This is the Cato Daily Podcast for Wednesday, April 27, 2011. I'm Caleb Brown.

Civil society is under assault on a variety of fronts.

One of the more traditional attacks is known as market failure economics.

Mark Pennington, his new book,

Robust Political Economy, takes on market failure economics. He spoke at the Cato Institute in March.

Market failure economics or, for one of the better phrase, mainstream neoclassical economics, evaluates market institutions against the benchmark of

full information equilibrium.

Any departures from this full information equilibrium are described as market failures

which is considered are ripe for some kind of corrective government action.

Now, if we take the perspective of robust political economy

and focus first of all on the idea of limited rationality, then this notion of perfection or full

information in this particular context simply isn't a valid standard

against which to evaluate either market institutions or any other institutions for that matter.

The case for markets isn't that they are perfect institutions, the case for market is based on the view that they are best place to cope with the inevitability of imperfect information and limited rationality.

So for example, take the notion that

neoclassical economists focus on of imperfect competition which is often

often considered to be ripe for some kind of corrective government action.

If we're in a world of limited rationality, of imperfect knowledge, then knowledge of what should

be produced and how it should be produced isn't going to be evenly distributed.

It's going to be unevenly distributed.

Some firms are going to judge the market better than others some firms are going to make

more profits than others other firms are going to make losses it's precisely through

...