Sunday, March 29, 2009

What 'free market'?

It has become a key aspect of liberal dogma that deregulation and the "free market" are to blame for the collapse of the global economy. But blaming laissez-faire for the world's economic malaise is a lot like blaming U.S. "isolationism" for 9/11: it ignores years of government interventions -- like bailouts, cheap credit from the central bank and overseas military campaigns -- that contradict the ideologically convenient retellings of history preferred by those eager to cast every crisis as the fault of anyone but the state and the political establishment.

Claiming that a non-existent free market is what got us to where we are today is to pretend that the Bush administration was in good faith, if naively, pursuing a hands-off approach to the economy -- in essence, arguing that if they were guilty of anything, it was being too ideologically committed to allowing people to exchange goods and services with minimal state intervention. But if anything, the Bush administration modeled its economic policy more off Mussolini than Adam Smith, actively expanding state power to enrich its corporate cohorts through the type of crony capitalism best embodied by quasi-private firms like Halliburton and Goldman Sachs.

As economist Dean Baker writes on his blog for The American Prospect:
The media are busy perpetuating a myth that the United States has been a beacon of "free market" capitalism. This is a lie. The United States never had free market capitalism and certainly the system in place over the last three decades hardly qualifies.

The U.S. put in place policies designed to transfer income from the poor and middle class to the wealthy. This is most evident now with the hundreds of billions of dollars being spent bailing out the banks. For the last three decades, the banks and their top executives, made vast fortunes using a free government insurance policy called "too big to fail," under which bond holders and other creditors could lend money to the banks knowing that the government would honor their debts if they ever got into trouble.

It is an outright lie to call this a "free market." This is a huge government handout. This insurance policy is enormously valuable and the banks did not have to pay a penny for it. The banks are ardent opponents of free market capitalism. None of them have advocated that they be allowed to collapse.
Recently, former Federal Reserve Chairman Alan Greenspan -- conscious of his fall from "economic genius" in the 1990s to Man Most Responsible for Our Economic Demise now -- has taken to blaming the menace of Asian savings for the economic collapse. In an op/ed for The Wall Street Journal, "Great Depression II: No Really, It's Not My Fault", Greenspan blames the "free market" as well as the Chinese for the world's problems, the latter for simply saving too much money -- the commie bastards -- and then injecting it into our economy. This caused the U.S. housing bubble, Greenspan argues, rather than, say, the central bank's dramatic expansion of the money supply under his stewardship during the artificial boom of the last decade.

Back in 2007, however, Greenspan conceded in a revealing interview with The Daily Show's Jon Stewart -- a journalist masquerading as a comedian, as opposed to the usual other way around -- that insofar as there exists a government institution with the monopoly power to literally create money out of thin air, which it can then dole out to a politically connected elite in the financial sector, then there is not a free market.

More importantly, Greenspan admits that after more than four decades of experience in the economic forecasting "profession", loosely defined, he still has no better understanding of market forces than he did when he started out -- and neither does any other would-be central planner. Now that the full brunt of the policies he pursued has been realized, however, Greenspan is quick to argue that a free market existed, and that, if anything, people like him were guilty of just not intervening in the market forcibly enough. One should take the more recent explanation as the last attempt at legacy-saving that it is.

Whatever one's views on whether a genuine free market -- which would include an abolishment of "intellectual property" and corporate personhood, a repeal of restrictions on organized labor such as Taft-Hartley, and other aspects of laissez-faire curiously absent from the propaganda of many supposed free-marketeers -- that central planning can never adequately substitute for the distributed, decentralized knowledge of human society should weigh heavily on those willing to trust the likes of the Greenspans and Geithners with constructing a more enlightened and sustainable economic policy.

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