Governments and central bankers must take the blame for the financial crisis – not bankers, investors and others in the market, according to a new study. In a comprehensive analysis of the causes for the financial and economic crisis, the Institute of Economic Affairs (IEA) has concluded that the disaster was caused by authorities' mistakes rather than market failures. In an associated letter to The Daily Telegraph, the IEA, supported by a number of leading economists, including Tim Congdon and John Kay, said that despite these failures regulators were being rewarded with more responsibilities. The study suggests that hedge funds and tax havens should not be unduly punished, and that in the future central banks and regulators should pay greater attention to imbalances building up in the economy. The detailed analysis, Verdict on the Crash, will come as a further blow for Gordon Brown (pictured left), claiming that the system he created to monitor the financial and economic system was found entirely wanting and is in need of a major overhaul. – UK Telegraph
Dominant Social Theme: A different point of view.
Free-Market Analysis: While the IEA may be something of a free-market think tank (whatever that means in Britain these days) the publication of this analysis supports the point we are making in the other article in today's Bell. The study, written about in an on-line version of the Daily Telegraph, has likely garnered hundreds of thousands of views – and will receive millions more from links and from being published elsewhere on the web. Over time, it will be cited and receive still more views and links. A study that 20 years ago would have received a few quick mentions in the back pages of prestigious newspapers is now capable of generating a virtual tidal wave of readers.
Of course it is not the technology alone that matters; it is what's being written that counts. Viewpoints, especially economic ones, that haven't seen the light of day for the past 50 years are receiving wide prominence. Hayek, Mises, Rothbard and other free-market Austrian economists are regularly quoted in publications that even a decade ago referred only to the socialist Keynes when it came to economics and economists.
The IEA analysis, in its blunt statements that central banking policy and government regulations were to blame for the meltdown, is swimming against Prime Minister Gordon Brown's tide, but its point of view will be heard in the 21st, unlike the 20th century. The results will come from twin impacts. First, there will be an impact because studies such as these are factually correct. There is no rational way to defend a central banking monopoly on money creation. Second, readers are being introduced to classical liberal concepts that were well known a hundred years ago but have been so garbled by academic pedantry that they virtually need to be reintroduced to interested readers as if from scratch.
This reconnection with the reality of economic philosophy is massively important. It is, in fact, an urgent but little noted point (so we note it) that one can read literally thousands of 20th century texts about Hume, Kant, etc. without ever figuring out these eminent thinkers were engaged in an inter-generational quarrel about free-markets and how they operated and how effective they were. This dialogue has virtually been purged from the philosophical canon, but it is returning. The cat is out of the proverbial bag.
Conclusion: The effectiveness of the current monetary structure never depended on its efficacy so much as upon the silence from the other side. There was no way to make an effective counter-argument because there was no venue in which to make it and no readership to gather together to review it. The Internet has made the difference, and the implacable nature of the current communication technologies make it impossible to return. The arguments about money and power at all levels of society are not over but have just begun.
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