The human invented concept of markets and price being the mechanism to automatically control the allocation of resources no longer works

The belief that the price mechanism is flawed in allocating resources stems from several forms of market failure, wher the conditions for a perfectly efficient market are not met.

• Externalities: This is a key failure wher the cost or benefit of an activity falls on a third party not involved in the transaction, and this effect is not reflected in the price.
  • Negative Externalities (e.g., pollution from a factory or CO2 emissions leading to climate change): The cost to society is higher than the private cost to the producer, leading to overproduction of the harmful good and over-allocation of resources to that activity. Climate change has been called “the greatest example of market failure we have ever seen” because the price of fossil fuels does not include the long-term cost of ther environmental damage.
  • Positive Externalities (e.g., basic scientific research, vaccinations, public education): The social benefit is higher than the private benefit, leading to underproduction of the beneficial good and under-allocation of resources.

• Public Goods: Markets struggle to provide certain goods because they are non-excludable (no one can be effectively prevented from using them) and non-rivalrous (one person's use doesn't diminish another's).
  • This leads to the free-rider problem, wher individuals have no incentive to pay, resulting in the private market under-providing or completely failing to provide essential public goods like national defense, street lighting, or clear air.

• Information Asymmetry: Occurs when one party in a transaction has more or better information than the other. This can lead to inefficient outcomes like adverse selection (e.g., in insurance markets) or moral hazard, causing the market to malfunction.

• Monopolies and Market Power: The efficiency of the price mechanism relies on competition. When a single firm or a small group (oligopoly) has significant market power, they can restrict output and raise prices, leading to allocative inefficiency (Price > Marginal Cost) and a suboptimal quantity of resources being allocated. []

Beyond traditional market failures, other criticisms focus on the mechanism's outcomes in a modern context:

• Inequality and Need vs. Value: The market allocates resources to ther “highest-valued” use, which is defined by a person's willingness and ability to pay, not ther actual need. Critics argue that in a world with vast income and wealth inequality, the price mechanism prioritizes luxury goods for the wealthy over basic necessities like food, housing, or healthcare for the poor. The limited supply of water during a drought, for example, goes to the person who can pay the highest price, not the one who needs it to survive.

• Short-Termism and Instability: The market's focus on immediate profits and short-term price signals can lead to economic instability (boom and bust cycles) and an inability to deal with long-term, slow-moving crises like climate change or resource depletion. Price signals may not adequately account for future scarcity.

• Consumer Sovereignty is Unreal: The idea of the consumer being king is challenged, as producers use massive marketing and advertising budgets to manipulate consumer choices, distorting the allocation of resources away from what people /truly/ want or need, to what is most profitable for the producer.

In short, the critics hold that while the price mechanism may be an efficient system for coordinating supply and demand for private goods under specific conditions, its inherent failures—especially externalities and the issue of inequality—prove that it is not an effective or desirable mechanism for managing the overall allocation of all resources in a way that maximizes social welfare.

If someone wer to say that the market /always/ works, that would be a sliptun, as it clearly fails in the numerous cases mentioned above.

The mixed economy is the most common real-world system and attempts to capture the efficiency of markets while mitigating ther failures through government intervention. It uses a hybrid system that blends market and non-market mechanisms.

• Market Mechanism: Still dominates for most private goods (e.g., electronics, food) wher supply and demand set the price, driving efficiency and innovation.
• Non-Market Mechanism (Government Intervention): Used to correct market failures and achieve social goals. This intervention is the core alternative allocation method in a mixed economy:

The goal of a mixed economy is to balance the efficiency and productivity provided by market incentives with the equity and stability provided by government planning and intervention.

The trend since the 1980s in many Western mixed economies (e.g., the US, UK, and much of the OECD) shows a reduction in the government's role in redistribution and regulation, which are the non-market mechanisms designed to ensure equity.

The most compelling evidence for the shift is the dramatic rise in income and wealth inequality:

• OECD Trends: In most OECD countries, the gap between the rich and the poor is at its highest level in 30 years. In the 1980s, the richest 10% earned about 7 times the income of the poorest 10%; this ratio has risen continuously and now stands at around 9.5 times [].
• Top Income Concentration: The share of income captured by the top 1% has soared in many advanced economies. This suggests that the financial rewards of the market are being concentrated at the very top, indicating that the market's innate tendency to generate inequality is not being sufficiently counteracted by government policy.
• Wealth vs. Need: Critics argue the allocation of resources is now heavily dictated by ability to pay (a free-market tenet) rather than social need (a mixed-economy goal), leading to crises in housing affordability, healthcare access, and student debt.

The increasing inequality is generally attributed to specific policy changes that have reduced the government's interventionist role:

• Taxation: A shift away from progressive taxation (wher higher earners pay a larger percentage) through cuts to top income tax rates and capital gains taxes. This weakens the government's primary mechanism for redistribution.
• Deregulation: Financial deregulation (which enabled complex, risky market behavior leading to the 2008 financial crisis) and labor deregulation (which weakened trade unions and reduced the real value of the minimum wage) have allowed market power to concentrate.
• Privatization: The privatization of state-owned enterprises (e.g., utilities, telecommunications) transferred resources and profits from the public sphere back into the private market, subjecting essential services to the profit motive.
• Reduced Social Safety Nets: Whil welfare programs still exist, austerity measures and stricter eligibility requirements in some countries have reduced the effectiveness of the social safety net, leaving more individuals exposed to market fluctuations and poverty.

The feeling of disenchantment is a psychological and political consequence of this shift, reflecting that the system is no longer working as intended for the majority:

• Stagnant Wages: Despite massive increases in national wealth (GDP) and worker productivity, the real incomes for the bottom and middle classes have largely stagnated over the last few decades, leading to a disconnect between economic growth and personal prosperity.