Raghu writes: >> In capitalist society subsidized moral hazard is pervasive. A lot of >> capitalist activity would simply not be profitable (and therefore >> would not exist) if it wasn't for government subsidies. Wall St's >> business model depends on unpaid liquidity insurance from the Fed. >> Corn farmers can overproduce all they want because the government >> insures them (for free) against a price collapse with its ethanol >> policy. And so on and on.
Agreed. But every example of Subsidized Moral Hazard you identify (or could identify) is a product of the political process, not the market process. >> > Do you think the problems of Subsidized Moral Hazard will be less in a >> > socialist >> society than a capitalist society? >> >> Yes. The above subsidies will have no place in a non-capitalist society. >> -raghu. I just don't understand. By definition, a socialist society is marked by a substitution of private property for social property -- the allocation of resources is significantly more politicized than in a capitalist society. So if Subsidized Moral Hazard is a product of the political process, why wouldn't the problem be worse in a socialist society? In fact, are you telling me as a historical matter that the Soviet Union and other socialist economies did not and do not suffer from any Subsidized Moral Hazard problems? David Shemano