Berger: Government v. The Markets

An editorial by Christopher Berger:

Government v. The Markets

Over the course of the past several months, a concensus has formed in Washington that our current economic troubles are the fault of free markets, that this crash proves once and for all the inefficacy and invalidity of a free market system, and that what we really need is government interference and intervention in the markets via regulation and cash infusions leading to substantial ownership stakes in major corporations, possibly nationalization of troubled industries.  I’ve got news for those people: it’s been tried, and it hasn’t worked.  What hasn’t been tried in this instance is, in point of fact, true free market capitalism.

The story of how the housing situation came to be, and just who is to blame, has been well documented in conservative circles.  In short, government overregulation is responsible for the mess, whole and entire.  Via threats of investigation, the Clinton Justice Department intimidated banks into making irresponsible loans to people they knew would likely never be able to pay them back, and at the same time offered to purchase away the bad loans via Fannie and Freddie.  This led to a glut of money available to purchase housing without a proportionate increase in the supply of housing, and thus to the skyrocketing property values in this country.

The market solution to such asset overvaluation, currently playing out in the stock exchanges of the world, is to revalue assets downward to a more reasonable comparative level.  This is the sensible response to such a situation.  It’s very painful, but it’s also over relatively quickly, and as soon as the assets have been allowed to recede to their realistic values and the financial fallout from this has worked itself through the market, the economy can start growing again.  The whole thing can take less than a year, and while it’s a very painful year, it’s also not the grinding depression we saw last time someone tried quite this level of government intervention and investment in the private sector.

The government solution, as we’re seeing, is to pour taxpayer’s money into bad corporations that should have been allowed to fail or declare bankruptcy, wait a few months, then pour more money in, etc, until at long last entire sectors end up as a government owned entity.  We haven’t reached that terminus of this sequence of events yet, but attempts to get us there are coming, make no mistake, beginning in the banking industry.  Nationalization of industries is the government solution to problems of this nature, rather than something to help the market recover.

Government exists as a necessary evil.  This was the view of the framers of our Constitution, the founding fathers of this nation, those who imbued it with their hopes, aspirations, and ideals.  The sole legitimate purpose of government, they maintained, was to protect a nation from those who would do it harm, to protect the liberties of the people while at the same time preserving their safety.  These two objectives must remain in balance, and the Obama administration is careening towards one while openly destroying the other, and will end up accomplishing neither (which may actually be their goal; to quote Obama’s Chief of Staff, Rahm Emanuel, “A crisis is a terrible thing to waste”).

Our founding fathers were great students of history and philosophy, and were strongly influenced in their thinking by the ideas of the French philosopher Jean-Jaques Rousseau.  One of the most central ideas in his seminal work, The Social Contract, was, following Hobbs, that a nation comes together initially for communal protection from exterior threats, and constitutes a single body (as distinct from the state, which is composed of a subset of the nation which carries out the function of communal government), and that therefore, moving beyond Hobbs, a criminal attacks not just one part of the nation but the nation itself.  Thus the criminal, says Rousseau, can be said to have declared war on the nation, and thus is punishable as an exterior threat to the nation.  Thus it falls within government’s legitimate purview to prosecute and punish criminals, depriving them of their liberty, because they are a threat to the continuing liberty and safety of the nation itself.

This line of thinking could be extended without remarkable effort to justify government intervention in the markets sufficient to prevent private sector manipulation of the markets (insider trading, currency manipulation, etc.) to ensure a level playing field.  But beyond that legitimate function of government, no further interference can be justified or, in fact, tolerated under this model, because the government itself, Rousseau’s state, then becomes itself a threat to what it is supposed to be protecting: the nation’s liberty, in this case economic liberty.  That’s what’s happening here.  The government is interfering, under the guise of producing stability and economic safety, not to protect the economic liberties of individuals and corporations but to shackle them for their own protection.

It becomes difficult to imagine a more insidious method for removing a people’s freedom than one which will induce them to enter bondage willingly, precisely as the Obama administration is doing.  It’s what any government intervention over economic problems does of necessity.  Government intervention is something alien to a truly free market, and it creates ripples, which must be addressed (usually by more government intervention), until the government is either thrown out of the markets or ends up running the show.  We give our governments a monopoly on force so as to protect us from exterior threats, renouncing our right to punish offenders ourselves in favor of the government acting on our behalf, but that monopoly of force can also be turned on us, as it is being in this instance.

The Soviet Union was Keynesianism in action.  The people there were miserable and downtrodden in their socialist utopia, and their economy was stagnant.  They were promised safety and prosperity, but all they received was poverty and virtual slavery.  The freedom of our marketplace, not government intervention, is what made us an economic superpower (though WWII didn’t hurt things), and if we would but restore it by reducing regulations and confiscatory taxes, we would bounce back from this recession faster than anyone believes possible.  It would be painful, but it would be short.  The markets will out-produce and outgrow the government every time, provided the opportunity to do so (as companies like Wal-Mart and McDonald’s demonstrate on a daily basis).  So why can’t we take off the chains?

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