The Slippery Slope to Statism

June 17th, 2009

We all know how the current economic crisis began, right? Maybe not right! I emphasized “current” because what we are seeing now really began some decades ago, but if you understand the current situation and the forces leading up to it you will be able to look back and clearly see the basic problem.

Following shortly will be an excerpt from a short essay that illuminates the source of the problem. The essay is titled: Misrepresenting “How We Arrived at This Moment” and is written by Alex Epstein, an analyst focusing on business issues at the Ayn Rand Center for Individual Rights.

I can hear some of you moaning at the mention of Ayn Rand’s name. That either indicates that all you know about her is that she’s a fiction author, or it indicates that you know that she, and her acolytes, after her death, are the country’s most vocal spokesmen for the free market, and you don’t believe the free market works. In either case, you’re wrong.

Ayn Rand was much, much more than an author. She was a philosopher, a visionary, and even though she was born and raised in Russia, she was one of the most dedicated American patriots of her time. As for the free market, many (or most) of you who are reading this have never seen a truly free market in operation — there hasn’t been one for forty or fifty years.

Getting back to the economic crisis and to Alex Epstein’s essay, let’s start out with Epstein’s central thesis: The misdirection and misrepresentation we receive from our President. Epstein argues that Obama believes that the reason our economy is in a crisis situation is because the market, leading up to this crisis, was too free. It needed controls, direction and, most of all, regulation.

Obama has never once mentioned the fact that it was the Federal government’s systematic manipulation of the financial and housing markets that led to today’s crisis. Think back — you’ll remember this: the Federal Reserve cut interest rates to all-time lows to “stimulate the economy,” so mortgage lenders now had cheap loans that they could make, and people came in droves to apply for mortgages. The only hitch was that the mortgage lenders had standards that they had to apply and many people could not qualify for home loans, based on their income.

Some say that the federal government forced mortgage lenders to lower their standards so that more people could own homes. Others say that the mortgage lenders didn’t need to be coerced — they just wanted to suck in every potential customer they had with the low initial rate mortgages, rates that would be “adjusted” later. Either way, it was the government stimulation of the economy through the lowest interest rates in decades that started the ball rolling toward the eventual collapse of the housing market when the loans that shouldn’t have been made defaulted.

Epstein considers the cause and effect and a possible (but, alas, improbable) solution:

… 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.

Epstein’s solution: getting the government out of the markets and allowing those who fail to fail so those who succeed can succeed. This is something we may never see and will certainly never see under an anti-free market president like Obama (and, to be fair, just as we never saw it under the other recent presidents who were manipulators and not true believers in free and unfettered markets: Bush, Clinton, and Bush 41).

So Obama is forging on to add more controls (government controls) to every market: financial, housing, health care, education, and so on. If unchecked, there is only one place this can lead — it will certainly lead to statism. Obviously the situation President Obama is dealing with was not of his making, but the choices he is making are setting a disastrous course for this country and its economy. Unless our course is changed, your children’s children will never know the America that we grew up in.

I guess the moral of the story is: next time, be more careful who you vote for!

News links:

Obama to Outline Biggest Regulatory Overhaul Since 1930s, ABC News
IMF sees economic crisis getting worse, others expect recovery, Daily Finance

Blog links:

Obama to announce Financial sector reforms yet again, Mostly Economics
Congress Unlikely to Reform Root Cause of Economic Crisis! But we already knew that, didn’t we?, PUMABydesign001’s Blog

(This article was also posted at My View from the Center.)


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