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The Limits of the MarketThe Pendulum Between Government and Market$
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Paul De Grauwe

Print publication date: 2017

Print ISBN-13: 9780198784289

Published to Oxford Scholarship Online: January 2017

DOI: 10.1093/acprof:oso/9780198784289.001.0001

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The Utopia of Self-Regulation in the Market System

The Utopia of Self-Regulation in the Market System

(p.55) Chapter 5 The Utopia of Self-Regulation in the Market System
The Limits of the Market

Paul De Grauwe

Oxford University Press

This chapter questions whether the market contains self-regulating processes which can prevent the system from ending in self-destruction. There is no in-built mechanism which can internalize the external costs created by the market system. Only an external organization, the government, can do this. Capitalism itself is not capable of preventing an inevitable clash with its limits. Technological revolutions, in particular the digital revolution, do not currently raise productivity sufficiently to generate the resources needed to prevent environmental decline. Kuznets has turned out to be wrong in his belief that a highly developed capitalism would cause income inequality to drop. Piketty, Saez, and Atkinson point out that inequality in the most developed capitalist countries has recently increased. The regulatory mechanisms must therefore come from outside the market system, and indeed from the government.

Keywords:   regulation, self-regulation, technological progress, role of government, inequality

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