Competitive Market Economies:Self-Regulating Markets vs. Economic Stability and the Paradox of Change

Abstract

Competitive market economies are a relatively new economic system, and while very productive, they are not self-sustaining, are unstable and require significant state support and regulation to function properly. Nevertheless, self-regulating market economies are superior to other political-economic systems—such as dictatorial fascism or autocratic communism—but they can be mismanaged. From 2009 through 2012, the Federal Reserve’s four quantitative easing programs and deficit spending by the federal government—use over $7 trillion dollars, or 45% of a year’s GDP—trying to solve the ongoing 2008 credit crisis. It is reasoned, the U.S. economy will soon experience negative GDP growth, and a double-dip recession will become evident—which will, at that time, call the Fed’s experimental policy of quantitative easing into question. Instead, the U.S. 2008 credit crisis could have been solved in two years, and cost the U.S. government and the Federal Reserve about 5% of a year’s GDP, by following the tried-and-true credit crisis management rules of Bagehot and Kindleberger.

Keywords

• Competitive Markets,free markets,2008 credit crisis,liberal economic theory,neoliberal economic theory.

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