To Bailout or Not to Bailout: Is Free Market Economics Sustainable?

Published on September 22nd, 2008 | by

Wall StreetIn view of the current Wall Street crisis, America’s credibility as a bastion of free markets has come under the radar. The Fed’s recent bailout of AIG, Fannie and Freddie are perceived by many as a free market detour.

The government’s latest bailout news involves a plan to make the biggest intervention in the financial markets since the 1930s. Central to this plan would be a mechanism to bad assets off the balance sheets of financial companies or instead perhaps to create a federal insurance for investors in the money market funds. Additionally, the Securities and Exchange Commission is getting ready to propose a temporary ban on short selling financial stocks.

The Taxpayer Is Affected

Who’s being affected? The American taxpayer. Some have accused the government of using the bailouts as a method to privatize profit and socialize losses. However the downfall of companies like Lehman Brothers and AIG are already proving to have far reaching effects on the economy. Perhaps there is no choice then except for government intervention.

Are Free Market Economies Sustainable?

A free market economy refers to a system where the buyers and sellers are solely responsible for the choices they make. Free market gives the absolute power to prices to determine the allocation and distribution of goods and services. However, the notion of free market is mainly a theoretical concept as every country, even capitalist ones, places some restrictions on the ownership and exchange of commodities. So while the concept of free markets works in theory then, the truth is that its sustainability could well be questionable. Even though the U.S. has always been the hero of free market economics, the truth is that the government has stepped with bailouts in the past. The last time we saw this happen was during the Great Depression.

Will this new plan save America from another depression within the span of a century?

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About the Author

Reenita Malhotra Hora is an Ayurveda clinician, entrepreneur, writer and mom. Her experience has ranged from running Ayoma, an Ayurveda business to running a natural health practice at San Francisco's California Pacific Medical Center. Reenita is a published author of two books books about health and wellness: ‘Ayurveda - the Natural Medicine of India’ and ‘Inner Beauty’. She is also the Editor for Green Options Media's business blogs and a freelance writer for a variety of print and web publications. In quieter moments, she likes to spend her time hiking, swimming the warm seas, cooking with the family or writing fantasy fiction adventure stories for kids from from 2 to 92. Check out her wisdom at www.reenita.com