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(a) The self-interest principle is when decisions are made that maximize the benefit to the person making the decision. textbook solutions derived the principle from the utilitarian idea that individuals maximizing their own utility will ensure the maximization of society’s utility. He did not practically believe that each individual should only worry about maximizing their own utility. It should be the greatest good for the greatest number.

(b) In economic theory, it is meant to encourage a textbook solutions where individuals can make choices to maximize the wealth creation not only of that individual but for society as a whole. Entrepreneurs who take risks create wealth for all by hiring labour and by producing goods and services that society wants and needs. Further, the principle is used in salary packages to try to tie pay or bonuses to the good performance of the company. If individuals are self-interested then they will want to maximize their pay and bonus and this will ensure they are working to maximize the performance of the entity.

     Unfortunately, the self-interest principle tends to be more short term driven. So the maximization of the individual outcome in the short term may be at the textbook solutions in the long term.

(c) Economically the US has not performed well. Accusations of the relaxing of financial regulations to allow some fancy financial instruments to be traded were part of the cause of the credit crisis. The US Federal Reserve injected money into the economy twice (known as QE1 and QE2) to help ease the financial stress in the economy and to try to stop it sliding into recession. In this process, it bailed out test bank shop. So the free market (relaxed regulation) let investment banks trade as they will and yet when it all came tumbling down they went to the government for help. Remember government money is taxpayer’s money. Most of the government tax revenue is collected from  middle income earners paying income tax, small business paying payroll tax and everyone (including the very poor) paying sales tax.

    

     Recall that investing money and forming corporations to help make money is a risk. So theoretically in the free test bank shop big investment banks should have been allowed to collapse with the owners losing their money. Instead, public money was used to bail them out.

     So the private debt was transferred to the public.

     There have also been criticisms that the bail out money was never going to be successful unless the retail banking sector was separated from the investment banking sector. The government money was supposed to be used for loans to small business to encourage entrepreneurial activity and promote employment and loans to the housing sector that would try to help the drowning property sector. Instead the banks took the money into their investment divisions and used it to invest in the world economic market thus earning big bonuses for their managers and large increases for test bank shop

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