The often-underestimated strength of the free enterprise system

Over the weekend, two important articles appeared on the opinion page of the Wall Street Journal.

The first, by the editors of the opinion section, noted the accounting write-downs which public firms are making to their earnings based on their estimates of the costs of the newly-passed healthcare legislation.

That the additional government taxation and regulation will carry a business cost comes as no surprise, and many pundits are reacting to the new law as the sign of the inevitable close of the American free-enterprise system.

However, the second noteworthy piece, an interview of Nobel laureate economist Gary Becker by Hoover Institution fellow Peter Robinson, sounds a note of optimism. Entitled "'Basically an optimist' -- still," the interview is well worth reading.

Professor Becker, a longtime economist of the Chicago School and colleague of Milton Friedman (whose own note of optimism from the depths of the 1970s we pointed out to readers of this blog last week), argues that the amazing power and resilience of the free enterprise system is repeatedly underestimated because people "have a hard time seeing how this pursuit of profits can lift the general standard of living. The idea is too counterintuitive."

We share Professor Becker's belief in the often-underestimated strength of the American free enterprise system. Even in periods in which government interference has increased, innovative men and women have found ways to create new value and solve the world's problems.

This belief in the strength of the free enterprise system (which other countries are also adopting, as Mr. Becker points out in his interview) is fundamental to the growth stock philosophy of investing that we articulate in this blog. This does not mean that we think investors can put money into whatever companies they want and "everything will be all right" -- far from it.

However, it does mean that we still believe there are opportunities for well-run companies to add value, and that investors should not underestimate the long-term resilience that the free enterprise system has shown, including through decades with challenges every bit as serious as those that concern investors today.

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For later posts on the same topic, see here: