I was just reading an article by Nouriel Roubini. He talks about the failure of Laissez-Faire Capitalism. Basically he says that our economy has failed because we allowed it to become the Wild, Wild West. That we allowed unregulated capitalism to run rampant according to the efficient market hypothesis. That the market will behave most efficiently when unregulated. That the market can correct for it’s own bubbles accordingly.
He says this cannot exist because companies take on risk which forces them to act in ways that are not the most efficient for the biggest gains. That people can easily be mislead about the risk and the gains. That we are often swept up by “irrational exuberance”, such that we cause the market to not act efficiently. Thus no capitalistic market can really act efficiently because of human interference.
He also says that by the idea of “self-regulation” is also false. That these regulators have a conflict of interest which causes them to not act rationally. Instead they begin to not follow rules but whether they believe there is “risk”.
So sitting where we are in 2009, I agree. But I’m a very liberal person with conservative financial values. I believe in regulation and having rules. I believe that government has better answers than leaving it up to individuals. I don’t believe that we are able to leave aside our personal feelings and truly let an efficient market run it’s course.
I think right now we’re seeing correction in the market. Severe correction. To put an example, we were all saying “Home prices are unsustainable.” Yet people still bought into the housing market and got mortgages. So where was the self-regulation? There was none. Instead people say “the bank said I could afford an $800k home on $50k salary.” There is no personal responsibility anymore.
If that’s the case, how can capitalism really flourish if people won’t actually be held accountable? People keep saying I don’t understand the financial repercussions. So much so that the Obama Administration is now attacking Credit Card lending practices. What that means? They are trying to put in more rules (bigger government) because people have cried and whined so much about being fiscally irresponsible what is the government to do?
How can we move back to a capitalistic society if we don’t take personal responsibility?
3 responses so far ↓
1 Meg from FruWiki // Apr 29, 2009 at 1:30 pm
Yeah, I’m not a big fan of laissez-faire capitalism. It would really only work well, if then, if people had the power to make informed choices. Unfortunately, that is just not the case in soooo many situations.
For example, health insurance. If you’re like a lot of people, you can’t afford to buy health insurance on your own. You hope and pray that your employer offers it and it’s decent, but the choice is your employer’s if anyone’s and you may not be their top priority. Plus, it is hard to feel truly informed even after reading an insurance policy!
On a related note, take drugs — or even GMO foods, which are hardly regulated at all. Can you always trust the company to inform you of the real health risks? The report what they have to, sometimes, but they’re not going out of their way to uncover the truth if they think it will scare people.
Then there are regional monopolies. Sure, proponents of L.F. capitalism may says that it would make monopolies harder to establish but they still happen, especially in rural areas where there is the kind of population needed to sustain competition. Example, back home there were two movie theaters in the next city over (which was actually much bigger than where we lived). They’d both be open for a while, then they’d drive each other out of business, then someone would open them again. Don’t even get me started on utility and phone companies! And what about vouchers and school choice? In a rural area there isn’t much choice at all even if you had “school choice” and a voucher.
Bottom line, laissez-faire capitalism — like most any doctrine — is overly simplistic and depends on informed choice, something we don’t always have.
Should people be held accountable for their actions? In theory, yes, but we should also be compassionate and understand that they may not have had the resources to make a properly informed choice. So, instead of just blaming people for bad decisions, we need to make sure that everyone has access to the resources they need to make informed choices — including 3rd party scientific studies of things like GMO food, pesticides, drugs, etc.
2 Michelle // Apr 30, 2009 at 7:30 am
I think your argument really lacks one major discussion point – that without any government oversight, corporations will abuse their fiduciary responsibilities and figure out new and innovative ways to collect money for nothing…while avoiding responsibility for systemic failures. all of the examples you cite (mortgages, credit cards) are rife with abuses that have nothing to do with whether the consumer is educated/does their homework/takes responsibility for themselves and their own decisions. I’m not saying people should yield all decision making to the Government, but is very clear to me (a liberal liberal with somewhat conservative financial views) that no self-correction is possible in these two industries because their ‘exuberance’ for making money at any cost has ingrained what amounts to theft/robbery from vulnerable populations as a policy…my 2 cents!
3 LAL // Apr 30, 2009 at 11:14 am
I agree about government intervention but I think that a lot has to do with personal responsibility. But what else can we do? We are pretty greedy and then want help as the bailout showed.
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