Free Men, Free Markets?

According to The Economist, faith in free markets has dropped dramatically in the U.S.:

FAITH in the free market is at a low in the world’s biggest free-market economy. In 2010, 59% of Americans asked by GlobeScan, a polling firm, agreed “strongly” or “somewhat” that the free market was the best system for the world’s future. This has fallen sharply from 80% when the question was first asked in 2002.

According to their graphic, the biggest supporters of free markets are now Germany, Brazil, and China!

Source: The Economist

Maybe the self-esteem movement has gone too far and Americans just don’t like the idea of failure—but that’s what is supposed to happen in capitalism.  If you run a lousy business, it’s supposed to fail.  That’s the genius of capitalism, the “creative destruction” that Joseph Schumpeter wrote about.  While it may be individually difficult at times, societally it is fantastic.  Each failure is a signpost on the way to ultimate success.  (And, by the way, relative strength is an excellent way to sort the winners and the losers.)

There are still lots of American corporations doing first-class business in a first-class way.  And if this poll is any guide, maybe looking overseas in Germany, Brazil, and China isn’t a bad idea either!

4 Responses to Free Men, Free Markets?

  1. inthewoods says:

    “Maybe the self-esteem movement has gone too far and Americans just don’t like the idea of failure—but that’s what is supposed to happen in capitalism. If you run a lousy business, it’s supposed to fail. ”

    Or maybe Americans are confusing free markets with what we have here in the US. Example: if you’re supposed to see failure, then the banks should have failed, no?

  2. Mike Moody says:

    A good bit of the problem is that in the US we have no mechanism for a large bank to fail. Lots of small and mid-size banks did fail during and after the financial crisis, so capitalism worked the way it was supposed to in those cases.

    At the very least, it seems there should be a mechanism in which all of the bank officers walk away with nothing after a failure, or even a de-facto failure like many of the too-big-to-fail banks did have. No options, no bonus, and also option and bonus clawbacks for all the years of earnings that were wiped out. That might help reduce the “moral hazard” that exists now where the executives benefit from success and the public till subsidizes failure. Maybe that would encourage executives to be a little more careful.

    No one bails out the local pizza joint if they fail–I see no legitimate reason that executives of other business should be immune from problems either.

  3. inthewoods says:

    That might be the reason American’s no longer feel that free market capitalism is the right system – maybe because they don’t believe it exists or works. Rather, they probably see that it is a system of free market for most of us, and socialism for the richest.

  4. Mike Moody says:

    Capitalism always needs some regulation. Otherwise, untrammeled pursuit of profit creates some other social ills. It’s always tricky finding the right balance, but proper regulatory incentives can help reduce moral hazard. The socialism for the richest this go round might be considered a relatively newer feature, at least relative to the socialism of entitlement programs for most of us, which also didn’t really exist before the 1930s. The track record of American government has been to break up large companies whether they accomplished their size through legitimate business practices or not.