Market Failure Government Interventions Do More Harm than Good

USING THREE EXAMPLES FROM ARGENTINA, EXAMINE THE STATEMENT THAT ‘GOVERNMENT INTERVENTIONS TO CORRECT MARKET FAILURE DO MORE HARM THAN GOOD
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SECTION A
Dollery and Wallis (2001, p. 62) define market failure as “the inability of a market or system of markets to provide goods and services either at all or in an economically optimal manner.” Government failure, on the other hand, occurs “when the government has created inefficiencies because it should not have intervened in the first place or when it could have solved a given problem or set of problems more efficiently, that is, by generating greater net benefits,” (Winston, 2006, p. 2). According to the two authors, the empirical theory of market failure aims to explain why markets that otherwise follow neoclassical economic assumptions produce inefficient outcomes. When a project fails, less welfare is generated than might have been generated with the available resources. Correcting the error becomes the collective responsibility. Government expenditure, taxation, and regulation are frequently used as justifications for market failure. The argument that free markets do not provide socially optimal results allows proponents of different government initiatives to argue that those policies are economically essential and helpful in policy areas ranging from education to sugar consumption. As a result, the public discourse over market failure and academic economics is vastly different in their understanding of markets. Free markets aren't always successful and efficient. In this case, what exactly happens? Solving this puzzle has necessitated an enormous amount of investigation. Various methods for the study of market failure have been created by social scientists, including historians, economists, political scientists, social theorists, public administration professionals, and anthropologists. Welfare economists have established the notion of market failure as one of the most effective methods of state analysis. According to the theory of market failure, the government should intervene in the economy when markets fail on the basis of economic rationality or equity (Careers360.Mobi, 2022). Most of the time, the authorities will intervene to remedy the problem and restore order to the market. Because of the conceptual agreement that Argentina is not just unstable and exploitative but also contributes to market failure, the government must intervene across several fronts to neutralize these disagreeable features. This paper uses Argentina's subsidy on domestic, regulation and tax policy to argue that government interventions to correct market failure do more harm than good. In section B the paper analyses market failure theory in terms of explaining market failure, government interventions and government failure and its causes. The paper aims to use examples from Argentina to argue on the statement in which the three selected government interventions caused a massive market failure.
SECTION B
Market failure theory
The modern version of this concept owes much to William Baumol's Welfare Economics and the Hypothesis of the State, Paul Samuelson's renowned publication on "The Pure Theory of Public Expenditure" in the Assessment of Financial economics, and Francis Bator's 1958 article entitled "The Anatomy of Market Failure." The theory of market failure has a long history in modern economics (Baekkeskov, 2019). Despite the fact that the market failure paradigm has been successful in offering a rigorous conceptual framework to help policymakers in the design of public programs, it has always had numerous severe shortcomings. In order to summarize the drawbacks, they may say that Imperfections or 'failures' are simple to detect since no human organization is flawless. It's much easier if they solely focus on the economy and ignore the political system's influence on the structure, purpose, and rules of the economy, as welfare economists do. In support of the assumptions at one time the U.S. government issued Executive Order 12866, which mandated that federal authorities conduct an economic study. According to the guidelines for this order, officials must first determine if the situation "constitutes a major market failure" before suggesting government involvement. They also explain how to recognize different sorts of failures, compare different treatments, and avoid having unintended negative impacts on the efficiency of market results. A number of market failure ideas are used in the regulatory impact evaluations (Baekkeskov, 2019). In 1994, it was argued that government involvement in the manufactured house industry was necessary because of asymmetric knowledge and externalities in the market. The theoretical foundation offered in introductory economics courses is sometimes implicitly defined as market failure by advocates for intervention. A market is said to be failing if prices are not equal to the marginal cost of production. In order to do this, the market must be devoid of transaction costs, externalities, and other barriers to entry or departure. Market failure is universal in light of the fact that very few markets are able to meet this objective. Markets are frequently accused of under delivering public goods and failing to take into consideration the impact that manufacturing or spending has on other parties (which economists refer to as "positive or negative externalities"). Government interventionists then assume that the government can fix these failings by providing goods and services or enforcing taxes and restrictions. Viewing market failure as a deviation from the ideal of perfect competition suggests that markets may be rectified by intervention (Baekkeskov, 2019). Interventionist programs need a broad interpretation of market failure. The pertinent question in this section is explaining market failure in terms of misallocation of resources, social efficiency and welfare loss. The paper discusses all these in details.
Market failure in terms of misallocation of resources 
When the pricing system fails to properly allocate limited resources, or when the action of market forces results in a net loss of societal welfare, market failure occurs. Because a monopoly's customers have few options for where to acquire its products and services, they are frequently overcharged (Careers360.Mobi, 2022). As a result, there is an under-consumption of the product or service, which results in a misallocation of resources.
Market failure in terms of social efficiency  
Market failure occurs when some customers choose not to pay for a public good. One example of a public good is national defense, which benefits all citizens equally; regardless of how much they pay (Careers360.Mobi, 2022). National defense is incredibly difficult to achieve on a private basis. When the price system fails to account for all of the costs and benefits of providing and consuming an item, a market failure occurs. The market will collapse if it does not provide an adequate supply of the good for the population as a whole.
Market failure in terms of welfare loss 
Many government measures such as price floors, price limits and taxation and subsidies contribute to deadweight losses (Careers360.Mobi, 2022). They create an Incentives changes for both the producer and the consumer to provide the market with commodities. Deadweight loss occurs when the government sets a price ceiling, resulting in a scarcity and shrinking of the producer surplus, both of which have a negative impact on the economy. Consumer surpluses dwindle, and inefficiency causes deadweight loss when the government imposes a price floor.
Government intervention
571500418909500There will always be those who believe that the government has a vested interest in preventing market failures and other fundamental issues, and despite this, immediate action is required to counter this argument. As a result, no other organization or agency has the authority or competence to act in the public interest's best interests unless it is a government agency. Taxpayers can be taxed and the money given to an industry, or import tariffs can be imposed on foreign goods to raise the price of native goods and make them more desirable to consumers. Businesses and whole industries can be stymied by increased taxes, fees, and restrictions. That's the only time that government interventions may be considered effective and alleviate social unfairness if they do not work (Xiang, 2020 p2.) Effective execution of intervention measures necessitates state expertise of market functioning. The ability of a market to allocate resources efficiently and fairly is a sign of a healthy market, whereas inefficient production and allocation are signs of a failing market.
Fig 1.1 Market failures in terms of misallocation of resources, government intervention, Welfare loss and Social efficiency.
Government failure
Distortion of price signals
In order to fix market problems, the state might introduce skewed and ineffective measures. Discouraging investors and crowding out private investments might be indicators of government actions. The equipment and gadgets that allow markets to establish an optimal equilibrium and make rational market judgments exist on their own (Xiang, 2020). A lack of rules...