As best we can tell, the free market had little or nothing to do with the banking crisis that has caused panic throughout the world.
That blame can, to varying degrees, be handed to: the Community Reinvestment Act; the efforts of Congress and several administrations to expand low-income families’ access to home loans; a prolonged period of low interest rates; political protection from several members of Congress who were feeding at the trough of Fannie Mae and Freddie Mac; the mark-to-market accounting requirement; some innovative new credit vehicles; and possibly some corruption among private and perhaps public figures.
How any of that is the fault of the free market is a mystery, especially given the already high levels of regulatory control. As The Economist recently pointed out, “After all, the American mortgage market is one of the most regulated parts of finance anywhere.…”
But to hear the media, numerous politicians and several world leaders describe it, the whole debacle can be laid at the feet of the free market, which is why these various groups are calling for a dramatic expansion of government control over the financial sector—and, by extension, our lives.
- According to last week’s Wall Street Journal, “European Union leaders are set to call Thursday for the creation of international boards to oversee at least the world’s 30 biggest banks and financial institutions.”
- And the Washington Post reports that French President Nicolas Sarkozy, who is the current president of the EU, wants to “re-found the capitalist system,” whatever that means. (Some of us are not entirely sure the French ever “found” the capitalist system the first time around.)
When the French think they can lecture the U.S. on how capitalism should work and everyone keeps a straight face, you know the paradigm has shifted.
All this means that while the markets may be in crisis, the “free market” is in even greater crisis.
For the last 30 years or so—roughly coinciding with the emergence of Ronald Reagan—a free market philosophy has ruled the world. The closet collectivists and socialists haven’t liked it, but it’s been hard to argue with the growing global success, as many developed and undeveloped countries embraced lower taxes, fewer regulations and more open trade—with standards of living exploding as a result.
Now that the financial system has hit a bump—and a really big one at that—the collectivists are coming out of the swamps in the hope of dragging us all back into the quagmire of widespread government control. And they want to use this crisis as a cover to make a regulatory power grab over entirely unrelated areas of the economy.
Fighting those efforts will be the free market defenders’ greatest challenge in a generation. And it’s a battle we dare not lose.