Despite the fact that most of the actions the government has taken in the recent past have be socialist in nature, the United States is not moving down a path away from capitalism; rather, it has simply been following a history of free market capitalism supported by moderately socialist government policy. Capitalism is an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decisions and by prices, production, and the distribution of goods that are determined mainly by competition in a free market. Socialism is the opposite. It is composed of a government controlled economy in which the means of production are federally controlled. Today, the American economy cannot be accurately described by either word in itself, but more of a combination of the two. Originally, the it represented the epitome of a capitalist society. People spoke of the “American Dream,” of common men coming to the United States and working their way into fame and fortune. However, the American economy has gradually shifted away from a true free market economy towards a mix between capitalism and socialism. True, the most recent wave of attempts to revitalize the economy by the United States government have been some of the most extreme ever, but regulation of our financial markets has been a critical part of our economy since the Great Depression. In fact, one of the reasons these problems arose was the deregulation of the financial markets that allowed instruments like mortgage-backed securities to exist and subprime loans to be issued. Like it or not, the government has a history of stepping in during times of financial crisis and taking extreme measures to protect the economy (see the New Deal). For the most part, it has always been justified and ended up having a positive influence on the economy. If the United States government had not stepped in and taken the actions it did, the economic fallout would cost taxpayers much more than what it has cost to effectively bail out the housing market. According to Jeanne Sahadi, a senior writer for CNNMoney.com, “If Fannie and Freddie went under…the housing industry could seize up, causing the loss of millions of jobs.” Or, in terms of actual dollars and cents, an article by James Pethokoukis, the money and politics blogger for U.S. News & World Report, claims that the dollar cost of not bailing out Wall Street could range anywhere from $15 trillion over four years to upwards of $30 trillion. The financial markets would crash and credit markets would completely freeze, making it impossible for students to get loans and families to get mortgages. If these estimates are anywhere close to the truth, the government intervention in this financial crisis will prove to be a brilliant move that effectively saved the American economy.There are those who argue that these bailouts set a poor example for financial institutions, especially how it guarantees money for the larger financial institutions at the expense of everyone else (see below, right). As Andrew Horowitz, founder of Horowitz & Company, says, “In a capitalistic society that relies on a free market system, we should only look to the government to guide and regulate against fraud and the manipulation of the system... it is
not to be a business partner and a sugar daddy there to provide a backstop to the bad business practices of the banking system.” True, there is the potential for companies to take these bailouts as a figurative safety net for them, guaranteeing their continued existence despite any risky practices they might engage in. However, given the necessity for a dramatic move by the federal government to turn the economy around, there were not many other options. Ideally the government would not have to come in and financially back the banking system, but in times like today, people have to look past their ideals to what is the most prudent and effective solution for our financial crisis. Like the co-host of CNBC’s “Squawk on the Street” Mark Haines observed on “Morning Joe”, “Nobody really likes this on a philosophical basis, but we live in a real world and we can’t, can’t dither with philosophy when such serious matters are at stake.” Only time will tell whether or not the government made the right decision, but given the situation at the time, it made the best possible move by intervening in our failing economy. Either way, this bailout is only a temporary fix. Unless we do something about the unchecked greed that is at the root of all these problems, we will not be able to fully recover from this recession.
