Gambling with Other People’s Money

Thursday, April 29th, 2010

In the United States, Russ Roberts says, we like to believe we are a capitalist society based on individual responsibility.

But we are what we do. Not what we say we are. Not what we wish to be. But what we do. And what we do in the United States is make it easy to gamble with other people’s money — particularly borrowed money — by making sure that almost everybody who makes bad loans gets his money back anyway. The financial crisis of 2008 was a natural result of these perverse incentives. We must return to the natural incentives of profit and loss if we want to prevent future crises.

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