Stop Demonizing/Sanctifying Free Market
I keep hearing that the financial crisis is some grand rebuke of free market principles. I also keep hearing that the bailout plan will ruin the free market. What Iâ€™m not hearing is what I believe is the most accurate description of the situation: we never had a true free market to begin with.
Those who want to use the current crisis to bash the free market leave out some key points. Namely, government actions helped lay the groundwork for the meltdown. When examining how fast everything went bad, we canâ€™t forget the role played by mortgage giants Fannie Mae and Freddie Mac. Those two institutions enjoyed a special relationship with the government that allowed them to take on a ridiculous level of risk far beyond what any real free market would have reasonably allowed. Additionally, we canâ€™t forget how the Federal Reserve stridently maintained low interest rates, encouraging a level of unsound lending that, again, a real free market would have been unlikely to allow.
This by no means excuses the ignorance and greed of the private financial institutions that made so many catastrophic decisions. Nor does this excuse politicians who had neither the intelligence nor the will to put proper regulations and oversight in place. My point is simply: itâ€™s ridiculous to blame or protect the free market as if it is some pure entity of evil or good.
We have, at best, a semi-free market. And this semi-free market failed because of actions taken in both the private and public sectors. Yes, it is a systematic failure. But it is not a failure of principle. It is a failure of people. There is no grand principle at work here. Thatâ€™s why itâ€™s rather opportunistic to blame the free market for the crisis or to pretend as if a bailout will somehow destroy that free market. You might as well blame Santa Claus for not filling your stocking.
I think we can continue to admire and support the power of free market economics while also recognizing the need for a certain level of government regulation and financial backing. A bailout is needed at the moment. After that, we can work on reforming the ratâ€™s nest of regulations that currently exist. The more we recognize that our economy is and always will be a public-private affair, the more we can address our problems rationally. This is not a moment for ideological grandstanding. Such inanity just adds more obstacles in our pursuit for a solution.