Column on All the Utter Distortions

All This Utter Distortions
Tibor R. Machan
The following letter appeared in my local paper:
“GREENSPAN’S GOOFS It’s nice to see that former Fed chief Alan Greenspan
is finally taking the blame for starting the worldwide economic collapse
[‘Greenspan,’ Marketplace, Oct. 24]. Former President Ronald Reagan shares
in that blame since it was their combined plan to deregulate everything
and let the free market ‘take care of itself.’ This has proved that the
‘free market’ without regulations is anarchy.”
First, look at the dishonesty: Greenspan did not take blame “for starting
the world wide economic collapse.” Why should he? He took blame for
mistakenly assuming that the self-interest of those running financial
institutions would fully coincide with the clients of those institutions
and for some of the results of making this assumption. As to Ronald
Reagan, he barely managed to deregulate anything at all. His rhetoric was
for more individual initiative in the economy and less government
involvement but Congress would not budge so nothing much happened.
Then there is the nonsense about the supposedly unregulated free market
during the Greenspan and Reagan eras. Government regulation, especially of
the financial portions of the American economy, has been in place since
the early 1900s. (The very existence of a Federal Reserve [or central]
Bank is a regulatory measure that would not be part of a genuine free
market!) Regulations were increased enormously during FDR’s ill conceived
and ultimately ineffectual New Deal. (The economy recovered because of
World War II’s war-time government spending and labor furor.)
Nearly every profession in America, other than the press and the
ministry, is highly regulated. Occasionally there is some experimentation
with bits and pieces of deregulation but no one escapes all government
regulations by the various federal, state, county and municipal
bureaucrats who fill government offices throughout the land. The
percentage of the wealth in America that has been spent by all these
governments has been steadily growing and has never, never substantially
The other evening I went to hear a fervent champion of government
regulations and critics of the free market, Professor James Galbraith,
(author of the bizarrely titled book, Predator State: How Conservatives
Abandoned the Free Market and Why Liberals Should Too), and in his talk he
also kept saying that the free market has failed even while he admitted
that there has been no free market in place ever, despite some of the
rhetoric supporting such a system. He went after the late Professor Milton
Friedman for advocating greater economic freedom but then said that
Friedman’s views failed to have a serious impact. And he implicitly
admitted that he and his fellow champions of government meddling in the
country’s economic affairs have been triumphant beyond expectations both
in America and elsewhere (e.g., in China where he has been a consultant to
that country’s utterly despicable tyrannical government).
This oft-repeated mantra about how the free market must have been
responsible for the current economic fiasco is a colossal distortion
probably meant to confused instead of inform. That’s because America has
been a mixed economy throughout its existence, with periods of greater
dosages of capitalism and greater dosages socialism but always a mixture
of the two. When such a system experiences maladies, it is understandable
that supporters of one part of the mixture will jump at the chance to
blame the other part for the mess. But it would be reassuring if there
were just a bit of honesty in the debate.
For example, I have been arguing that the various government
interventions in the mortgage industry–Fanny Mae and Freddy Mack were
both created and given orders by the federal government to ease the terms
of loans for millions of home buyers–have fueled the current mess but I
have never argued that Wall Street hasn’t been complicit or that America
has had a socialist system which is to be blamed.
Why can’t those championing more government planning and regulation admit
that there hasn’t been any free market in place in America for over a
century? It is no easy task to assess the soundness of economic theories.
There are no controlled experiments that can be conducted, no laboratory
tests, only the very messy history that needs to be studied and untangled
to learn the needed lessons to avoid similar messes in the future. But
only if the students of history will be honest, will not taint the
evidence with their wishful thinking, will it be possible to learn from
their work.

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