I have been wondering about another recent 'free market' phenomenon. We see airlines going out of business due to fuel prices. Airlines use futures to try to hedge agains changes in the price of fuel. But it has become a large and dangerous game.
Rumor has it that Southwest Airlines gets their jet fuel at prices reflecting the equivalent of $50 a barrel oil due to shrewd (or lucky) futures purchases. Other airlines were not so fortunate. These financial instruments were originally used to protect against risk, now they seem to force huge gambles. Airlines that bet the right way on fuel prices win, the ones that bet the wrong way quickly go out of business. And it is a bet, and you are forced to play (no bet is still a bet).
This is the effect of a 'free market' as it is defined today by Wall Street. But is this efficient? Or good? Should massive industries be forced to make these kinds of bets on a continuing basis? In parallel I'll note that there was a similar effect in sub-prime mortgages, though more voluntary. People won and lost billions on similar bets. Have derivatives made Wall Street less of a bank that makes investments and more of a casino that makes bets? If so, should they be taxes and regulated like casinos?
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The beauty of capitalism is that it makes destruction creative. Those who bet wrong should lose or even go out of business.
One alternative is insurance against casualty, which in every case reduces the return on enterprise and investment and carries moral hazards as well.
You can't control the weather, but you can insure against hail and flood. The person who shuns insurance and takes risks will always come out ahead, on average.
If life is like Everest, the insured will be guaranteed to make it halfway up, but only the risk-taker will make it to the top.
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