Monday, December 29, 2008

If You Are Smart, This Post Is Not For You: The Death of Free-Market Capitalism

I keep hearing about the 'demise' of free market capitalism, most recently from that unbearable shrew, Arianna Huffington.
It's time to drive the final nail into the coffin of laissez-faire capitalism by treating it like the discredited ideology it inarguably is. If not, the Dr. Frankensteins of the right will surely try to revive the monster and send it marauding through our economy once again.
You can boil the entire idiotic thing entire thing down to one sentence, which AH essentially repeats for the entire column: lassez-faire capitalism is as outmoded as Soviet Communism.

Huffington is one of the shrill voices on the left claiming that the free market should be a thing of the past, which only proves that she's as ignorant of economics as she is of everything else.

Any of you who share her point of view, or might be tempted to lean in her direction, consider the following a smack behind the ear with a clue bat.

The 'free market' is not some kind of political ideology leading inexorably to Robber Barons credit default swaps, or evil bankers who drop kick small dogs.

PJ O'Rourke said it better than I could have:
"The free market is just a measurement, a device to tell us what people are willing to pay for any given thing at any given moment. The free market is a bathroom scale. You may hate what you see when you step on the scale. "Jeeze, 230 pounds!" But you can't pass a law making yourself weigh 185."
I'd add one thing: You can't to box up shit and sell it as shinola because you went to Princeton with Blaine Vandersnake, who now runs enforcement at the SEC. Nor should you pass laws that allow a strawberry picker from Bakersfield, California to get a no-down-payment mortgage for a house costing $720,000. (Yes, this really happened.)

The recent implosion of the US economy didn't happen because of "deregulation." It happened because of cronyism, greed, idealism and pig-ignorance all combined to make it hard or even impossible to tell what certain securities or financial instruments were atually worth.
  • The management of Lehman Brothers diddled the risk management models for their mortgage backed securities
  • Congress passed ludicrous measures like the Community Reinvestment Act (google it, I can't be bothered right now),and decide
  • The dullards at Standard & Poors who assumed that home prices would continue to rise forever. These guys had computer model to predict mortgage defaults that could only accept a positive trend for home prices.
These and a host of other abominations were not the natural outgrowth of a free market -- they are a dirty snowball of lies, stupidity, and social engineering that just smashed the American taxpayer in the nose.

But taken to its root cause, you can see the common thread --when you can't figure out what something is worth, the free market doesn't operate very well. What we need is more honesty and clarity, and less of nearly everything else.


Porcus said...

Two questions:

Who enforces the transparency? The govt or is free enterprise on the honors system?

Agreed, the crisis is not an outcome of deregulation, but an outcome of market manipulation, but wouldn't the laws of a of a free market system mean that "Business" would take a long term view of what benefits their self-interest the most and not get involved in the short game that could ultimately be the undoing of their business in its totality?
If you take a view that people are profligate, greedy and not to be trusted, which is kind of what Federalism does, wouldn't it make sense to have checks and balances in place?

I guess that second question is similar to the first, who in your opinion, is responsible for creating these checks and balances to ensure a fundamentally good system isn't undermined by a "snowball of lies, stupidity etc."

MeatAxe said...

I'm OK with the government doing it. The important thing here is not that the government does or does not make rules, but that the market is not manipulated.

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