free markets — VOICES for REASON

In my previous post I described how controls breed controls: when politicians intervene in the economy, they create distortions and problems which, unless corrected by rescinding the controls, necessitate further controls–a process ultimately resulting in total control by the government over the economy. We can see this process at work in the two domestic issues that have dominated headlines over the last year: the debate over health care and the financial crisis.

In both cases, the conventional wisdom has been that the free market created problems only government intervention can solve. In both cases, the conventional wisdom is wrong: it was government controls that created the problems. Read the rest of this entry »

Every time Alan Greenspan opens his mouth to blame some aspect of the financial crisis on free markets, rather than government intervention, many commentators gleefully proclaim it another nail in the coffin for laissez-faire capitalism. Even Alan Greenspan, the refrain goes, acolyte of Ayn Rand, lover of laissez-faire, admits that the current crisis was a failure of his free-market philosophy.

But Greenspan has no free-market philosophy. As Yaron Brook and I explained in “The Maestro vs. the Market,”

Greenspan, while once associated with laissez-faire philosopher Ayn Rand, hasn’t advocated genuinely free markets for decades. Remember, this is a man who for two decades reveled in being, as the New York Times put it, “the infallible maestro of the financial system.”…. Early in Greenspan’s tenure, some expected the onetime opponent of the Fed and supporter of a gold standard to minimize the Fed’s distortion of markets. Instead, Greenspan became our Manipulator-in-Chief, repeatedly inflating the money supply and artificially lowering interest rates to allegedly magnify prosperity…. Thus, when Greenspan speaks, he does so not as the voice of a (non-existent) free market in finance and housing, but as the voice of government central-planning–a voice with every incentive to blame the market rather than the Fed’s market-distorting policies.

Which brings us to Greenspan’s latest salvo against the free market — a call for government to break up institutions classified as “too big to fail.” According to a Bloomberg news story:
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Apparently Dan Rather thinks Obama should not only make news, but remake the news. In a recent Washington Post op-ed, Rather called on the President to form a “nonpartisan, blue-ribbon commission to assess the state of the news as an institution and an industry and to make recommendations for improving and stabilizing both.”

While I disagree with Rather’s suggestion, he does raise one issue that anyone who follows the news should regard as tremendously important.

The big conglomerates that own most of America’s news media may have, at any given moment, multiple regulatory, procurement and legislative matters before various arms of the federal government; their interests, therefore, can often run contrary to the interests of the citizens whom journalism, at its best, is meant to serve. There is little incentive to report without fear or favoritism on the same government one is trying to lobby. Increasingly, the news we get–and, significantly, the news we don’t get–reflects this conflict of interests.

Virtually every decision a business makes today is controlled and influenced by the government.  Read the rest of this entry »

Picking up on a press release from the Center for Economic and Policy Research, New York Times columnist Floyd Norris recently reported that the rate of unemployment in the U.S. is now equal to and may soon surpass that of Western Europe. Norris echoes the main thrust of the press release: “the current economic crisis . . . has turned the case for the U.S. model almost entirely on its head.” The CEPR authors imply that the European model of “large welfare states and high levels of labor-market regulation” should be the economic standard to which nations aspire.

Leaving aside the question of the validity of the data (unemployment data is notoriously politicized and difficult to acquire), it is telling that neither Norris nor the CEPR authors clearly identify what they take the U.S. model to be. There is only an assertion of “inherent” “flexibility” in the U.S. economic system, which Norris explains as meaning “it is easier to both hire and fire workers [in the U.S.] than in many European countries.”

The accepted premise, of course, is that the U.S. model is free market capitalism. But, as Ayn Rand argues, capitalism means a “full, pure, uncontrolled, unregulated laissez-faire capitalism—with a separation of state and economics, in the same way and for the same reasons as the separation of state and church.” This is not the system we have in America.

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In my last post on CEO pay, I pointed out that undeservedly high pay for executives would not be a problem on a truly free market, where CEO pay is undistorted by government intervention, as it is today. Nevertheless, there are real challenges in setting CEO pay, challenges that would exist even in a free market. But this is an argument for free markets and against regulating CEO pay. Here’s why.
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Megan McArdle, liveblogging from the Berkshire Hathaway shareholders meeting, reports that Warren Buffet was asked about executive compensation. Buffet gave his usual answer: that CEOs are able to nab undeservedly high pay packages from pliant compensation committees. But Megan points out, there’s a problem with this narrative: Read the rest of this entry »