Originally Posted by Dr Millmoss
I claimed what I wrote, not some other thing, convenient as that might be for you.
....The problem is free market fundamentalism -- the theory that all is needed for a thriving economy is for the government to take a hands off approach.....
....I wonder where that leaves the people who still do. Way, way out on a distant fringe, I believe.
I cut sections only for brevity, not to change the meaning. I can understand perhaps if you merely disagreed
with free market fundamentalism, as you put it. But you didn't do that. You said that anyone who still believes in it is on the distant fringe. That, of course, is ridiculous.
This seems to happen every time we have a serious recession or other economic problem. Free markets get the blame. "We have to reform the system!" people scream. That is, until things are going well. Then, it's the greatest system on the face of the Earth...and everyone is getting rich! The government takes credit, too. But whoah! When things go bad? The politicians attack the very free market system that created prosperity. It's an endless cycle.
As for the debate itself (putting aside your "fringe" reference), the fact is that free markets do create wealth faster and better than any other system. Government meddling and "involvement" makes things far worse and created the very kinds of crisis we see today. The support for this can be found in the latest crisis. It wasn't that the government allowed
it to happen through deregulation, it's that the government encouraged
the problem. Why?
1. We have and have had an inflationary monetary policy. Our economy has been dependent on artificially cheap money. This expands credit dramatically. The end result is inflation and frankly, people spending money they don't have on things they don't need. And it's all thanks to the Feds monetary policy.
2. The Federal Government is at the core of the housing crisis. The Community Reinvestment Act, created in the 1970s and reauthorized in the 1990s, essentially made banks make loans they normally wouldn't make. The federal government went so far as to basically threaten banks into making sub-prime loans. The federal government then bought many of these loans (indirectly) through Fannie Mae and Freddie Mac, despite their high risk. This expanded credit further, since lending standards had been lowered. In turn, this helped drive housing prices, which coupled with low interest rates and a good overall economy, led to a bubble that eventually burst.
With exception of CDS contracts and the creation of junk mortgage funds by the financial sector, the government ensured a financial crisis all on its own as it served to create the housing crisis. Had interest rates been a little higher, had the government left the banks alone and not pressured them, we would have had a more reasonable ascension prices. At least, it's a reasonable assumption.
I'm not suggesting a different system, only that some of our assumptions about markets need to be reexamined. This is what Greenspan was doing in a very public way about a year ago.
Vague. What assumptions, exactly?