Free Markets vs. Crony Capitalism
Original post made by GX, Another Pleasanton neighborhood, on Oct 3, 2011
Since the beginning of our current Recession, there has been much disparaging of our current capitalistic economic system. To not risk “throwing the baby out with the bath water”, I think we need to get honest with our current market approach and how it differs with successful true free-markets approaches of the past. Please note that free markets don’t preclude appropriate government regulations. Only when we have a thorough understanding of what has/hasn’t worked in the pasts (and the associated underlying dynamics) can we craft the appropriate solutions to get us out of our current mess.
I found John Hussman’s following brief yet cogent summary of the differences between free markets and our model of crony capitalism helpful – do note his second-to-last sentence:
I feel it is important to emphasize - as we move toward recession - that we shouldn't blame what is happening here on capitalism or free markets. We really have only a caricature of those here. We have a system that is constantly eager to abandon the proper role of government in the markets - which is effective regulation of risk - and to substitute it with the worst role of government in the markets - which is absorbing losses for those whose losses should not be absorbed, and pursuing policies tilted toward the constant creation of speculative bubbles and the avoidance of required economic adjustments, rather than the productive allocation of capital.
Free markets work - provided that they operate within a framework of government policy that enforces property rights, provides reasonable regulation, coordinates objectives that cannot be achieved privately (e.g. certain infrastructure, insurance coverage for pre-existing conditions - which otherwise creates an adverse selection problem even for companies that would like to offer it), and maintains reasonable consumer protection (because there is a huge "information problem" in requiring each consumer to have all of the requisite facts to avoid abusive practices). To blame our economic problems on the free market is an insult to what has proved for centuries to be the most effective economic system for creating prosperity and raising living standards. We would be wise to stomp out the incessant policy of bailouts and monetary distortions if we hope for that to continue.