Crisis: Interventionism or Free Markets?
Shawn Ritenour, author of Foundations of Economics, channels Mises to dispute the “sad narratives of the financial meltdown of 2008 and its aftermath .. that it was and remains the result of unbridled capitalism. Too much freedom spoiled the economic broth” is his excellent commentary “Is the Economic Crisis an Indictment of Capitalism?” His conclusion:
In a free market rooted in private property, the only way entrepreneurs are able to sustain profits is by serving customers better than anyone else. It is only when they receive special privileges through preferential regulation, subsidies, bailouts and the like that they are able to reap profits for which they have not sowed productive activity.
I was struck by how much of what Mises said about the response of many to the Great Depression applies closely to our current situation. Just like Mises, we must never tire of explaining the fallacies in the thinking of those who think the Great Recession is a clear case of the failure of capitalism. In fact, it is a quintessential example of the failures of interventionism to bring about anything other than economic destruction and relative impoverishment.
Pierre Lemieux’s Somebody in Charge: A Solution to Recessions? “debunks the “markets caused the problem” literature in “The Laissez-Faire Scapegoat,” and “The Crime Scene”.”
From my review:
The U.S. reforms were truly incomplete and were being reversed. Prior to the 2007–2009 recession, the U.S. system was an entrenched mixed economy with, as Lemieux puts it, “the line between politicians and bureaucrats on one hand and tightly regulated private companies on the other hand . . . blurred” (p. 82). The regulatory climate, from at least the mid- to late 1990s, was not pro-business, free market, or antiregulatory. In fact, the George W. Bush years were “one of the most regulation-heavy periods in American history,” with an “American banking system and financial system that certainly could not be described as laissez-faire. It was tightly supervised and controlled by the authorities—in the spirit of the times” (p. 102, emphasis added). One major financial institution of central control was mostly unaffected by the liberalizations of the 1980s and actually ended the era with enhanced prestige and power—the Federal Reserve System (the Fed).
Once the crisis hit, many economists (pp. 83–102), pundits, and political opportunists such as the democratic majority on the Financial Crisis Inquiry Commission jumped to the conclusion that “the banks led us into the financial crisis” (Wallison 2011). According to this faulty representation of the events leading to crisis and recession, blame lies with a malfunctioning private sector, driven by unconstrained greed and supported by a laissez-faire ideology (Wallison 2011). However, this crisis was not one of capitalism, but of “regulated capitalism” (Friedman 2009). Lemieux debunks the “markets caused the problem” literature (see chapter 4, “The Laissez-Faire Scapegoat,” and chapter 5, “The Crime Scene”).