1. An economic system based on a free market, open competition, profit motive and private ownership of the means of production.
2. Descriptive of a system that encourages private investment and business, compared to a government-controlled economy where investment money is obtained from private sources (shareholders).
I, along with everyone else, has been walking around hollow-eyed given the speed of the recent financial meltdown. 100 year old firms disappearing in a weekend, markets roiling with every bit of news, experts clamoring about the greatest calamity ever in the recorded history of finance, and politicians actually working weekends to attempt to rescue the largest and most important financial system in the world.
This is serious business.
I have also been amazed at the Governments response to nationalize “key” companies – AIG, Fanny/Freddie, and probably a few others before it is all through. Several people have made the connection between the nationalization of financial companies with the potential nationalization of the health care systems. Actually the wealth-health connection is probably stronger than you think. Just as the current financial mess is related to the “toxic” subprime debt on the books of the eviscerated companies, hospitals are also being laden with “toxic” debt from consumers who are also leaving them holding the bag on their bad debt.
Will the bad debt get big enough that health systems begin to fail? Can you imagine Kaiser Permanent, Sutter Health, Geisinger, or the Cleveland Clinic going down financially because of consumers bad debt? Can you imagine what would happen if these organizations cash flow problems began to shut down hospitals, affect care, and the ensuing outrage that would follow. Given recent events, would the government come in and “take over” these hospitals by infusing capital into them, folding them into the medicare system, or some other hybrid financing mechanism. Clearly, I understand the issue with sub-prime was the subsequent “securitization” of the risk which was how the “toxicity” was bought and sold. However, it does give one pause to consider the possibilities in light of previously unthinkable actions we have witnessed the last month.
Further still, it gives me pause to reconsider the capitalistic system running aground in a world wherein we are trying to outsource our brand of “economic progress”. Its a tough sell, particularly with a very angry international environment not only for the perception of imperialism, but also how our system of capitalisms is dragging the entire world economy into a vortex we created. Ouch. Might need to adjust those international travel plans.
In considering these issues and the sustainability of our capitalistic system, I read through a recent Newsweek article by George F. Will which helped to restore my confidence in the invisible hand despite the very visible recent carnage:
Capitalism, Ruth reminds him, is a profit and loss system. Corfam—Du Pont’s fake leather that made awful shoes in the 1960s—and the Edsel quickly vanished. But, Ruth notes, “the post office and ethanol subsidies and agricultural price supports and mediocre public schools live forever.” They are insulated from market forces; they are created, in defiance of those forces, by government, which can disregard prices, which means disregarding the rational allocation of resources. To disrupt markets is to tamper with the unseen source of the harmony that is all around us.
The spontaneous emergence of social cooperation—the emergence of a system vastly more complex, responsive and efficient than any government could organize—is not universally acknowledged or appreciated. It discomforts a certain political sensibility, the one that exaggerates the importance of government and the competence of the political class.
Government is important in establishing the legal framework for markets to function. The most competent political class allows markets to work wonders that government cannot replicate. Hayek, a 1974 Nobel laureate in economics, said, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” People, and especially political people, are rarely grateful to be taught their limits. That is why economics is called the dismal science.