Tuesday, June 9, 2009

USA: "Free" Market

I enjoyed this article in the New York Times today about potential cracks in the European Union. Two thoughts:

1. The United States is always held as the beacon of the free-market economy to the rest of the world, and it's amazing to see how many people take the recent events (especially the collapse of GM) as a sign that the market doesn't work.

While I agree that a total unregulated market is probably too... scary? ... for most people to accept, I can't accept GM as a case of market failure. There was far too much regulation involved in the shaping of GM (CAFE standards, powerful unions) for me to say this is purely a case of market failure. In many ways, regulation caused a lot of these problems, and it irks me to hear regulation being called for as the answer.

That being said, maybe the US is just at an inflection point in terms of regulation. Perhaps there are gains to be made from more regulation and gains to be made from less regulation. I'm going to meditate on that one for a few days.

2. It's interesting to me to see Germany and France trying to separate from the EU, exactly as many economists would predict. Germany especially interests me in their handling of the Opel situation. Blocking Fiat seems silly to me, still; it was widely admitted that Fiat's long-term plan was vastly superior to the Magna plan, but Magna saved more German jobs in the short term so Merkel brokered that deal.

In light of the criticism of the US and the market economy, I wonder where the EU will go. Germany and France, according to Erlanger and the Times, want more independence, and EU membership probably is holding them back from some potential growth. However, are they going to head toward a more market-based economy? Will they simply try to be independent but maintain their socialist/mixed economy (whatever you want to call it) philosophy? This situation has definitely piqued my curiosity and I'll be watching it for the next decade.

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Compared with the totality of knowledge which is continually utilized in the evolution of a dynamic civilization, the difference between the knowledge that the wisest and that which the most ignorant individual can deliberately employ is comparatively insignificant. ~Fredrich Hayek in The Constitution of Liberty