Really, I'd rather argue for a day with a tree stump than five minutes with a die-hard free-marketer. They're identical in disposition to religious extremists. As was said of the Bourbons, they had just one idea, that one idea was wrong, and they clung to it with ferocity.
It's generally accepted that capitalism - or, more accurately, capitalists - screwed up big time in the years leading up to the Depression. And that they did so again more recently. And that government was the only survivor in a position to clean up the wreckage and put our lives back in order.
Free-marketers utterly refuse to accept this. That when we let the free market run wild, do its thing exclusively by its own lights, it invariably gums up the works for all of us. That this fact is irrefutable can be proved by watching the activity of children in a playground. Unsupervised, their impulses led naturally to anti-social behaviour. This, as irony would have it, is a conservative doctrine handed down to us by the likes of Edmund Burke, who was skeptical of unrestrained free will. The rule of mobs. Like the mobs of unregulated mortgage brokers peddling subprimes in early this decade, to pick an example.
Bruce Bartlett of Forbes is under the mistaken impression that that Milton Friedman "got capitalism off the hook" as the principal cause of the Depression. He then argues, bizarrely, that emergency government action is required now, as in the 1930s, to flood the market with capital. That would be the same "government" that Ronald Reagan famously described as the overarching problem in our lives. Presumably the government action was needed to solve a crisis of the government's making. (That would, in Bartlett's belief, be the Fed in the 1920s. What he doesn't mention is an Ayn Rand-run Fed's role in helping cause the current downturn.)
Let's keep this straight, because it's important: Unchecked financier-capitalists, liberated by Congress, the Fed and the SEC - after relentless lobbying pressure by the financial industry - caused the Great Recession from which we're recovering at a painfully slow pace. End of story.
Congress in 1999 revoked the Glass-Steagall separation of commercial and investment banking, after a period of no major bank failures lasting the exact duration of that FDR-era legislation. The immediate result was a surge in cowboy antics in the financial markets culminating by 2008 in the near-collapse of the entire global financial system. The Greenspan Fed, for its part, repeated its 1990s pre-dot-com mistake of not raising interest rates - or "taking away the punch bowl," as they say - in preventing a second bubble in less than a decade, this time a record run-up in U.S. housing valuations. And the SEC, run by Bush appointee Christopher Cox, a former G.O.P. congressman of a similar free-market disposition, repudiated a 2004 Congressional demand that he rein in financial markets. The same year, he decided that the big investment houses should be permitted to decide for themselves how much capital to have on hand to cushion the blow from risky investments gone sour. Since capital reserves are a detraction from profit, the securities firms naturally kept too little on hand. Besides, they believed they were super-human, a prequisite to work in the higher echelons of the Street.
You know the rest.
There was a Big Five oligopoly of U.S. investment banks before the do-do hit the spinning turbine last September. An insolvent Merrill Lynch, the world's biggest brokerage, was forcibly merged out of existence, now a unit of Bank of America, itself currently a ward of the state. An insolvent Bear Stearns, the smallest of the clan, also disappeared, forcibly merged into J.P. Morgan Chase. Lehman Brothers was permitted to fail; the Treasury wanted to draw a line somewhere against rescuing everyone on Wall Street from their cupidity. And the calamitous result was that banks and brokers worldwide suddenly froze global credit, fearful that the U.S. had suddenly become selective in who it would save, triggering mass layoffs in an industrial economy abruptly deprived of capital. The two survivors, Goldman Sachs and Morgan Stanley, hastily and successfully applied for banking charters to gain access to emergency cash from the Fed. They too came perilously close to ruin late last year.
Among the results is that in place of the brokerage oligopoly the U.S. now has a banking oligopoly, with the top four banks - J.P. Morgan Chase, Citigroup (also on government life support), Bank of America and Wells Fargo controlling an unprecedented 40% of U.S. financial assets. A bad thing? Not necessarily. As Galbraith recalled from his WWII years as America's wage-and-price-control czar, the one good thing about an oligopoly is that there are few players to supervise.
Contra Bartlett, what we know of Friedman is that he was a crackpot. His only competition in this distinction, among people of current or past influence, is Alan Greenspan.
Read Bruce Bartlett's Forbes essay, and chuckle over its many internal contradictions. But also worry that a lot of smart folks continue to hold to this view even after the latest, screamingly obvious failure of capitalism.
I am, BTW, a card-carrying capitalist, with the stock-market gains and losses to show for it. The variation I believe in is one in which we find that admittedly tricky balance between letting entrepreneurial forces run free to provide essential goods and services, and restraining those same folks, by regulation (since they for centuries have shown no inclination to self-restraint), to save them from their own worst instincts, and protect the rest of us from their occasional wealth-destroying behaviour on an epic scale.
These same free-marketers understand that taxi drivers, beauticians and real estate agents require licenses. Somehow the idea that a quant jock on the trading desk at Deutsche Bank about to commit his firm to a $121-billion bet on the yen does not need a license, and his firm doesn't need strict government supervision, goes over their head until someone forecloses on their own house or their think tank loses its line of credit in a general downturn.
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