Economy

American Mythology and the Free Market that Never Was

Regardless of party affiliation, every modern Commander-in-Chief has been a big supporter of federal economic intervention.

Critics have decried Barrack Obama's proposed solution to the health care crisis as an act of socialism. Indeed, free market logic generally asserts that any form of state interference in private enterprise is, by definition, socialism. Okay, but if that's our definition, then every President since Hoover has been a socialist too. Regardless of party affiliation, every modern Commander-in-Chief has been a big supporter of federal economic intervention--the extent to which that establishes their credentials as died-in-the-wool socialists is somewhat more dubious. Nonetheless, US government involvement in the private enterprise system has actually been more common and, dare I say, more beneficial than we often like to admit. 

Of course, such a declaration is certain to be considered sacrilege among free market enthusiasts. The received wisdom among free marketeers is that any form of governmental intervention is synonymous with bureaucratic bungling. Beginning with Adam Smith, economic theorists have insisted that free markets work best when they are unregulated. That is, in the ethereal absence of government regulation, an Invisible Hand magically optimizes market relationships. It's an inspiring image and, although somewhat Utopian, the fabled Invisible Hand nonetheless affirms many of the fundamental rights and values of free marketeers, i.e., small government, individuality, private property.  

It's also pure baloney. 

Free marketeers are forever clamoring for economic deregulation. Without doubt, deregulated economies open up extraordinary opportunities for profiteers to bag short term gains. However, environments of diminished regulation also amplify the likelihood of economic catastrophe. The financial crashes of 1929 and 2008 offer two instructive examples. In the period immediately preceding each collapse, laissez faire economic philosophies monopolized the hearts and minds of policy-makers. Whereas free marketeers generally see naught but virtue in economic deregulation, in reality deregulated economic systems are train wrecks waiting to happen. The unfettered pursuit of profit routinely consumes and destroys its very own means of survival. Invisible Hand, indeed!

I suppose the true meaning of the Invisible Hand is that, in the aftermath of financial disasters, the Invisible Hand is nowhere to be found. When free marketeers need a bailout they don't turn to Adam Smith, instead they call upon the much-maligned, but ever-dependable federal government. 

Not only do the Captains of Industry often fall back on the feds for immense bailouts, but government intervention has also proven to be the most essential ingredient in creating and sustaining a vigorous free (I believe the term "managed" is more appropriate) market economy. For example, FDR engineered a miraculous recovery from the Great Depression by imposing unprecedented federal control over the economy. In doing so, he also laid the foundation for ingenious new public-private synergies, a.k.a., the military-industrial complex. Quite literally, the partnerships that FDR orchestrated between the federal government and private industry not only laid the groundwork for US success during WWII, but those partnerships have also secured America's enduring status as a super-power throughout the post-War era. 

Jumping ahead to the economic fiasco of 2008, the same-old pattern has played out: free marketeers deregulated the economy to the brink of oblivion and then foisted responsibility for disaster recovery onto the feds. Yet, if there is a silver lining to the 2008 financial meltdown, it's that, right on cue, Adam Smith's Invisible Hand has taken a powder. For example, from the very moment that Hank Paulson (arch free marketeer, and former Secretary of the Treasury under G.W. Bush) recognized the full scope of the 2008 financial disaster, he instantly became a profligate socialist: overseeing federal acquisition of entire industries and, generally speaking, implementing the most costly bailout in the nation's history. In the best of times, free marketeers, like Paulson, are relentless advocates of privatized profit. However, when the chips are down, free marketeers often reverse course in the blink of an eye; hatching cunning rationales to socialize their losses. Let this be a lesson: in a free market system, disaster management is the domain of the federal government. 

Fortunately, having accumulated lots of experience with the malign influences of the Invisible Hand, the feds have developed a well-oiled capacity to coordinate post-meltdown recoveries. For example, isn't it amazing how in the space of only a few short months all of the bailed out banks have returned to profitability? Also, like a phoenix from the ashes, General Motors has emerged from bankruptcy under Big Brother's watchful eye with a brand new focus on innovation, customer service, and 21st century profitability. Oh, what wonders a well-timed dose of governmental intervention can yield.

Thus, Adam Smith's ideal of an unregulated free market was precisely that: a figment of Smith's imagination. There is no such thing as a free market. Markets can neither exist nor function without meticulous governmental oversight. On those occasions when the US economy has undergone sustained "market freedom enhancements" (i.e., periods of excessive deregulation), disaster has been quick to follow. Experience has demonstrated that best form of socio-economic governance involves a close, carefully-managed partnership between public and private initiatives. Interestingly, that happens to be precisely the type of collaboration that Barrack Obama has advocated as a solution to the health care crisis. To suggest that President Obama a socialist for attempting to negotiate such a solution, in my opinion, affords socialism way too much credit. Socialism generally propagates atrociously monolithic, tyrannical and stagnant socio-economic systems; the two most glorious examples being the Soviet Union, and Maoist China. The US owes its success as a superpower not to socialism, but to its unique ability to develop a dynamic equilibrium between "managed market" enterprise and public welfare. Further, America’s ongoing success is assured so long as the US can preserve and enhance its dynamic climate of public-private socio-economic synergy. 

Up till now, Americans have permitted the free market to determine the cost and quality of our health care system. Not surprisingly, the result is a nightmarish crisis that could only be the handiwork of a maladroit Invisible Hand: substandard health care that's too expensive for most Americans to use. We can do better. As illustrated above, the best way to fix the health care system is to engage federal oversight and regulation to curb the free market excesses that have given rise to the health care crisis. The solution is much simpler than most of us dare to believe. If the feds can turn General Motors around in just a few short months, then they can do the same for health care. 

President Obama is on the right track. With a bit of intervention and guidance from the feds, we can put an end to the health care crisis and thereby improve the health, welfare and longevity of our nation and every one of its citizens.   

Timothy McGettigan is a professor of sociology at Colorado State University - Pueblo.