Toro
Diamond Member
Capitalism is a self-correcting system. Abuses end with bankruptcy and dissolution. No need to put anyone up against a firing squad.
Capitalism is usually a self-correcting mechanism. It isn't always. If it were, there wouldn't be structural unemployment.
And when large amounts of people are put out of work for an extended period of time, the results can be catastrophic.
No, it is ALWAYS self-correcting. Exceptions occur as a result of gov't policy, like extended unemployment benefits and minimum wage rules.
That is simply not true.
There was an empirical study published about five years ago which looked at the failure rate of banks during the Great Depression. It analyzed the financial strength of 1500 failed banks in nine states during the 1930s. The authors found that banks that failed were as strong or stronger than banks that did not fail.
This is irrational. If capitalism was always a self-correcting mechanism, then the market would have been able to discern those banks which were stronger and thus better able to survive. The banks which were strongest should have had the lowest rate of failure as the market should have been able to sort out which were most likely to survive. Instead, depositors pulled out their money regardless of the financial strength as they were gripped with fear and panic. Milton Friedman wrote that the creation of the FDIC was a key determinant to the end of the Great Depression as it subsided the panic in the financial system, just like the financial guarantees during this crisis pulled the financial system back from the brink last year.
Markets are usually self-correcting mechanisms and are usually able to discern where capital should flow. But to assume that markets are always self-correcting mechanisms is to assume that people are always rational, and that institutions are always able to withstand societal pressure. Both of those assumptions are false and are contradicted by empirical evidence.
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