Friday, May 01, 2009

The "War" Against Capitalism

Even the words "financial crisis" ignore the structural issues (created by regulations) prior to the financial markets collapsing. Politics and power being what they are, it should be no surprise that governments around the world are seeking to reclaim economic power they relinquished over the past several decades.

To characterize it as a "war" doesn't seem historically accurate. Governments have ceded economic power not willingly, but because of their sheer incompetence. In this, the "war" of ideas has been won. Free markets and economic liberty are the proven paths to greater wealth for everyone - rich and poor. While opponents of economic liberty might not be as candid, democratic societies choose between (1) free(er) markets - with greater inequality but wealth for all - rich and poor, or (2) building a society that's poor(er) - in some cases significantly more so, but more equal.

While their institutional memories may be short and conveniently so (not to mention the fact this crisis is affecting more regulated markets in many cases worse than the US in places like Europe), the rest of us should be asking whether or not it's a crisis of capitalism or a crisis of regulation (AEI):

In these circumstances, [government-backed Fannie Mae and Freddie Mac] hoped to curry favor with their supporters in Congress by showing that they could boost homeownership rates, especially in low income communities. The strategy worked; there was no new regulation of Fannie and Freddie until September 2008. But by then it was too late.

Accordingly, this is a story about how a well-intended government policy caused a substantial decline in the quality of US mortgages and ultimately the financial crisis we are living with today.

Demagogues have created a strawman in "Wall Street" - helped in no small part by the excesses of Wall Street and Republican administrations that followed Reagan who greatly expanded government. Proponents for bigger government are claiming that it needs to get even bigger. Thankfully, the response of the American public has not been acquiescence. Nearly half a million people turned out (people who don't normally protest) for almost impromptu, disorganized but apparently massive "tea party" protests on April 15th. Arthur Brooks, from AEI, also sees hope (WSJ):

This is an exhilarating time for proponents of freedom and individual opportunity. The last several years have brought malaise, in which the "conservative" politicians in power paid little more than lip service to free enterprise. Today, as in the late 1970s, we have an administration, Congress and media-academic complex openly working to change American culture in ways that most mainstream Americans will not like. Like the Carter era, this adversity offers the first opportunity in years for true cultural renewal.

For now, the opponents of free markets may have won a few battles so what is old is apparently new again. A delightful little subnote as some in the world celebrate "May 1" (WSJ):
It may shock these self-declared antifascists to learn that it was Hitler who introduced the first of May as a public holiday in Germany. What started as a movement to advance workers' rights was quickly usurped by both the Nazis and the Soviet Union.
Of course, what I've never figured out is why those like Hitler are considered right wing at all. They weren't. They were socialists.

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