On Nov 30, 2007 6:04 PM, David B. Shemano <[EMAIL PROTECTED]> wrote: > 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.
True. But the political and market processes are inseparable parts of the capitalist system as a whole. Failure to recognize this is the central weakness of the libertarian ideology. > 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? Citi's SIVs do not have (and never had) any economic purpose other than to profit off regulatory arbitrage as Jamie Dimon candidly admitted recently. Capitalist institutions reward and encourage the creation of SIVs. The creators are celebrated as innovators. This is a peculiarly capitalist notion where all profits are considered good and there are elaborate institutions in place to facilitate and support such activities. Such institutions would not provided under a socialist society and a monstrosity like the SIV would not exist without such support. Similarly under socialist institutions the price of corn would be based on the needs of society and not on speculation on the direction of ethanol policy in the futures market. The debate on ethanol policy would be framed in terms of needs of society rather than on profit opportunities for farmers. > 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? Nepotism and false incentives exist in any type of society. But converting political power into financial profits is a peculiar feature of capitalist society. You'll have to give a more concrete example to explore this further in the context of the USSR or any other economy. -raghu.