Tuesday, March 25, 2008

The Free Market Works Best in the Context of Integrity

As a lover of the free market, I am watching recent events and asking myself, "When are bailouts appropriate? What are appropriate price tags on bailouts? How can we avoid the need for bailouts in the future?"

The latter question leads me to the conclusion, and I fully confess my limited understanding regarding such things, that there are at least two reasons we are seeing bailouts on various fronts right now:

1. We are so accustomed to pain avoidance and instant gratification that we cannot stand to pay the price for our own foolishness. I am suggesting that we are not willing to suffer a depression caused by our own bad behavior, but would rather continue to pop the pills (small and large attempts to fix here and there) that mask the side-effects of what is boiling beneath the surface.

2. Those in the free market have not thought generationally and have not passed along lessons from one generation to the next. As a result, each new generation manifests its greed and short-sightedness, leading us cyclically into these crises.

What is my response? INTEGRITY. If we had more integrity, we could avoid the need for bailouts.

1. If we had integrity, we would be willing to suffer for our mistakes. We would live for a while in the land of lack because we have been living in the land of plenty for years by borrowing from our tomorrows. Tomorrow is here. We have to pay the pied piper and get our debt levels down to a reasonable place. What we have is a debt problem. People are in debt, the gov't is in debt, and all because we have been living off of more than we make. That could all be fixed with a little integrity. If you make $60k, live like you make $60k, not $100k. If you get $2.4 trillion annually in tax revenues (Congress) don't live like you get $5 trillion. People with integrity don't try to be something they are not, they are real and honest. People with integrity don't turn away and point fingers. They face up to the pain when they caused the pain they are facing.

2. If those in the market would live outside of their own short-term gain and think long-term, they would train up the next generation of investors. We could learn from our mistakes. If those in the market acted with integrity (instead of trying to get away with schemes that seem too good to be true, but work for a period of time) we would not get in over our heads with such schemes. The market has to be bailed out when the market refuses to act with integrity. The investments made were not a bad idea in and of themselves, but the players allowed the system to develop such that there was no integrity linking up the initial investments with the end-receiver investments. Every man was in it for himself. The Free Market works, with integrity. If the free market refuses to act with integrity, the government will be "forced" to bail out, to regulate, and to reduce the sphere of free market activity. Over time, we may find ourselves in a society where the people welcomed increased and oppressive government control because of the free market's failure to act with integrity.

Integrity begins with you and me. Let's get started.


Anonymous said...

The plethora of cliches aside, such calls to action only work if there is a clear path of action to follow. There is no such thing as a free market -- only markets relatively more and less affected by regulation. A lack of regulation got us into the current mess; a stern response by the legislative branch is what will prevent future messes. For now, the Fed bailout is an appropriate short-term mechanism to ensure economic stability. The alternative is that we close our borders and return to a pre-WWI mentality. Communism worked in theory, and so does market-wide integrity.

Kelly J. Bozanic said...

Dear anonymous,

Communism fails because of free will - not every individual subscribes to the ideals espoused by the society as a whole. It makes sense in theory, because of the assumption that everyone will act in a predictable/desired way. Alison's point is simply that if individuals (as individuals, absent government mandate for collective action) acted in a way that was less self-serving (at the expense of others), in other words, with more integrity, then *some* of the current problems we face would have been mitigated. A call to live with integrity does not require "a clear path of action to follow" - do we really need the government to tell us how to be honest? Regulatory failure is certainly an issue, but I don't think Alison is disputing that.

Alison M. Kilmartin said...

Dear Anonymous ~

My point is that the more we operate with integrity, the LESS the market will have to be regulated. I agree that there is no such thing as a 100% free market, but I believe it's a term of art that refers to a market that is minimally regulated.

Indeed, a stern response from the legislative branch is bound to follow. But, we can take action as individuals to prevent the need for even more regulation in the future. The aggregate of individuals acting with integrity can impact the economy on a larger scale. We have seen individual actions aggregate and lead to a negative result, so just as surely they can aggregate and lead to a positive result.

I echo Kelly's sentiment that we don't need the government to provide us with a "clear path of action to follow" when it comes to integrity. As the saying goes, "Everything we need to know about life we learned in kindergarten."