The View From 1776

Is Laissez-Faire Finished?

The free marketplace was the antidote to toxic securitized assets created by government’s socialistic interventions that distorted economic judgment.

Posted by .(JavaScript must be enabled to view this email address) on 11/22 at 02:58 AM
  1. Free market capitalism is not dead. It just can't be as laissez faire as some have allowed it to be, without certain regulations and oversight. Otherwise it is too high-octane and destructive.

    Nevertheless, society needs capitalism's entrepreneurial spirit to remain alive and sustainable. Moreover, capitalism's 'creative destruction' and agitation is essential to meet the imperatives of economic life, that of replenishment and renewal.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/22  at  11:57 PM
  2. Mr. Aith is correct.

    Brewton creates a straw man when he says,

    "The collapse of much of the banking community is said by liberal-progressives to reflect a fatal theoretical flaw in capitalism and to justify, indeed to demand, its replacement by a socialist, managed economy."

    The proper response to the banking collapse, say the liberals, is to restore once-valued lending controls to reduce the quantity of bad loans, and restore some connection between the borrower and the lender. Bundling securitized mortgages into tradeable instruments for highly leveraged hedge funds is not evidence of "market-based holiness." It is merely an expression of naked greed so often sold to us "virtue" by the extreme right. The credo, "If it makes a profit, it must be good," has its limits.

    Brewton construes any banking controls as a "socialistic intervention" and a harbinger to a totally socialistic managed economy.

    Get a grip, Tom. As much as you appear to believe it in your gut, the liberals are not out to get you. They just want relief from the incompetence of the last eight years of simplistic conservative thought and action which has brought the country low.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/23  at  02:25 PM
  3. Sadly, the beneficial "creative destruction" and agitation of capitalism that David praises has been trumped by the harmful "creative destruction" wrought by bureaucrats and populist politicians.

    Unfortunately, the free market could not provide an antidote to government intervention that subsidized faulty lending practices. It is totally wrong to blame the recent meltdown on too much de-regulation of banking. The harm was done by too much of the wrong forms of regulation enacted--Fannie Mae was instructed and allowed by the House Banking Committee to buy up any and all worthless paper written-- that is a form of destructive regulation because it destroyed the normal prudence of lenders and borrowers alike and encouraged the worst but most enjoyable form of greed--taking from Uncle Sam. But the regulators asked for it-they brought it on themselves.

    Then, to amplify the disaster of the accumulting bad paper at Fannie Mae, Sarbanes Oxley exacted a "mark to market" process that understated banks net worth, exaccerbating the credit crisis--all this arose from too much government mandating.

    People, we must admit, are less than perfect. That is why it is unreasonable to blame the welfare cheat, the disability faker, even the purveyor of worthless paper, the Ethanol producers, the corporate solicitators of subsidies, or those who demand other freebies, when their government freely offers these delights. The crime is perpetrated by those who tempt the enterprising individual into engaging in such destructive behavior.

    The free market and capitalism rely on the prudent decision-making of the participants. Whenever governments attempt to direct the process from on high they consistently muck it up. That is because almost every government program rewards bad behavior. That inevitably removes the dire consequences that would otherwise punish imprudent actions. That is why the best government is the one that governs least.
    Posted by bill greene  on  12/01  at  08:29 PM
  4. It must be a wonderful thing to have such an unshakable faith in the validity of an organizing principal. It is as if the concept that "an unfettered free market always and automatically makes the best decisions" is as reliable as the propensity of water to freeze at 32F.

    There is, of course, no "proof" that free markets always make the best decisions in the philosophical or mathematical sense of proofs. The belief in the concept is more or less faith-based. "It only stands to reason!" is the cry. "How could it be otherwise?"

    But it is amazing how many other concepts, that were "obviously true" eventually have been superseded by new ideas, or have been refined and improved by adjustments.

    The idea that to be successful, a Government must be intertwined with, or actually embody a particular religion was once believed to be an obvious and immutable truth. Closely related to this concept was the idea that anyone who was a King was given that status by God, and must be obeyed for that reason. (It was sometimes known as "The Divine Right of Kings," particularly by King James I of England.) Now, many believe, that mixing government and a state religion leads only to problems.

    The Great Wall of China kept the Mongols at bay for a while, until the "wall defense" concept was found not to be supportable.

    Similarly, the Maginot Line was thought to be perfect defense in modern war, until the Blitzkrieg showed that such barriers were nearly useless.

    So, we should take care in having a blind faith in the purity of any concept, especially when it is supported only by opinion. We know that markets do a very good job in most circumstances, but this does not mean that there is never a circumstance when intervention may not be the better course of action.
    Posted by .(JavaScript must be enabled to view this email address)  on  12/04  at  12:38 AM
  5. Talk about apples and oranges! The Maginot Line and the Great Wall are not "concepts," nor are they "principles." They are physical methods of defense and Jay is quite right that the lesson of history is that as such, they had major deficiencies, and the strategy involved was subject to changing technology. Applying asps and bleeding sick people has also proved over time to be less than perfect medical practices. But such examples of technological change have no useful or necessary relevance to the mechanics of commercial activity whatsoever!

    Jay is correct that a successful economy doesn't necessarily require any particular religious faith among its people, nor that the government be intertwined with a religious establishment. Indeed, any "intertwining" usually impairs a free economy. The huge economic success of Hong Kong, America, Medieval Venice, the early Greeks, and just recently in the Arab Emirates, indicates decisively that the success of free markets is based more on an open and relatively unregulated economy than on the spiritual beliefs of the citizenry.

    But why bring religion into this ? Most advocates of free enterprise do not insist a certain Faith must go with it. Granted, one can argue that Christianity, and particularly the Protestant Reformation, helped promote vibrant economies in North-Western Europe in the 16th and 17th centuries leading to the Industrial Revolution. My book COMMON GENIUS in fact lays out that logic, but the contributory elements were primarily the Protestants socio-political emphasis on individual responsibility, free will, a loving and forgiving God, and the separation of Church and State. Thus the "secret weapon" of Christianity was not so much a theological one, but that it empowered the individual "to be all that he could be," and denied excessive or exclusive authority to Kings, aristocracies and governments. By helping to break the supreme power of tyrants, Christianity helped spread the idea of individul liberty, and the merit of that "principle" has endured.

    Today, Singapore and Dubai's economic success rests on their support of such free markets and individual economic freedom-- even though they have not granted political freedom. Apparently, the former is essential, the latter less so.

    The recurring weak link in arguments like Jay's is that they posit a straw man--They attack a hypothetical "rule" that: "an unfettered free market always and automatically makes the best decisions.
    Posted by bill greene  on  12/05  at  10:23 AM
  6. Free market as a useful if simplistic model in developing economic policies to attain social goals, others regard the free market as a normative rather than descriptive concept.

    Thanks,
    http://www.streamline-markets.com/
    Posted by China Market  on  12/17  at  01:06 AM
  7. In a free market, price is a result of a plethora of voluntary transactions, rather than political decree as in a controlled market.
    Posted by China Procurement  on  12/17  at  01:11 AM
  8. In an absolutely free-market economy, all capital, goods, services, and money flow transfers are unregulated by the government except to stop collusion or fraud that may take place among market participants.
    Posted by Sourcing China  on  12/17  at  01:16 AM
  9. "An absolutely free market" could never successfully exist except in a tiny controlled environment like a garage sale. Some legal systems and adjudication processes will be needed until humans become 100% trutworthy!

    However, Sourcing China is quite right that in a "minimally regulated market" government restricts itself to the barest minimum of controls. That allows a maximum freedom for "the plethora of voluntary transactions" that China Procurement suggests will bring about the pricing and balancing of supply and demand.

    In today's complicated international markets there is continually growing number of issues for the government to control in order to empower the business people and help stabilize markets. This is unfortunate, but a fact of life. Tariffs, trade agreements, and anti-dumping laws are necessary. Some degree of quality controls, and approval of pharmaceuticals and food stuffs is desirable.

    However, to maintain the genius of free markets, all such regulations should be kept to the absolute minimum. Every new program should be first tested to make sure it is necessary, has few unintended consequences, and to make sure "the treatment isn't worse than the disease."

    While good judgment is needed to allow just the right amount of governmental controls, there is one hard and fast rule--The market should not be used to attain social goals.

    Streamline suggests that some people see markets as something to be manipulated to achieve political/social agendas. This is the dangerous and slippery slope that has brought on the Decline of many a successful nation. The biggest problem with "social goals" is that they usually reward bad behavior. By destroying the individual responsibility of a citizenry, advocates of such social goals remove the incentives that motivate human beings. The utopian fine-tuning of personal lives can only go so far before it wreaks havoc on an economy, a nation and the character of its people.

    The only "social goals" that help a nation's economy and its people are ones that reward Good Behavior--thrift, investment, work, families, charity, education. However, those behavior patterns are natural instincts for most free people--Governments do not have to deliberately set out to promote those virtues--what today's governments must do is ensure they are not penalizing such behavior. That is the gold standard by which government actions should be judged--do no harm!
    Posted by bill greene  on  12/17  at  12:36 PM
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