A liberal politics puts freedom first. Liberals believe that freedom is indivisible, and that to defend our own, we ought to defend those of our fellow citizens and those outside our borders who call for our help. Liberals are optimistic about human nature but sceptical about power.
Our view of economic power is as sceptical as our view of political power. We believe in free markets and free competition because we want to protect individuals from economic tyranny. But we know that markets do not naturally serve the public interest. Left to themselves, they generate unwelcome externalities, such as extreme income inequality and pollution of the environment. Protection of the public interest requires regulation. The challenge is to achieve the proper balance: allowing markets to allocate risk, reward and resources, while safeguarding the public interest with skilful, precise and light regulation.
Today, there is a new challenge to the liberal idea of limited government. In order to avert systemic economic collapse, governments everywhere have intervened in markets, taking over banks, car manufacturers and insurance companies.
All governments now, however, are recognising the potential moral hazard of these interventions. Bailouts create the expectation among risk-takers that they can return to risk-taking with impunity, because they will be rescued once again. When governments step in, ordinary citizens wonder why their taxes are being spent to rescue a foolish few from their mistakes.
http://www.guardian.co.uk/commentisfree/2009/jul/12/liberal-economic-intervention-government
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