Saturday, September 12, 2009

Free Market Economics and the Too Big to Fail Policy

The basic principle of underlying free market economics, I take it, is the view that when there is free competition businesses will have to behave in ways that benefit the general public. The reason why this must be so is that every business operates under the threat of failure.

But what happens when so much of our economic infrastucture depends upon the success of particular businesses? Two solutions are:

1) Businesses too big to fail must be bailed out by government to prevent infrastructure damage

or better yet

2) Businesses must be prevented by government from becoming too big to fail.

But these two solutions are socialistic in nature. The first of these measures, which was taken under the Bush administration, strikes me as a much larger step in the direction of socialism than Obama's public option.

Free market philosophy, it seems to me, requires this:

3) There is no such thing as a business to big to fail. If they go belly-up, let them go belly-up. Somehow, neither party was willing to accept this. Which suggests to me that we have to start looking for conservatives with a lantern, at least in Washington.

6 comments:

Crude said...

That conclusion would be of no surprise to many self-identified conservatives, Victor.

bossmanham said...

Hey Victor,

The first of these measures, which was taken under the Bush administration, strikes me as a much larger step in the direction of socialism than Obama's public option.

Bush got the ball rolling, that's for sure. Obamuhh then took a leap across the grand canyon (much bigger than Bush's) with the porkulus. Since health care is, what, 1/4th of our economy? (correct me if that's wrong) I think Obamuhh would be socializing much more than anybody ever.

There is no such thing as a business to big to fail. If they go belly-up, let them go belly-up. Somehow, neither party was willing to accept this. Which suggests to me that we have to start looking for conservatives with a lantern, at least in Washington.

You are correct.

Victor Reppert said...

But so long as the public option remains just an option, it wouldn't be 1/4 of the economy. The only way a public option takes over the health care industry is if it outcompetes its rivals in that industry. But free market philosophy says private industry does everything better than the government. So why is that a problem?

Large corporations are heavily invested in the political system, especially in the Republican party. This is a double-edged sword for free market economics. Corporations don't want the government moving into the economy, unless, of course, it helps the corporate bottom line. Then, by all means. The result is that real conservatives like Goldwater have been replaced by corporate prostitutes.

Crude said...

Free market philosophy does not say "private industry does everything better than the government", full stop. The government is entirely capable of hobbling competition and insulating itself unfairly from certain market costs and standards. It's like saying "If your entrant in a contest is really the best one, then it shouldn't matter if biased judges are on the panel".

And of course there are problems with government/lobbyist influence in government, though anyone who thinks such influence is limited to the Republicans is tremendously naive. If your response is "Well there are hardly any real conservatives in government so we'll just have to do it the corrupt corporate-welfare way or the inane socialist way", oh well. Just don't pretend you're making a very wise choice here. You're making a terrible choice that you're justifying on the grounds of limited options.

Anonymous said...

Here's an idea. Make sure you are sitting down though otherwise your head might explode from its sheer awesomeness.

The only reason that some businesses are able to become "too big to fail" is because of various actions of the government.

In a truly free market you wouldn't be able to have companies that are "too big to fail." It is only because of the government that we are faced with a seemly insurmountable situation. If the government would just stop messing with the economy and let it be free then we wouldn't have the kinds of problems that we are having now.

This current financial crisis was only possible because of government meddling. It sucks that the real solution (let the companies fail) is going to be painful but that is the price we pay for being foolish. Under no circumstances should we accept more government meddling as the solution. It is only going to make things worse.

Victor Reppert said...

Why in the world would you expect government not to interfere with business, when businesses fund political campaigns? They pay for government to prop them up.