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Unread 30 Jul 2009, 10:05   #30
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Re: Is Bigger Government Better

Quote:
Originally Posted by Tietäjä View Post
Not necessarily. This is more a vague "usually consequences differ", than a rule. The easy example would go along the lines of, if government is inefficient, it costs excess money to the tax payers. If a company is inefficient, it costs excess money to it's stockholders. Alternatively, is a company is inefficient, the government must bail it out (the list of banks paid US bailout funds includes Citigroup, Merrill Lynch, Bank of America, Goldman Sachs, UBS, Barclays, Societe Generale, Deutsche Bank, and so so; additionally, a while back Bear & Sterns was essentially bailed out complete, General Motors was paid out for). In the case of bail outs, the funds are brought from the tax payers, and it's essentially the same for a citizen whether he pays his taxes to fund public sector failures or private sector failures.

Surely, you can blame supervision for not intervening on subprime, but, had they done that, someone'd definitely yelled: omg communists intervening on our legit banking business. Truth said, the whole subprime crisis and the credit crunch is a follow-up of a private shadow banking sector failure, caused by poor analyzing of risk, combined with gullible consumers.
The recent bailouts of some of our banks are a rather unique and politically driven market intervention, partially made necessary by the government itself. Due to the character of banking organisations they are bound to have a sizable web of investors and creditors with interest in each other, making it appealing for political parties to intervene. Some the quirks of the private sector are unappealing, and depending on the character of certain organisations public interventions should be allowed. Unfortunatly, in the case you mentioned, intervention or placing banks entirely in the public sector can't take away some of the major character flaws of banks, as the web of interest and our dependancy on them will remain. But, as I said earlier, taking the quirks out of the private sector should be the very role of the government (and thus the public sector).
Quote:
Originally Posted by Alessio View Post
Organizations that attempt to maximize profits do have their own flaws of course. As I said before they can for example chose to only provide services to a certain market segment. Commercial organizations might not be suitable to sentence impartially in disputed matters either. And on markets with a monopolistic character you might prefer a non-profit organization as well. The role of the public sector should be solving issues at points where the market fails, if necessary. Preferably without interfering with the actual or other markets. But when you are just seeking innovations and efficiency then you shouldn't look at the public sector. Those are apparently the points at which the public sector falls behind.
The public sector can't serve any other purpose then assisting the private market when they fail to provide proper services, as the public market has it's own share of unique character flaws, as I explained before. Each sector has it's own advantages and disadvantages making it necessary to make a proper destinction and finding a suitable combination of both. But denying disadvantages specific to the public market is a bit silly.

The example you gave doesn't even really apply to the private market in general, as it is quite rare that organisations are actually bailed out by the central government. Even in a small country like the Netherlands (with 16 million people) on average 28 private organisations went bankrupt each day before the current financial crisis. 9349 organisations in 2004 and 9200 organisations in 2005. And we let those organisations go bankrupt for a very good reason: they aren't profitable.

Bankruptcy can actually be seen as one of the major features of the private market. It's a way to weed out the poor organisations and motivating organisations to improve. The general rule is that in the private sector poor organisations lose their market share, become obsolete and get replaces by better adjusted organisations. A rare occurrence in the public sector, where poor results can often be ignored, thus, as said before, making a proper distinction between both sectors is very important.
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Last edited by Alessio; 30 Jul 2009 at 10:21.
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