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Yahoo's Insane Purchase of Tumblr

4:27 PM, May 22, 2013 • By JONATHAN V. LAST
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Why do I bring all of this up? Because in order to believe that markets never reach incorrect outcomes you have to believe that Tumblr, Orbital, and Alon are all worth exactly the same sum—despite the gargantuan disparities in incomes, outputs, and assets. As a philosophical matter, I suppose this isn't impossible. It's just insane.

This sort of thing isn't new, of course. Almost exactly a year ago Facebook purchased another photo-based social platform, Instagram, for $1 billion. That purchase was funny not because of Instagram's revenues—they had none—but because a mere four days before the sale Instagram had received a round of venture capital which valued the company at $500 million. Again, you have two market-based results in enormous tension. So either one (or both) of the valuations were wrong or the value of Instagram doubled over the course of 96 otherwise unremarkable hours.

I'm not arguing that we should scrap the free market. Over the long haul, the free market has been responsible for an amazing expansion of prosperity and liberty across the globe. It has lifted masses out of poverty and provided freedom for men, women, and children. The free market is a good—maybe even a very good—thing. 

But it isn't infallible. And in the short and medium run, it often makes mistakes and creates outcomes that are neither good nor wise. Republicans would be better champions of the free market if they didn't feel the need to reflexively defend every market-based outcome, no matter how unpleasant or sub-optimal it is. And if they acknowledged these weaknesses while evangelizing about its strengths.

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