Unfree Markets: The Last Gasp of a (Literally) Bankrupt Ideology
April 28, 2010 - 5:40pm ET
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What we've been witnessing in Washington isn't just political positioning by one party looking to deny the other a victory, although it's certainly that. We're also seeing the death struggle of a dying ideology. This ideology provided intellectual cover to business and political elites for decades, but events have proved conclusively that it doesn't work. What's more, people are beginning to see that it's inconsistent with the country's traditional values of competition and free enterprise.
The ideology was cooked up in think tanks and boardrooms, then packaged and sold under a variety of conservative and libertarian guises. While the theories and rationalizations varied wildly, the conclusions were always the same: Deregulation was always the right approach, even (especially) for the most concentrated and rapacious businesses. Consumer regulations should be avoided because they hurt everybody, especially (somehow) consumers. And cutting taxes for the rich magically made things better for everybody else.
The arguments changed but the results were consistent: greater upward distribution of wealth, and more concentration of power, delivered by those the special interests funded and placed into positions of influence.
While the ideology was traditionally a Republican one, it had willing enablers in the Democratic Party who pushed for the same goals: Less regulation. More "unfettered" innovation in financial products, with "unfettered" a code word for "untested." Less transparency. More centralization of financial products through growth and acquisition, as if the world had never seen oligopolies before.
Now the ideology lies in ruins. The world has seen its fruits in a worldwide economic collapse, massive structural unemployment, and revelations of dirty dealings by our largest and most respected financial institutions. The two most prominent architects of the New Economic Order, Alan Greenspan and Robert Rubin, are publicly discredited by the collapse of the edifice they built. And, as we've discussed before, Greenspan's philosophy was particularly colored by his extreme ideological leanings and Ayn Rand worship (the money quote for Greenspan: "Parasites who persistently avoid either purpose or reason perish as they should.")
And yet privilege rewards its own. The same elites are being drafted into service, this time to recommend slashing benefits for older Americans in service of the wealthy. The Economic Night of the Living Dead that is Pete Peterson's "deficit summit" is the perfect example of this. (See Dean Baker's reaction here.)
But old warhorses like Greenspan and Rubin don't have the mojo they used to. Public anger at banks and financial institutions is staggeringly high, and nobody but the die-hard ideologues believes that deregulation has been a good idea. Not that this has been an upsurge in socialism, mind you - as much as some might hope and others might fear. If anything, it's a return to what might be called "traditional American economic beliefs." Here are a few of them:
Free markets should be free. Ideologues can no longer use the phrase "free markets" to describe a system where wealth and political influence are amassed by a few. The public recognizes that this encourages cheating, politician-buying, and the stifling of competition. And competition is the engine of a free market. What they call a "free market" is one where opportunity and growth have been crushed by the power of a few.
Transparency is vital. The Greenspans and Rubins of the world have long resisted rules that would require public disclosure of financial transactions. Yet disclosing deals, whether through exchanges or other mechanisms, is completely in line with the concept of "perfect competition." That's a market model that requires, first and foremost, "perfect information." Transparency's not just vital - it's fair. And what's a more American concept than fair competition?
Everybody gets to play. How effective is a marketplace where some people get to buy at one price, others have to buy at another price, and still others never get to buy at all? Whether it's through so-called clearing houses or other mechanisms, reform can ensure a more effective market with more participants on a level playing field. It's hard for those who label themselves free-marketers to oppose reform of this kind.
People should be rewarded for doing things, building things, inventing things ... not moving money. America's financial heroes have always been inventors, leaders, creators. Instead these ideologues have built an economy where an ever-increasing percentage of the nation's profits are captured by the people who move money around. That leaves less for the people who create wealth and more for the people who drain wealth from the system.
With ideas like this emerging, and the old theoretical double-speak disproved by events, what's an ideologue to do? Judging by recent events, the answer is to flail around a lot. First Republicans (and one Democrat) began filibustering to prevent debate on financial reform. But they're politicians, and keenly aware that their ideology's been discredited, so they had to articulate the very principles they were opposing. Yesterday they released an alternative proposal that oscillates between vagueness and repetition of ideas in the bipartisan-negotiated Dodd bill. (If they're really this close on the shape of reform, it undercuts their position even more: Surely they're close enough to be able to debate the bill's contents.)
Now Sen. Shelby has apparently reiterated the two parties' inability to strike a deal, while at the same time seemingly releasing Republican Senators to vote in favor of bringing the bill to the floor. If that's really what has happened, debate may begin shortly. But the zig-zag arguments of the past several days underscore the deeper narrative: The ideology that served Wall Street special interests for the last 40 years has broken down, and there is nothing to replace it.
You can't argue for free markets and still serve the giant companies. Those positions are mutually exclusive. You can't paint the picture of an agrarian past based on rugged individualism while helping the giant banks expand. It's self-contradictory.
The American dream can't survive without regulation. You know the dream: It's the one where families can live in financial security and an ambitious person with a new idea can start the next great corporation. It's the one where farmers can till the soil in peace and bankers live to help people start new businesses. The truth is that, without regulation, the powerful will always crush that dream. It'll be like the old Western movies and dime store novels, but this time with an unhappy ending: The giant ranchers will always drive out the independent cowboys. The combines will always throttle Main Street business. The frontier will always be fenced. The railroad will always destroy the town.
And those who serve those giant, faceless, unethical forces will always be what they've been in Western movies and dime store novels from time immemorial:
The bad guys.
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