I am breakfasting with Yaron Brooks, president of the Ayn Rand Center for Individual Rights, who clearly shares my kind of epistemology .... Brooks presents the logical, rational argument ( the truth) about the free markets and failed bloated social policy in an oped today here.
It’s time to stop blaming capitalism for the sins of government intervention, and give true laissez-faire a chance. Now that would be a change we could we believe in."
Obama, who assume that the financial crisis was caused by free markets--by “unbridled greed” unleashed by decades of deregulation and a “hands off” approach to the economy. And given this premise, the solution, they say, is obvious. To solve this crisis and prevent another one, we need a heavy dose of Uncle Sam’s elixir: government intervention. Whether it’s more bailouts, stricter regulation, a new round of nationalizations, or some other scheme, the only question since day one has been how, not whether, government is going to intervene.
And the issue is wider than the financial crisis. Millions of Americans don’t have health insurance? Well, says Obama, that’s because we’ve left the health-care system to the free market. The solution: a complete government takeover of medicine. A few companies engaged in accounting fraud? It must be because we didn’t impose enough regulations on businessmen. The solution: rein in corporations with Sarbanes-Oxley.
But while capitalism may be a convenient scapegoat, it did not cause any of these problems. Indeed, whatever one wishes to call the unruly mixture of freedom and government controls that made up our economic and political system during the last three decades, one cannot call it capitalism.
Take a step back. In the lead up to the “Reagan Revolution,” the explosive growth of government during the ’60s and ’70s had left the American economy in disarray. A crushing tax burden, runaway inflation, brutal unemployment, and economic stagnation had Americans looking for an alternative. That’s what Reagan offered, denouncing big government and promising a new “morning in America.”
Under Reagan, some taxes were reduced, inflation was subdued, a few regulations were relaxed--and the economy roared back to life. But while markets were able to function to a greater degree than in the immediate past, the regulatory and welfare state remained largely untouched, with government spending continuing to increase, as well as some taxes. Later administrations were even worse. Bush Jr., often laughably called a champion of free markets, presided over massive new governmental controls like Sarbanes-Oxley and massive new welfare programs like the prescription drug benefit.
None of this is consistent with capitalism. As the economic system that fully recognizes and protects individual rights, including the right to private property, capitalism means, in Ayn Rand’s words, “the abolition of any and all forms of government intervention in production and trade, the separation of State and Economics, in the same way and for the same reasons as the separation of Church and State.” Laissez-faire means laissez-faire: no welfare state entitlements, no Federal Reserve monetary manipulation, no regulatory bullying, no controls, no government interference in the economy. The government’s job under capitalism is single but crucial: to protect individual rights from violation by force or fraud.
America came closest to this system in the latter half of the nineteenth century. The result was an unprecedented explosion of wealth creation and consequent rise in the standard of living. Even now, when the fading remnants of capitalism are badly crippled by endless controls, we see that the freest countries--those which retain the most capitalist elements--have the highest standard of living.
Why then should capitalism take the blame today--when capitalism doesn’t even exist? Consider the current crisis. The causes are complex, but the driving force is clearly government intervention: the Fed keeping interest rates below the rate of inflation, thus encouraging people to borrow and providing the impetus for a housing bubble; the Community Reinvestment Act, which forces banks to lend money to low-income and poor-credit households; the creation of Fannie Mae and Freddie Mac with government-guaranteed debt leading to artificially low mortgage rates and the illusion that the financial instruments created by bundling them are low risk; government-licensed rating agencies, which gave AAA ratings to mortgage-backed securities, creating a false sense of confidence; deposit insurance and the “too big to fail” doctrine, whose bailout promises have created huge distortions in incentives and risk-taking throughout the financial system; and so on. In the face of this long list, who can say with a straight face that the housing and financial markets were frontiers of “cowboy capitalism”?