Human beings, when faced with the unpleasant prospect of the truth, will often cling to feelings of cynicism and doubt rather than admitting that they are wrong. Such was the case when Galileo first claimed the sun was the center of our solar system, or when Columbus fought the notion that the earth was flat. Despite the ignorant opposition, these men stood by their beliefs, effectively showing that one stubborn man can change the minds of millions.
A few weeks ago, I was met with the same blend of cynicism and nay saying when I claimed that a free market had been falsely accused as being the cause of many of our country’s current financial woes. The opposition responded with claims that I was only speaking my opinion, or somehow misunderstanding the complexities of the issues at hand.
My stubborn nature, as well as an overwhelming feeling that I am always right, have caused me to revisit this issue, only this time I have come armed with the expertise of Mr. Don Watkins, a writer and research specialist at the Ayn Rand Center for Individual Rights.
Watkins agrees that laissez-faire is not only innocent when it comes to the causes of the current financial crisis, but has not been seen in this country since before the Roosevelt administration. The true cause, which was been able slowly gain footholds in this country behind the distraction of an overwhelming, yet perhaps unconscious, hatred of economic freedom by the American people, can be boiled down to one simple phrase-unnecessary government intervention.
Watkins cites the current state of the American housing market as a prime example of where government intervention has taken the rightful place of a free economy, bringing about the resulting housing bubble and eventual crash of the market.
“The housing market in this country is not a free housing market. In a free market, banks would demand 20 percent down for those who could afford to purchase a home proving they were financially able to do so. However, our government decided to make it easier for people to become home-owners through the invention of Fannie May and Freddie Mac, or the signing of the Community Reinvestment Act. (CRA)”
Watkins explains that these examples of intervention, specifically the CRA, often forced banks to make loans to lenders who historically would have been rejected because of poor credit. These actions, tied with the manipulation of interest rates by the Federal Reserve, whose mere existence defies the notion of a truly free market, are responsible for the housing crisis seen late last year.
Now, in the apparent peak of the crisis, many are citing the lessons of history, claiming that government intervention and stimulation of the economy like that seen during FDR’s New Deal is the solution to our current situation. Those who cling to such illusions of grandeur might as well shut their eyes and skip over the next few lines, for what you’re about the read may shatter your fragile perception of the world-The New Deal did not end the effects of the Great Depression, instead it made things worse.
As Watkins explained, “It’s important that the Great Depression be evoked, because it relates to what is going on right now. Federal intervention was the problem then, and continued to be the problem now. FDR, through his regulations and intervention, went to war with businessmen, creating a general feeling of regime uncertainty.“
This “regime uncertainty,” fueled by the administrations arbitrary control over economic issues, kept businesses from doing the necessary projecting and planning usually associated with economic growth. Thus, businesses were forced to remain stagnant, and the effects of the Depression were prolonged.
Now, more than half a century later, we find ourselves in a disturbingly similar situation, a situation that, according to Watkins, may very well get worse. “What we need right now are as many deregulatory actions as possible. Unfortunately, Obama is saying the exact opposite.“
Rest assured that whatever terrible end comes from American’s love affair with federal regulation and intervention, you can always stand strong, like the generations of the past, foolishly blaming capitalism for the failures of government.
JAMES NOONAN has a long list of suggested reading. Contact him at jjnoonan@ucdavis.edu to find out more.
