Wednesday, September 17, 2008

Government Guarantees

In the same vein as the last post, Will Wilkinson blogs on government guarantees.

Anyway, institutions are institutions are institutions. Government institutions aren’t magical. Some institutions can indemnify others, but it can’t be turtles all the way down. Government is limited in capacity to insure individuals and corporations against loss. The widespread assumption that there is in fact some kind of unlimited, all-purpose backstop — that the U.S. government can simply guarantee itself against its own failure through magical fiscal and monetary willpower (i.e., economic Green Lanternism) — seems to me a big part of the problem here.


What everyone needs, capitalist and prole alike, is better institutions, including a better regulatory framework for the financial sector, so that markets do work. So let’s have that.
But let’s also not pretend that the government’s attempt to “guarantee” that you will get your retirement income, or that you will get your heart surgery in a timely fashion, or that a functioning financial system will endure, actually makes these events more likely than they would be under alternative institutions that make no such guarantees.


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