After reading “Americans may be losing faith in free market” by Los Angeles Times Peter Gosselin, I’m getting the feeling that many of us might have been right all along about a well regulated free market democracy.
The original idea was simple, countries that were connected globally were less likely to go to war with each other, while opening up markets for trade. It’s also true that if one country fails economically, a big one like the U.S., the others are likely fall as well. Tariffs protected workers and their wages from cheaper outside forces. When those walls fell down, we saw incomes decline and a nervous workforce planning for the worst possible outcome. Gosselin brings all these idea’s together in this slightly shorten version of his Times story:
Things are hard all over the financial landscape, and politicians and experts are now looking with favor at more, not less, government involvement in the economy.
For a generation, most people accepted the idea that the core of what makes America tick was an economy governed by free markets … certainly better than government meddling.
No longer. Spurred by the continued housing crisis, turmoil in financial markets, spiking oil prices, disappearing jobs and shrinking retirement savings, the nation and its political leaders have begun to sour on the notion that the current market system is the key to a fair, stable and efficient society.
William Galston, a senior fellow at the Brookings Institution who helped craft President Clinton's market-friendly agenda during the 1990s said, "The strong presumption in favor of markets, which has dominated public policy since the late 1970s, has been thrown very much into question."
The sheer volume of setbacks … have … sent consumer confidence to some of its lowest levels in half a century. A remarkable 84% of Americans are convinced that the nation is on the "wrong track," according to a recent Gallup poll.
Washington had to ride to the rescue of two government-chartered mortgage giants -- Fannie Mae and Freddie Mac -- after investors all but extinguished the pair's market value amid fears that falling home prices would push them into insolvency. Meanwhile, federal regulators seized IndyMac Bancorp, a $32-billion mortgage lender based in Pasadena, in what regulators called the second-largest bank failure in U.S. history.
Even the Bush administration, which took office arguing that the Social Security crisis could be solved, in part, by tying some of retirees' future benefits to Wall Street, has begun advocating more government regulation of financial markets.
The price for a gallon of regular unleaded gasoline has nearly doubled in the last year, a barrel of crude oil more than doubled, cutting short Americans' love affair with gas-guzzlers and driving the nation's trucking, auto and airline industries into deep trouble.
Most mainstream economists assert that these increases are simply the logical outcome of booming global demand meeting limited global supply. But the price run-ups seem out of whack with demand. At least half a dozen measures have been introduced in Congress to limit speculation or to tax oil company profits.
In large part, the rise in house prices and the recent plunge grew out of an almost unregulated corner of the mortgage market -- the one for riskier loans.
Economist Robert Litan of the Brookings Institution said, "With energy, it's the speculators. With housing, it's predatory lenders or crummy credit-rating agencies or stupid banks. We're not ready to throw out markets altogether," he said, "but we want government to do something about the excess."
Harvard economist Robert Lawrence said, "The whole premise of globalization in the year 2000 was that it worked well for us and the other developed countries but that the developing countries would need help. Today, virtually all those optimistic assumptions have been turned on their heads.”
"We've seen unprecedented growth in the developing countries, while the developed countries are being led into a slowdown by the United States," Lawrence said. "We've found out that instead of services and information technology, it's all about oil and other commodities" that are not the nation's strong suit.
As UC Davis' Rauchway pointed out, the devastating panics and depressions of the late 19th century eventually resulted in the progressive reforms of the early 20th century and, later, the New Deal of the 1930s. Today, Americans are not ready to throw out markets altogether, said economist Litan, but "what people may be demanding is New Deal lite."
Nice post. We're not exactly asking for handouts. If we were simply rewarded with a reasonable sense of job security and expectations of modest but comfortable retirements for jobs well done, we wouldn't be hollering against free trade and globalization.
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