An Easily-Answered Question

Alex Tabarrok finds this question remarkable: "can market transactions generate institutional arrangements that impair the market economy?" That question was asked in 2006 by Richard Wagner, one of Tabarrok's colleagues at George Mason University. I guess the point was the question foresaw the current financial crisis (Wagner mentioned the securitization of debt earlier in his question), but students of IPE should be well aware of market transactions that can end up causing more damage than good: large volatility in capital flows, especially from the developed to less-developed countries, often generate boom-and-bust cycles that can decimate entire economies. Countries that borrow in foreign currencies sometimes leave themselves open to currency crises that have similarly devastating effects.

I'm not sure why Tabarrok (or Wagner) should be surprised that the result of market transactions can sometimes "impair the market economy". In my mind, a quick glance at history demonstrates that Wagner's question is easily answered in the affirmative.