February 26, 2009

Nationalizing Industries

This article attempts to verify through a case study that government controlled financing (or other industry) is inherently inconsistent with effective and benevolent business practices.

Human beings, according to assumptions typically held by economists, and by myself, ultimately make choices according to the impact on themselves (and their family) before they consider the affect they will have on anything else.

Our economic models show us relative results of particular changes within a market without regard to scale or quantity and are effective nonetheless.

This article suggests that this previous case of 'The House Bank', which was a bank controlled directly by the House of Representatives, is an accurate analogue of the case today where a government bail-out results in a business with controlling share owned by the goverment. In the case of The House Bank, the House abused their ability to control their own bank in an extreme way to provide themselves with the most benefits, since they did not need to bear the full costs of their own exploitations. Naturally, the bank was exhausted in short order, which is consistent with our economic predictions that people will do what they can for themselves and their family.

There is much fear that a large industry controlled by the government will follow a similar path, even with the dilution of power resulting from the high-visibility nature of the enterprise. It is inevitable that the controlling power in the business will attempt to gain the most benefits for itself through any means accessible to it.

This is to say that the case of The House Bank is nothing but a smale scale of a government operated industry, which follows the same rules and can be predicted in the same way by our economic models. The real difference would perhaps be that this larger system will cease to function after a longer time and decay more slowly.

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