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

Year 2013, Volume: 2 Issue: 2, 95 - 109, 01.06.2013

Eric L. Prentis

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.

References

• Akerlof, G. A. and Romer, P. M. (1993), Looting: The economic underworld of bankruptcy for profit, Brookings Papers on Economic Activity, Vol. 1993, No. 2, pp. 1-73.
• Bagehot, W. (1892), Lombard Street: A Description of the money market, New York: Charles Scriber’s Sons, pp. 359.
• Black, W. K. (2005), The best way to rob a bank is to own one: How corporate executives and politicians looted the S&L industry, Austin, TX: University of Texas Press, pp. 351.
• Center for Retirement Research at Boston College, Retrieved April 11, 2013, from Web site: http://crr.bc.edu/
• Duy, T. (January 29, 2012),ZIRP and interest income, Retrieved March 16, 2013, from Tim Duy’s Fed Watch Web site: http://economistsview.typepad.com/timduy/2012/01/zirp-and-interestincome.html
• Economic Cycle Research Institute (ECRI), Retrieved April 11, 2013,from Web site: http://www.businesscycle.com/
• Kindleberger, C. P. (1978), Manias, panics and crashes: A history of financial crises, New York: Basic Books, Inc., pp. 271.
• Nalewaik, J. J. (April 14, 2011),Forecasting recessions using stall speeds, Federal Reserve Board, Washington D.C., Working Paper, Retrieved April 11, 2013, from the Fed’s Web site: http://www.federalreserve.gov/pubs/feds/2011/201124/201124pap.pdf
• Polanyi, K. (1944),The great transformation, New York: Farrar & Rinehart, Inc., pp. 305.
• Prentis, E. L. (2011), Evidence on a new stock trading rule that produces higher returns with lower risk, International Journal of Economics and Finance, Vol. 3. No. 1, pp. 92-104.
• Prentis, E. L. (2012), Early evidence on US stock market efficiency: “Market vs. state” debate and deregulation implications, Economics and Finance Review, Vol. 2, No. 8, pp. 23-34.
• Rosner J. (March 12, 2013), JPMorgan Chase: Out of control, Retrieved March 14, 2013, from the Graham-Fisher and Company Web site: http://www.scribd.com/doc/130291230/GF-Co-JPM-Outof-Control
• Schwab, K. – editor. (2011), World Economic Forum global competitiveness report 2011-2012, Retrieved February 22, 2013, from the World Economic Forum (WEF) Web site: http://www3.weforum.org/docs/WEF_GCR_Report_2011-12.pdf
• Social Security Research, Statistics, & Policy Analysis, Retrieved April 11 2013, from Web site: http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/
• Stiglitz, J. E. (2012), The price of inequality: How today’s divided society endangers our future, New York: W. W. Norton & Co., pp. 448.
• U.S. Government Accountability Office (January 16, 2013), Financial crisis losses and potential impacts of the Dodd-Frank act (GAO-13-180), Retrieved February 18, 2013, from the U.S. Government Accountability Office Web site: http://www.gao.gov/products/GAO-13-180