Read that sentence carefully. I fail to see any value. And if there is a value, then private insurance can fill that value more efficiently and more appropriately than government.
As for the question of over investment or over production, the reason entrepenuers make more and larger errors is access to capital and artificial demand. Inflation of the money supply by government and too much credit creation fostered by government through the federal reserve increase the misallocation of capital. No one knows what the business cycle would actually look like without government interference in the free market because it has never been tried. But no one can misallocate resources or disturb the allocation of resources to a greater extent than government. Free markets are going to be much closer to a true and proper equilibrium than any other method of allocating resources simply because the largest possible number of participants will be involved in the decisions. And the decision makers will be making those decisions with fewer distractions caused by changes in the supply of money or credit. More decisions, less noise, fewer mistakes and the magnitude of each mistake will be predictably less; by definition, the frequency of the business cyle will be longer and the amplitude less. Most of the adversity of the business cycle is caused by government, not business. And the corrections will be simpler, easier and more beneficial. Entrepnuers will be more likely to learn from their mistakes and from the mistakes of others, but only if someone suffers the consequences of those mistakes. Perhaps you have not considered why people keep repeating the same mistakes. How else can the same people keep going bankrupt, but continue to keep finding sources of capital?
Banks that can fail will be a lot more cautious about lending to you to build widgets in a free market economy where you, your employees and the bank itself can all fail without recourse from anybody. And you will be a lot more careful about building wiget factories when you are using your own money as opposed to "OPM". I suggest you spend some time reading Murray Rothbard on the free downloads availabe from mises.org.
You don't value community ties? You would rather see the unemployed uprooted and moved each time there is an economic disruption? Children separated from aging parents instead of staying to take care of them?
The greatest efficiency would come from community support in downturns, but what happens when the entire community gets hit with a plant closing?
Inflation of the money supply by government and too much credit creation fostered by government through the federal reserve increase the misallocation of capital. No one knows what the business cycle would actually look like without government interference in the free market because it has never been tried. But no one can misallocate resources or disturb the allocation of resources to a greater extent than government. I agree along with occasional contractions of the money supply causing artificial capital shortages.
Free markets are going to be much closer to a true and proper equilibrium than any other method of allocating resources simply because the largest possible number of participants will be involved in the decisions. And the decision makers will be making those decisions with fewer distractions caused by changes in the supply of money or credit. More decisions, less noise, fewer mistakes and the magnitude of each mistake will be predictably less; by definition, the frequency of the business cyle will be longer and the amplitude less. Most of the adversity of the business cycle is caused by government, not business. And the corrections will be simpler, easier and more beneficial.
There's no denying that the business cycle would be subdued if the government didn't mess with the money supply. But that doesn't change the fact that the business cycle is subdued by unemployment insurance taxes. By taxing employment, the decisions of the decision makers are being skewed towards less hiring during booms. During contractions, the unemployment payouts cause fewer people to become unemployed from ripple effect.