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By
Alex Epstein (Financial
Post, Canada, April 8, 2009)
What must be done to recover from this
financial crisis?
Barack Obama rightly stresses that we first
must understand how today’s problems emerged. It
is “only by understanding how we arrived at this
moment that we’ll be able to lift ourselves out
of this predicament."
Unfortunately, Obama (along with most of the
Washington establishment) has created only
misunderstanding. In calling for a massive
increase in government control over the economy,
he has evaded the mountain of evidence
implicating the government.
For example, Obama’s core explanation of all
the destructive behavior leading up to today’s
crisis is that the market was too free. But the
market that led to today’s crisis was
systematically manipulated by government. Fact:
this decade saw drastic attempts by the
government to control the housing and financial
markets--via a Federal Reserve that cut interest
rates to all-time lows, and via a gigantic
increase in Fannie Mae and Freddie Mac’s size
and influence. Fact: through these entities, the
government sought to “stimulate the economy” and
promote homeownership (sound familiar?) by
artificially extending cheap credit to
home-buyers. Fact: most of the (very few)
economists who actually predicted the financial
crisis blame Fed policy or housing policy for
inflating a bubble that was bound to collapse.
How does all this evidence factor into
Obama’s understanding of “how we arrived at this
moment”? It doesn’t. Not once, during the solemn
52 minutes and 5,902 words of his speech to
Congress did he mention the Fed, Fannie, or
Freddie. Not once did he suggest that government
manipulation of markets could have any possible
role in the present crisis. He just went full
steam ahead and called for more spending, more
intervention, and more government housing
programs as the solution.
But a genuine explanation of the financial
crisis must take into account all the facts.
What role did the Fed play? What about Fannie
and Freddie? To be sure, some companies and CEOs
seem to have made irrational business decisions.
Was the primary cause “greed,” as so many
claim--and what does this even mean? Or was the
primary cause government intervention like
artificially low interest rates, which distorted
economic decision-making and encouraged less
competent and more reckless companies and CEOs
while marginalizing and paralyzing the more
competent ones?
Entertaining such questions would also mean
considering the idea that the fundamental
solution to our problems is to disentangle
the government from the markets to prevent
future manipulation. It would mean considering
pro-free-market remedies such as letting banks
foreclose, letting prices reach market levels,
letting bad banks fail, dismantling Fannie and
Freddie, ending bailout promises, and getting
rid of the Fed’s power to manipulate interest
rates.
But it is not genuine understanding the
administration seeks. For them, the wisdom and
necessity of previous government intervention is
self-evident; no matter the contrary evidence,
the crisis can only have been caused by
insufficient government intervention. Besides,
they are too busy following Obama’s chief of
staff’s dictum, “Never let a serious crisis go
to waste,” by proposing a virtual takeover of
not only financial markets, but also the
problem-riddled energy and health-care
markets--which, they conveniently ignore, are
also already among the most
government-controlled in the economy.
While Obama has not sought a real explanation
of today’s economic problems, Americans should.
Otherwise, we will simply swallow “solutions”
that dogmatically assume the free market got us
here--namely, Obama’s plans to swamp this
country in an ocean of government debt,
government controls, and government make-work
projects. But alternative, free-market
explanations for the crisis do exist--ones that
consider the inconvenient facts Washington
ignores--and every American should seek to
understand them.
Those who do will likely end up telling our
leaders to stop saying “Yes, we can” to each new
proposal for expanding government power, and
start saying “Yes, you
can” to Americans who seek to exercise their
right to produce and trade on a free market.
