As the world financial system entered a state of collapse, commentators said that Russia had traded the shortages of socialism for the bank runs and financial panics of capitalism. In fact, modern finance and banking are built on unstable, socialistic foundations.
With huge segments of the world economy mired in depression, can we conclude that capitalism has failed or that the market behaves irrationally? That seems to be the consensus among many commentators, so we hear a wide range of calls for government intervention to patch things up.
Speaking before a Congressional committee, Alan Greenspan stepped back from his discussion of the newest international currency crisis to reflect on the gold standard of the last century. He noted that bad judgments and distortions in price had a way of working themselves out very quickly. Interest rates would rise and fall to reflect shifts in capital flows and thus minimize the losses associated with economic change. Imbalances corrected themselves.
The phrase of the day is “moral hazard.” It’s something everyone seems to think is a bad thing, but few are willing to do anything about, certainly not Alan Greenspan. So far, he’s on record backing the Mexican bailout, the Asian bailout, the bailout of Long-Term Capital Management, and more IMF funding, despite the financial dangers all these create down the line.
The logic of the market is predicated on the pervasive and glorious inequality of man. No two people have the same scales of values, talents, or ambitions. It is this radical inequality, and the freedom to choose our own lot in life, that makes possible the division of labor and exchange.
In what can only be termed as truly bizarre, an Alabama local of the steelworkers union demanded that Alabama Governor Fob James close the international port at Mobile to all steel imports. Besides the fact that it would be clearly a violation of the U.S. Constitution for the governor to grant the union’s demands, it would illegally abrogate existing contracts between suppliers and purchasers. It would also be bad economics.
Unreconstructed Keynesians the world over are now calling for a “Global New Deal” ostensibly to put an end to the business cycle once and for all. President Clinton championed this view in a recent speech before a joint meeting of the World Bank and IMF in which he repeatedly cited President Franklin D. Roosevelt as he urged foreign governments to “create mechanisms” that can “tame the cycles of boom and bust that today shake the world economy.”
The policy agenda of the Clinton administration is usually described as halting, pragmatic, and poll driven. But in its approach to the issue of medical insurance and the drive to socialize medical care, it has been systematic, principled, and highly strategic. The Clinton government is using the failures and internal contradictions of the welfare state to pursue a program of universal entitlements.
To hear educators and activists talk, one might actually believe that apathy threatens to become the defining existential feature of American youth.
