Sustainable management futures - Essay Example

86). When Prime Minister says that “no true conservative wants to sit back and let capitalism rip”, he is making a contradictory and incorrect statement. The main premise of capitalism is to ensure that the government sits back and “let it rip”. Whenever the government intervenes, not only it distorts the market equilibrium but it also ensures that the public sector grows larger in size, as compared to the private sector. There are no doubt in the fact that the resources in the market are limited, in terms of human and financial capital, and when these resources are devoted to the public sector, which is the inefficient sector, economies fail to realize their economic potential (Bishop, 2000, p. 86). More importantly, when governments intervene and prohibit capitalism from “letting it rip”, it is creating a cost on all parties with its intervention.

Quite understandably, governments would have to finance their power and intervention with two possible sources. First, it would tax people to fund the intervention, something that violates the basic principles of liberty and freedom and decreases the disposable incomes of people, which then goes on limit the number and size of investments (Isbister, 2011, p. 76). More importantly, as mentioned earlier, the public sector is the inefficient sector, therefore, the amount of taxes are never able to generate returns what they should have generated had they been transferred to the private.

Furthermore, as governments accumulate more money though taxes, they see more incentives and opportunities for corruption. Second, the governments might decide to print more money for financing these interventions and “preventing capitalism from ripping” (Aras & Crowther, 2010, p. 67-68). Injecting more liquidity in the market might boost the demand in the short term but in the medium term, it will increase the inflation, which is disastrous to any economy. The cash reserves, savings and capital of people would hold lesser value than they did before thus depriving people to buy the same amount of goods and services that they intended to buy with their money since it would hold lesser value.

It would decrease the disposable incomes of people, which would reduce the savings. Reduction in savings would mean reduction in the overall capital, which is available in the market thus discouraging future investments and economic growth. Consider the example of how under the Bush Administration, the Federal Reserve Chairman, Alan Greenspan, although, a libertarian decided not to “let capitalism” rip” and intervene by disturbing the equilibrium of the market. In the wake of the dotcom bubble and 9/11 attacks, he decided to set the interest rates at a record low level of 1 percent so that capitalism and free markets could not “rip” investments due to the above mentioned events.

It appeared that the strategy worked, as investors went on to invest in more risky projects and sectors, which would not have received investment had the interest rates been determined by market. Too many investments in the housing market created a housing bubble, which then