Economists such as Milton Friedman from the Chicago school and others from Public Choice schools, argue that market failure does not necessarily imply that government should attempt to solve market failures, because the costs of government failure might be worse than those of the market failure it attempts to fix. This failure of government is seen as the result of the inherent problems of democracy and other forms of government perceived by this school and also of the power of special-interest groups (rent seekers) and other both in the private sector and in government bureaucracy. Conditions that many would regard as negative are often seen as an effect of subversion of the free market by coercive government intervention. Beyond philosophical objections, a further issue is the practical difficulty that any single decision maker may face in trying to understand (and perhaps predict) the numerous interactions that occur between the producers of the world and the consumers in any market.


Advocates of lasses-faire capitalism such as some economists of the Austrian School, argue that there is no such phenomenon as “market failures”. Efficiency for a social system means the efficiency with which it permits its individual members to achieve their individual goals. This definition of efficiency differs from that of the Pareto efficiency, and forms the basis of the theoretical argument against the existence of market failures. However, providing that the conditions of the first welfare theorem are met, these two definitions agree, and give identical results. Austrians argue that the market tends to eliminate its inefficiencies through the process of entrepreneurship driven by the profit motive something that the government has great difficulty detecting, or correcting.


Finally, objections also exist on more fundamental bases, such as that of equality, or Marxian analysis. Colloquial us of the term “market failure” reflects the notion of a market “failing” to provide some desired attribute different from efficiency – for instance high levels of inequality can be considered a “market failure”, yet are not Pareto inefficient, and so would not be considered a market failure by mainstream economics. In addition, many Marxian economists would argue that the system of individual property rights are a fundamental problem in itself and that resources should be allocated in another way entirely. This is different from concepts of “market failure” which focuses on specific situations—typically seen as “abnormal”—where markets have inefficient outcomes. Marxists, in contrast would say that markets have inefficient and democratically-unwanted outcomes viewing market failure as an inherent feature of any capitalist economy—and typically omit it from discussion preferring to ration finite goods not exclusively through as price mechanism, but based upon need as determined by society expressed through the community. Effective…probably NOT.