In my column for the October 23rd, 2008, edition of the Pittsburgh Tribune-Review, I reflected on changing attitudes toward markets and intervention by the state. You can read my reflections beneath the fold.
Changing times
I became an adult on Jan. 17, 1977. On that day during my freshman year of college I first beheld a supply-and-demand graph. My intro economics professor at Nicholls State University drew this graph on the chalkboard to explain how prices are determined.
I was blown away! So few lines; so much insight! I fell in love with economics then and there. That love has never wavered.
Only in the past few weeks, though, have I come to appreciate how unusual was the time period the world was entering at the same moment that I discovered economics.
This time began with California’s property-tax revolt as embodied in Proposition 13 of 1978. It included significant (if not complete) deregulation of airlines, telecommunications, surface transportation, banking and (importantly) beer retailing.
It encompassed the election of Ronald Reagan to the U.S. presidency and Margaret Thatcher to Britain’s prime ministership and their lofty, if not always sincere, pro-market rhetoric.
Milton Friedman’s classic PBS series, “Free to Choose,” aired in 1980, making a powerful case for freedom and free markets.
Free-market-oriented economists such as James Buchanan, Vernon Smith, George Stigler, Gary Becker, Ronald Coase, and Robert Lucas won Nobel Prizes.
Most importantly, the communist tyrannies throughout Eastern Europe tumbled down under the unbearable weight of their internal inefficiencies.
All in all, the past 30 years have been satisfying ones for friends of free markets.
Has this period suddenly come to a close? Is the subprime-market meltdown sparking another era of intervention along the lines of the New Deal?
Newspapers, magazines, and the broadcast media are full of pundits predicting this outcome (and eager to applaud it when it happens). These pundits might well prove to be prescient. Conventional wisdom already holds that this financial mess is a result of unfettered free markets. The fact that markets have become freer over the past 30 years is now distorted into the myth that these years were marked by the reign of laissez-faire capitalism.
Joe Six-Pack can be forgiven if he now thinks that, for the past few decades, commissioners and staff at the Securities and Exchange Commission, the Commodities Futures Trading Commission, the Department of Justice, along with bank regulators at the Fed, have all been on permanent administrative leave — vacationing on some far-off island with every last tax collector.
Of course, the economy hasn’t been remotely close to laissez faire. Yet the belief that it has been — the belief that government intervention cannot possibly have played a role in this mess because there’s been no government intervention — is fast discrediting markets. With equal speed, this mistaken belief is rejuvenating Americans’ faith in command-and-control regulations.
One lesson I draw from this frightening state of affairs is that even the most obvious falsehood stands a good chance of being widely believed if it is repeated often enough. The claim that the U.S. economy of late has been one of laissez faire has become a mantra. And it’s now taken as fact.
Another lesson is that we champions of free markets and individual liberty became too complacent. “Of course the virtues of markets are widely appreciated,” we proclaimed confidently. “Airlines are deregulated and the Iron Curtain lies in rubble!”
Well, now that the Dow has shed 40 percent of its peak value and people who expected to retire at the age of 55 fear that they must wait until they’re 60 or 65, the virtues of markets are lost amid the panic of market adjustments.
“Enough already with laissez faire!” people cry.
“Give us regulations that will protect us from bankers offering exceptionally attractive credit terms. Spend lots of money buying up worthless assets so that their prices make them appear to be the equal of gold. Create new bureaucracies. Have government set CEOs’ pay and buy the banks!”
That people so readily indict the market and plead for government intervention is a sure sign that those of us whose job it is to make a compelling case for free markets have failed.
It’s tempting to blame the general public for their economic ignorance. But succumbing to this temptation solves nothing. If public understanding of the market is shallow (as it certainly is), the fault lies first and foremost with people like me — people who accept the responsibility for explaining the many merits of markets to a general audience.
We must do better. Making the invisible hand of the market visible — and showing that, even when it’s a bit unsteady, the invisible hand is always more reliable and less bossy than is the visible fist of government — must become an even higher priority for people who care about the kind of society we will bequeath to our children.
