Writing on the recession for the Foreign Policy Association’s recent series on “Great Decisions,” Daniel Drezner observed: “If nothing else, the Great Recession threatens the key ideas that underlie the global economic order in the past generation.”
I don’t understand the word “threatens.” The current financial calamity does not “threaten the key ideas” that have dominated economic policy in the United States and abroad for the past 35 years or so. By all empirical evidence it absolutely shreds the economic theology that prevailed and unhappily still underlies the effectiveness of the resistance to any meaningful remedial action by bankers, by other purveyors of financial services, and by their congressional and media agents.
Relieve the giant banks and all the other too-big-to-fail corporations of all their worthless paper, but don’t dare regulate them because that would upset the “efficient workings of the free market.” And that would be socialism. We don’t want the government in the banking business, do we? Or in the insurance business, do we? (Forget about the FDIC; forget about the federal guarantees for private lenders against defaults on student loans; forget about the Federal Private Investment Corporation that provides loan guarantees to private businesses that invest in “politically risky” countries.) We don’t want the government in the health care business, do we? (Forget about Medicare; forget about the Veterans Administration’s enormous integrated health care system with more than 1400 sites; forget about … well, just forget it.) Regulating the too-big-to-fail, for-profit service corporations would interfere with the free market – “distort” is usually the chosen word – and that would be bad. By definition.
Every time I see or hear the phrase “free market,” I have mixed feelings – a mix of anger and exasperation. Why? Because there is no such thing as a “free market;” there has never been any such thing, and never will be. What’s more: it is hard to believe that those otherwise intelligent people who prattle about “the free market” don’t know that. So it is easy to conclude that those who do use the phrase are simply monumental cynics or are suffering from an acute case of cognitive dissonance.
In a liberal society such as ours, there IS such a thing as a price-and-market system that governs the allocation of most goods and economic rewards. And that is a good thing. But the market system operates within the boundaries set by law, and to some extent by custom. Those constricting boundaries can be broad or narrow. They can include broadly different areas of permissible economic action, or they can constrict the areas of permissible economic action. However they are drawn, they determine the advantages and disadvantages among actors competing for the goods and rewards that the society has to offer. As laws change, the boundaries change, and there are new winners and new losers. That’s what law does and is intended to do.
But – and here is our problem – changes in the private sector alters who wins and who loses at least as much as changes in law does. And as national and international circumstances have changed, the power of the “free market” mythology/theology among inattentive voters has served entrenched, predominant interests while hamstringing legitimate efforts to reorder the distribution of advantages in response to the changed circumstances.
“Passion and prejudice govern the world; only under the name of reason” --John Wesley
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