The Market Economy Is Not Dead

The market economy has many enemies. They lie in ambush for it in every corner and rejoice in every failure. Now they are celebrating. They are saying that this is the end of capitalism and the end of the free market.

The market economy has many enemies. They lie in ambush for it in every corner and rejoice in every failure. Now they are celebrating. They are saying that this is the end of capitalism and the end of the free market. They are claiming that China is rising and the United States is sinking. Look, there is a serious collapse on Wall Street, the dollar is plummeting and recession is around the corner. They are even saying gleefully that the crisis has proven that government is preferable to market forces. After all, it was the U.S. administration that intervened and saved Wall Street's financial institutions, along with the entire economy.

This is a misunderstanding. The government's intervention does not prove that the market economy is bankrupt. Even the strongest advocate of the market economy knows that the government plays an important role in such a regime. It is responsible for providing public needs such as education, defense, welfare and infrastructure, as well as dealing with economic crises. After all, that's why it collects taxes from the public. That's why it has a budget, and the U.S. budget totals about 35 percent of gross domestic product. In other words, $5 trillion.

This huge budget enables the administration to reach deep inside its pockets and allocate $800 billion for a program to rescue Wall Street and prevent a major recession. It's not every economy that can allocate such huge sums for a rescue program.

There are countries with an alternative economic regime (praised by critics of the market economy), which would not have been able to allocate even a thousandth of that in a crisis. In effect, they don't have crises at all, they suffer from a slow decline. For example, Cuba. There is no capital market there, and no investment firms. There are no profits and no crises. But the standard of living is so low that Cuba's inhabitants are fleeing to the "collapsing" market economy in Miami. There are no crises in North Korea either. Poverty there is so great that there simply is nothing from which to decline. There is nothing from which to fall.

These days many people are also enjoying the opportunity to condemn the greed of the executives of the Wall Street investment firms. The claim is that a handful of people entered an insane profit-making race to win bonuses of tens of millions of dollars. And to achieve these high profits they took exaggerated risks, until the entire bubble burst in their faces.

But in fact we should ask: Don't we play a part in this story? Perhaps we too are greedy? After all, had one investment firm dared to manage our money in a perfectly solid manner during the years of growth and profit, we would have fled from it and gone over to a competitor, which would have provided much larger profits. Because we too wanted to make large profits. We too refused to listen to talk about risk. It's not so clever to complain now about the greed of Wall Street executives and forget that we suffer from the exact same ailment.

But that is precisely the ailment that moves the wheels of the economy. It is more elegantly known as maximizing profits. The market economy, which well understands human nature, says that all people try to maximize profits, so they work more, invest more and invent more.

The desire to maximize profits is actually the basis of the market economy. Without it, nothing moves. But when it gets out of hand, a crisis ensues.

The response to this problem is closer supervision of those who manage our money, the investment firms and pension-fund managers, so that even if we demand more profits and yields from them - and that means additional risk - they will not be able to deliver the goods due to strict regulations.

In any case, the collapse on Wall Street demonstrates that the market economy is not a perfect system, but it is the best system there is.

Nor is democracy a perfect system - look what leaders it brings to power. But as Winston Churchill said: "Democracy is the worst form of government, except for all those other forms that have been tried from time to time."

So nobody in the United States is dreaming for a moment of changing the system. Not John McCain and not Barack Obama. It brings them great wealth, and every 10 to 20 years a crisis as well. Taxes in the United States are among the lowest in the world, and they will remain so. Government intervention will also remain limited. Exports and imports will remain free, and everyone will be able to study and work wherever they wish. They will be able to progress, create, initiate and develop as they desire, without being directed and without control from above. That, and not Wall Street, is the true free market.

So the market economy's enemies should not hasten to rejoice. The market-economy system is not dead, and anyone who expects to see the United States sink deep into the ocean will have to wait a very long time.