American Mythology and the Free Market that Never Was

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.