I suppose everyone has their own ideas on this, and I'm not an economist, I'm probably being very naive but I thought I'd have a go.
On holiday I was reading plato's 'republic'. In here he describes some kind of 'ideal' communist society, where everyone is working for the common good, like worker drones in an ant colony. Lots of staples of communist regimes like censorship, indoctrination etc. Not really my idea of an ideal society. But it does make you think.
Personally I believe that there is a balance to be made between pure capitalism and free markets (as the USA strives towards) and pure socialism (where everything is done for the state, and their is no reward for enterprise). I am not sure where the exact best balance lies, but there are some clues. I saw the movie 'sicko' recently which also examines one aspect of this question. It examines the reality of a free market health care system in the USA versus the more socialist systems in e.g. the uk or france. Ok it vastly overrates the usefulness of our NHS (us brits think it's not up to much), but I'd take that any day over the system they have as portrayed in the US. Medical insurance is fine in theory, but if they really can refuse your care on a technicality then the whole system becomes quite sick really (as with the movie title).
So while I believe very strongly in free markets and having reward for enterprise, I also think certain services are best provided by the state - such as health, police, fire etc.
Currently with the bank crisis I find myself asking some similar questions about the banking system. If capitalist societies rely on banks as their backbones, the foundations upon which society is laid, then the banking system must be stable as a rock. As detailed in the previous post, there are some very serious and fundamental flaws with the current banking systems. While they work very well on sunny days, they really become worse than useless on rainy days.
For something so fundamental I have to propose 2 possible solutions.
One is that the state should run the fundamental banking system for a country (or even possibly the concept of a world bank?). Nationalization - the banks money IS the states money - there can be no more confidence than that I think. And if the state takes on toxic debts from e.g. the US, then it is it's own fault, it takes the hit, the tax payers complain and vote in a more prudent government next time.
The second solution, probably more likely as less radical .. is that the banks, as 'keystones' in the economies of the world, are subject to intense regulation in everything they do. Every loan, debt is recorded and audited and viewable (perhaps even by anybody?) so that their financial books are constantly under scrutiny, much like open source software. And have independent bodies (presumably this is what the FSA is meant to be for) scrutinizing the books and imposing vast penalties for taking on too much risk.
However, as one banking expert pointed out, the problem with the second solution is, that it is easy to spot a risky loan in hindsight, much more difficult to manage risk on a day to day basis. Mind you you can't help thinking that it must be possible to manage risk better than certain institutions were doing (e.g. northern rock).
It is interesting that the banking systems used to be far more highly regulated, but I believe that in the reagan and thatcher years, many of the regulations were removed, and more so by brown and his cronies. Perhaps they were the true architects of this crisis.
On top of all this, one also has to ask some questions about the whole fractional reserve banking 'con', that exacerbates the whole system in times of crisis. The question is, could we live without it? Or has it become the engine that drives our economies?
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