Free Market versus Regulation

There's been quite a bit of talk lately about the so-called failure of the Free Market, as exemplified in the recent banking/credit crisis. Naturally, all the progressive statists insist that the fault lies with unregulated wall street bankers, with the solution of course being increased, New Deal-esque regulations being imposed upon the entire financial system of the United States (and the rest of the world too, judging by events overseas so far). Here are a few things to keep in mind however:

1) The banks in question were not truly free market institutions, since they already operate under extensive general government regulation (especially programs intended to promote the lower economic classes, such as incentives designed to cause banks to make loans to dangerously unworthy homeowners without sufficient capital to sustain their purchases).

2) The government "bailout" and subsequent partial nationalisation of banking institutions by means of state purchasing of corporate stocks not only removes the main disincentive to taking foolish risks by proving that the state, and hence the taxpayers, will finance any failures that result, but also is a highly dangerous precedent that violates the Constitution of the United States, creates billions of dollars out of nothing, saddles the taxpayers with a huge load of unrecoverable debt (essentially meaning we will all have to pitch in to cover it with our own money), and will in the end serve primarily to extend the duration and thus increase the impact of the current financial difficulties by preventing the necessary correction (as exemplified by the collapse of several incompetent financial institutions that have proven their lack of worthiness to survive, a collapse prevented by radical government intervention).

3) A truly free market would have lacked the incentives to risk-taking that drove the housing and credit bubbles while simultaneously providing disincentives in the form of the knowledge that failure would lead to collapse. State intervention that pressured financial institutions into actions that were dangerous from a business standpoint, all in the name of ideology, combines with the removal of any real risk to financial institutions themselves (by transferring it to the taxpayers) to lead to rampant stupid risk-taking that creates the bubbles that inevitably will burst when the market attempts to correct for them.

4) Market corrections in a free environment can be painful, but they tend to hurt mainly those responsible for the problems. In a regulated environment, the corrections tend to have a harder time at fixing things, since the state injects artificial stimulation in an attempt to limit consequences. This results in longer, slower corrections that, though slightly less painful in the immediate present, end up being much harsher to a much wider portion of the economy, as the imbalances present begin to be exacerbated by interventions, thereby spreading the impact to more and more sectors of the economy.

My ultimate conclusion then is that the general government is taking exactly the wrong approach to this situation. They were instrumental in causing it by means of their regulations and incentives set up to ensure certain high-risk people could be approved for loans that they otherwise couldn't get. They have been instrumental in prolonging and increasing its effects by means of their bailout and further intervention policies, thereby preventing a localized correction from taking place. Finally, they are poised to cause it all to happen again, by setting the precedent of goverment intervetion to eliminate all negative consequences from taking stupid, economically infeasible risks that otherwise would have been prevented from happening due to the very real risk of catastrophic financial damage caused to those institutions that indulged in such nonsensical practices.

What can one do about it? Support those members of Congress who opposed the bailout votes. Fight to see that those members of Congress who voted in favor of the bailouts fail to be reelected. In short, transition control of Congress away from those who would turn us into a socialist workers' paradise with everyone accountable only to the state and toward those who believe in truly free markets, individual responsibility, and the rule of law as exemplified by the Supreme Law of the Land, the United States Constitution.