Market Disciplines

I usually leave the economic posts to my friend Kirk at his random acts of economics blog, but I heard this explained recently and felt it was expressed so clearly and made such a great point that I should share it with whomever might dare to be interested in economics.

Market discipline, as I understand it, is an economic principle that states that individual businesses in the private sector(non-government) must constantly adjust their business by what money remains after all expenses have been paid out. When this shrinks, they either must invest less in their business or cut the number of employees or raise prices for their product or service that they provide. When the profits increase, the business can grow by perhaps buying more needed large equipment for the business or hiring more people or many other possibilities. The point is that there is a natural force in place to create a check and balance to how quickly the business does or does not grow. The good news for businesses is that many of the general circumstances that usually influence their growth or shrinkage are also being experienced by the other businesses they are competing against.

Now, let's change this to bring government into the mix. Let's say that the U.S. government decides to get into the home mortgage business just for example(not that they would ever do that) :). The government is not subject to the same market forces that the normal business is subject to. They get their money from taxpayers. This in turn keeps them from being subjected to market disciplines AND it forces the other players in the home mortgage business to compete with them while they ARE still handicapped by market disciplines. Not only is the government not subject to market disciplines. It seems to encourage the management of their resources to move in the opposite direction, recklessness and a complete lack of discipline. In the backs of everyone's mind who works within the government funded businesses is the awareness that government will always be able to bail them out if they fail with more tax money. Perhaps one of the ultimate ironies is that the taxes that pay for these government funded journeys into the market are funded by taxes from the very businesses they are unfairly competing against.

We've all seen the absolute mess that resulted at least partially from this practice of government involvement in the housing market. What else is the government going to become involved in??
Can you say healthcare?

There are so many reasons I'm for limited government involvement and regulation in our economy. These are just a few. In regards to ideas about healthcare, visit the link below to see current ideas about free market solutions to healthcare instead of government dictated solutions.

http://galen.org