the mistakes initiated by politics. The proposed solution, of course, was more politics in the form a bail-outs, stimulus and regulation. Markets got blamed for the errors of “experts.” We are now in another bubble market that will, when it bursts, cause tremendous harm. It is a failure of the policies that induce it.

Market failure is actually a meaningless term used as a justification for political intervention. When you hear people use it, no matter how influential, supposedly wise, or highly educated they are, put on your skeptic’s hat and question the motives. It usually boils down to more centralized political power and restricted rights of individuals.

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