A recent story about corruption in Pennsylvania illustrates one of the limitations of capitalism that many are politically disinclined to accept:
"In one of the most shocking cases of courtroom graft on record, two Pennsylvania judges have been charged with taking millions of dollars in kickbacks to send teenagers to two privately run youth detention centers."
The story goes on to talk about a revolving door of imprisonment, all motivated by personal profit. But this should not have happened right? Capitalism and private enterprise out perform government, so why haven't they made the prison system better? Why do we now imprison more people than any nation in the world by an order of magnitude?
The problem is that capitalism, by its very nature, seeks profit maximization. In arenas where we want more of whatever is being created, say apples or ladders or DVDs, this works out just fine; the competitors in the marketplace achieve their profit by increased efficiency and production. But in areas where we want less of whatever it is we are dealing with, say prisoners, capitalism is going to draw us in the wrong direction. If prisoners bring you profit, you will bring economic pressure to bear to create more prisoners, which means paying off judges.
This is where government needs to come in, where the only problem is corruption. A real problem for sure, and the main reason we should only have government programs where they are necessary. Areas where the profit-motive of the market gives us more of what we don't want are a good place to start: prisons, hospitals, the police force, etc. This is one of the glaring reasons why the "reduce taxes and let the market fix everything" mentality is doomed to failure.