STAFF NEWS & ANALYSIS
Half a Hit: Free Markets Need Competition Via Regulation
By Staff News & Analysis - July 27, 2012

Britain Unleashed: Why Britain needs Adam Smith more than ever … Free markets didn't cause our current economic crisis, but a perversion of their core principles did. It wasn't for lack of regulation that banking came apart. Under Gordon Brown, a veritable army of box-ticking, officious regulators was created, ineffectually looking in the wrong direction while the peril grew, unobserved, beneath their feet. –UK Telegraph

Dominant Social Theme: We need to create free markets that work.

Free-Market Analysis: This article from the Telegraph proposes a way to fix capitalism based on the idea that free-market thinking has traveled too far, too fast. The article, written by Telegraph maven Jeremy Warner, focuses on the appropriate amount of regulation that is necessary for a healthy economy.

The crux paragraph actually comes toward the end of the article when Warner explains how a modern economy works and what is necessary. Here's an excerpt:

To believe that finance operates best when it is unsupervised is seriously to misunderstand the nature of free market economics, as daft as thinking you can have law and order without police.

Virtually all of capitalism's major calamities down the centuries have been caused by unchecked excess in banking. As the good times roll, finance progressively loses its aversion to risk, and in a process Wall Street veterans sometimes refer to as "reaching for yield", eventually throws caution to the wind and goes for broke.

In behaving in this reckless manner, banking was greatly comforted by the assumption – correct, as it turned out – that if things went wrong, the state could be relied on to pick up the tab. New schools of pseudo "free market" thinking were invented to justify the march of finance and convince the world it was safe.

We would take exception to this, of course. The cult of regulation is ever-present in the mainstream media and mentioning its necessity does not create its competence. What we give credit to Warner for is focusing on things other than regulation.

It is his perception that a violent backlash against free markets is taking place. Profit, he writes, seems once more a dirty word. But "capitalism" can go either way, in his view … toward statism or something more competitive.

He points to France as an example of how things could go wrong. France, of course, has just elected a socialist president and the populace seems quite ready to turn against itself in a miniature version of the French Revolution, hopefully without the guillotine.

When it comes to Britain, Warner is a bit more optimistic. Attempting to turn back the clock won't work for the UK, he writes. "To claw back years of lost competitiveness and thrive anew, Britain must rediscover the old-fashioned virtues – lost in the social engineering of the last government – of enterprise, thrift and hard work."

Bravo, Warner! He even points out such qualities cannot be gained via government. The state cannot deliver them, though it can enable them via policies.

Warner also points out that the Cameron government has thus far done a terrible job of fostering such old-fashioned virtues. He suggests it is necessary to unearth the underlying causes of the current mess. Again, credit to Warner. He doesn't blame the crisis on "market failure."

His perspective? The 2008 crisis (ongoing) was rooted in "ruinous public policy, inadequate supervision and absent political leadership."

Perhaps the most important of these seismic events is the shift in economic power and growth from West to East. What should have been a crowning achievement of free-trade economics, lifting hundreds of millions out of poverty, has been turned by neglect and the mercantilism of Chinese economic policy into something very damaging to Western interests.

Again, this is not a perspective on which we buy off. From our perspective, and we've certainly tried to be consistent, the problems of the past four years have come specifically from central banking money printing.

The problems of modern society can be laid at the feet of an endless overabundance of money. Warner won't go there because he cannot. But we can and do quite often. Monopoly fiat central banking is a curse for societies that have to live under it. And no place is more cursed than Britain.

To again give Warner his due, he not only avoids blaming market failure but even takes a shot at the additional regulation that's been poured into the marketplace.

But it wasn't for lack of regulation that banking came apart. Quite the reverse. Under Gordon Brown, a veritable army of box-ticking, officious regulators was created, ineffectually looking in the wrong direction while the peril grew, unobserved, beneath their feet. All sense of personal and institutional responsibility, the stuff that keeps us honest, got subverted in the regulatory quagmire.

What occurred was not market failure, but a perversion of the core principles of free market economics. Having missed all this during the boom, regulators have over-reacted in the bust, with enhanced capital and liquidity requirements that are killing all hope of a revival in credit and growth.

Geez, this is quite eloquent and to the point. Again, we don't think as Warner does that regulation can encourage competition but at least he is mentioning the C-word!

After Thoughts

It almost gives you hope for the mainstream press. Almost …

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