Wikipedia Mentions Capitalism as:
"Capitalism is the economic system in which the means of production are owned by private persons, and operated for profit[1] and where investments, distribution, income, production and pricing of goods andservices are predominantly determined through the operation of a free market[2], rather than by central economic planning."
While Wikipedia Mentions Socialism as:
Socialism refers to a broad set of economic theories of social organization advocating state or collective ownership and administration of the means of production and distribution of goods, and the creation of anegalitarian society.
So what am i refering to?
I am refering to the recent interventions from governments, especially the US government in the functioning of markets. The US government has recently announced a bailout package of $700 billions and previously bailed out freddie and fannie bank, merill lynch, AIG.
The point of this post is if companies are bailed out like this by governments that pride themselves as the keepers of capitalism, doesn't this bcome socialism of sorts?
USA has been pressurising, pleading, lobbying to get developing countries like India, China, Brazil and others to cut subsidies on various sectors, including oil, agriculture, banking sector. While these countries hold government control and regulations on ownership and investment in many sectors and themselves manage and run many sectors for example railways in China & India, USA and its representatives have always been unhappy with this stand.
India was about to lift up its foreign investment limit in the banking and insurance sector in 2009. And we should thank god that the current crisis has come to the forefront before that.
But things are a little different now. US goverment will buyout troubled assets of many banks and mortgage landers freeing them of bad assets and making available some cash. But 700$ Billions isn't that much, is it?
By the way while i was researching to find out how a economic bailout can help boost economy, i came across, keynesian theory.This theory was coined by British economist John Maynard Keynes in early twentieth century somewhere around the economic depression.
According to him, some people may have a liquidity preference which would see them rather hold money than buy new goods or services, which therefore raised the prospect that the Great Depression would not end without what he termed in the General Theory "a somewhat comprehensive socialization of investment."
In other words, a goverment intervention is required to help a economy come out of a depression.
We don't know if this theory works or not, but we will soon find out. From what ever history i know, US came out of the last depression because of world war 2 when they got the chance to supply allied armies with military hardware.
So i am just hoping this theory will work out for them and we do not have to deal with the second option!.
Coming back to the topic, the US government is certainly acting like a socialist state. In a freemarket, true to capitalist principles, these troubles companies should be allowed to go bankrupt. Thats how a free market functions, surivive or die.
So do we all finally agree that its ok to be a little socialistic once in a while? George ?
