Samuel

There is a whole class of businesses with balance sheets that dwarf the economies of all but the wealthiest nations. These companies are not only individually massive, they are also interconnected – when one goes down, it takes others with it. When these companies get into trouble, therefore, the governments of their host countries are compelled to intervene and prevent them from going under with massive injections of capitol and other sweet little bonuses. In other words, these companies can not fail because their host governments will not let them. They are “too big to fail.” The owners and executives of these companies are well aware of this situation, and are therefore much less risk averse than they would be if there was some legitimate threat of going out of business.

Now I’m no economist, but I have a layman’s understanding of how the theoretical free market works. Generally, we get the best goods and services at the lowest price in a free and open market because the providers of these services thrive while others fail and go out of business.

So, here is my question: in what way does the situation described in the first paragraph fit within the theory described in the second? My answer: in no way. We have built ourselves a system of perverse incentives where mega-companies are able to take enormous risks, reap huge profits, and pass their losses on to the public. And if we don’t play their game, they tell us, our prosperity will evaporate.

This sucks.