Moore Grimm Paper

8/7/2019 Moore Grimm Paper

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STRAWMANCAPITALISMANDANEWPATHTOPROSPERITY

STEPHENMOORE*&TYLERGRIMM**

Soon after the $700billion TroubledAsset Relief Program(TARP)becamelawinOctoberof2008,theWashingtonPostrana widely acclaimed article entitled The End Of AmericanCapitalism?1Thearticlecalledintoquestionthesupremacyofcapitalismandthedurabilityoffreemarketsinthewakeofthefinancialcrisis.Thesamethemeappeared incountlessarticles

inthe

months

that

followed.

By

April

2009,

apoll

found

that

onlyfiftythreepercentofAmericanadultsbelievedcapitalismtobebetterthansocialism.2This lackofconfidence incapitalismprovided the setting inwhichPresidentObamapledgedtoactboldly,toturnadversityintoopportunity,andusethiscrisisasa chance to transformour economy for the21st century.3Publicexpenditureshavegone towardbailoutsof failing firms, economic stimulus plans, Cash for Clunkers, andotherproactivegovernmentpoliciesaimedatpulling theU.S.economy out of recession. PresidentObamas pledged transformationhasbeenamultitrilliondollarfailureandoffersnewevidenceof thebankruptcyofcountercyclicalgovernment in

terventionismas

ameans

ofeconomic

recovery.

Ifthe

short

term effects of these programs havebeen disappointing, thelongterm effects of the nearly three trillion dollars in additionaldebtwillbeevenmoredebilitating.

*StephenMooreissenioreconomicswriterfortheWallStreetJournaleditorialpage.**TylerGrimmisaresearchassistantwiththeWallStreetJournaleditorialpage.

TheAuthorsappreciatetheassistanceofMarkOffenbach.1.AnthonyFaiola,TheEndOfAmericanCapitalism?,WASH.POST,Oct.10,2008,atA1.2.Just53%SayCapitalismBetterThanSocialism,RASMUSSENREP.,Apr.9,2009,

http://www.rasmussenreports.com/public_content/politics/general_politics/

april_2009/just_53_say_capitalism_better_than_socialism.

3.Remarksat theCaterpillarPlant inEastPeoria, Illinois,DAILYCOMP.PRES.DOC.No.DCPD200900081(Feb.12,2009).


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476 HarvardJournalofLaw&PublicPolicy [Vol.33

I. THETRANSLUCENTHANDAnelementarytruthmustbenotedbeforeanydiscussionof

thefinancial

crisis

and

its

aftermath

can

take

place:

the

eco

nomic systemof theUnitedStatesprior to thedownturndidnot represent freemarket capitalism.Thispoint is notnovel.Economicstextbooks,almostunanimously,describethesystemasamixedeconomy inwhichnearlyeveryprivatesector issubjected to some degree of government regulation, and the2008FederalRegistercontainsalmosteightythousandpages.4ItisanerrortoconsidercapitalismandtheAmericaneconomicsystem toberoughlysynonymous.This importantdistinctionhasbeendrownedoutbythedissonantgrumblingsofunjustified acrimony towards markets. Freemarket capitalism hasbecomeastrawmanonwhich leftistsblameseveryeconomic

illinan

attempt

tousher

inpolicies

that

further

increase

the

roleofgovernmentinthemarketplace.Since theNewDeal, fiscal conservatives havebeen onde

fense,notonoffense.In2009,therewasnofreemarkettodefend. In the1930s,governmententitiesproduced,onaverage,roughlyfifteenpercentofGDP.5From1970through2008,governmentonaverageaccountedforabouttwentyfivepercentofGDP (theeffectsofspending increases in2009willbeconsideredsubsequently).6Thesefiguresdonotevenaccountfortheunseen costs associatedwith theburden of governmentthecosts of complyingwith regulationswhichwere about anothereightpercentofGDPin2008.7

Thesupply

side

revolution

associated

with

President

Ronald

Reaganthe most hopeful attempt at securing prosperitythrough limited government in twentiethcentury Americanpoliticswasabouttearingdownbiggovernmentpoliciesby,forexample, lowering tax ratesand lessening regulatoryburdens. It was not a defense of a freemarket status quo. Al

4.ClydeWayneCrews,Jr.,TenThousandCommandments:AnAnnualSnapshotof theFederalRegulatoryState,2009COMPETITIVEENTER.INST.2.5.SeeBUREAUOFECON.ANALYSIS,NATLINCOMEPROD.ACCT.TABLES,TABLE1.1.5

(2009),

available

at

http://www.bea.gov/National/nipaweb/SelectTable.asp?Selected=N.

6. Id.7.Crews,supranote4,at2.


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No.2] StrawManCapitalism 477

thoughtherevolutionmadesomeprogress,itbynomeanscreatedtheRandianstateassumedbyitsdetractors.8

II. CRYMEACRISISThecontemporaryleftistshavetakentousingthetermfree

market fundamentalism topejoratively characterize the economicphilosophyofPresidentGeorgeW.BushsAdministration and to blaming deregulation for the financial crisis.9PresidentBush,howeverevenbeforethetrillionsofdollarsinbailoutsandguaranteesduringhislastyearinofficewasfarfrom a fiscal conservative.Veronique deRugy, an expert onfiscal policy atGeorgeMasonUniversitysMercatus Center,hasdoneresearchthatshowsPresidentBushtohavebeenthebiggestregulatorsinceRichardNixonandthat theBush team

spentmore

taxpayer

money

on

issuing

and

enforcing

regula

tionsthananypreviousadministrationinU.S.history.10PresidentObama seems to have overlooked this nontrivial

fact. In aDemocraticprimarydebate,Mr.Obama shared histhoughtsonthegovernmentsroleinthefinancialcrisis:

[T]he subprime lendingmess, part of the reason it happenedwasbecausewehadanadministrationthatdoesnotbelieveinanykindofoversight....Youvegottodiscloseifyouvegota teaser rateand suddenly theirmortgagepaymentsaregoingtojackupandtheycantpayforthem.Andone of the things that I intend to do as president of theUnitedStatesisrestoreasenseofaccountabilityandregulatoryoversightoverthefinancialmarkets.11

Thisreadingofhistory isdeadwrong.Worseyet,PresidentObamanowworkscloselywithmanywhowerecomplicit in,ordirectlyresponsiblefor,thewellintentionedbutperniciouspoliciesthatledtothesubprimelendingdebaclethattriggeredthemostsevererecessioninageneration.Whenitcametoincreasinghomeownership,Congressabdi

cateditsduediligenceroleinpartbecauseoftheawesomelob

8.DAVIDSTOCKMAN,THETRIUMPHOFPOLITICS:WHYTHEREAGANREVOLUTIONFAILED(1986).9.See Michael Hirsch, Converting the Preachers, NEWSWEEK, Oct. 27, 2009,

http://www.newsweek.com/id/219720.

10.VeroniquedeRugy,BushsRegulatoryKissOff,REASON,Jan.2009,at2425.11.BarackObama,DemocraticDebateinLasVegas,N.Y.TIMES,Jan.15,2008.


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byingpowerofthehousingindustry,whichprovidedmassivecampaigncontributionstomembersofCongressinbothpartiesinreturn forevergeneroushousingsubsidiesandablindeye

tothe

massive

debt

and

risks

ofFannie

Mae

and

Freddie

Mac.

InaHouseFinancialServicesCommitteehearingin2003,Representative Barney Frank made a declaration indicative ofCongresssattitude toward theGovernmentSponsoredEnterprises(GSEs)FannieMaeandFreddieMac:Idonotwantthesamekindof focuson safety and soundness thatwehave inOCC[OfficeoftheComptrolleroftheCurrency]andOTS[Office of Thrift Supervision]. Iwant to roll the dice a littlebitmoreinthissituationtowardssubsidizedhousing.12Suchblatantcarelessnesscannotbeforgiven.YetRepresentativeFrank and themanyother congressmen

who are on the recordmaking similar statements are politi

cians,not

experts

on

risk

based

capital

standards.

Where

were

theexperts?In2002,PeterOrszag(PresidentObamascurrentDirectoroftheOfficeofManagementandBudget)coauthoreda paperwithNobel laureateJoseph Stiglitz (anObama supporterandunyieldingcriticoffreemarketcapitalism)thatanalyzedthestateoftheGSEsFannieMaeandFreddieMac:

The paper concludes that the probability of defaultby theGSEs is extremely small.Given this, theexpectedmonetarycosts of exposure to GSE insolvency are relatively smalleven given very large levels of outstandingGSE debt andevenassumingthatthegovernmentwouldbearthecostofallGSEdebtinthecaseofinsolvency.Forexample,iftheprobabilityofthestresstestconditionsoccurringislessthanonein500,000,and if theGSEshold sufficient capital towithstandthestresstest,the implication isthattheexpectedcosttothegovernment of providing an explicit government guaranteeon$1trillioninGSEdebtislessthan$2million.Tobesure,itisdifficult toanalyzeextremely lowprobabilityevents,suchastheoneembodied inthestresstest.Eveniftheanalysis isoffbyanorderofmagnitude,however, theexpectedcost tothegovernmentisstillverymodest.13

12.WhatTheySaidAboutFanandFred,WALLST.J.,Oct.2,2008,atA19.

13.Joseph

E.Stiglitz,

Jonathan

M.

Orszag

&Peter

R.

Orszag,

Implications

of

the

NewFannieMaeandFreddieMacRiskbasedCapitalStandard,FANNIEMAEPAPERS,Mar.2002,at2.


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Infact,theGSEsdidnotremainsound.Theirfailureputtaxpayersonthelinefor$1.45billioninmortgagebackedsecurityand debt purchases.14 This was only the tip of the iceberg.

Eighteenmonths

after

abailout

frenzy

that

began

with

Bear

StearnsinMarch2008,theFederalReserve,Treasury,andFederalDeposit InsuranceCorporationhadcommitted$11 trillion,$3trillionofwhichhadalreadybeeninvested.15

III. NEWBOSS,SAMEASTHEOLDBOSSWewillnotdwellontheprecisecausesofthefinancialcrisis,

butwesidewith renownedStanfordeconomistJohnTaylorsassertion that the failure isprimarilydue togovernment,notmarkets.16Totheextentthereisasystemicculprit,itisnotcapitalism,but rather corporatism.Progressiveswrongly conflate

conservativesadoration

offree

enterprise

with

that

ofpolitical

profiteering and rentseeking, whereby legislative loopholesandcarveoutsaresecuredbylobbyistsandpoliticallyfavoredspecialinterest groups. This processwarps the playing fieldandcreatesperverseincentives.ThispointisoneonwhichMichaelMooreandMiltonFriedmanwouldagree.Two professors of finance at the University of Chicago,

RaghuramRajanandLuigiZingales,havewrittenabookonthissubject titledSavingCapitalismfrom theCapitalists.17Theyarguethatthedangerouscombinationofcapitalismandpoliticsposesa serious threat to economicgrowth and opportunity.18Cronycapitalism,orcorporatismwhicheveryoupreferhasexisted

inWashington

tosome

degree

for

as

long

as

the

federal

gov

ernmenthasbeenspendingmoney.Thecurrent financialcrisiswascausedinsignificantpartbyalargeamountofsuchinterestdrivenmarketmanipulation.Ifyoudoubttheexistenceofsuchmanipulation, take a look at the campaign contributions from

14.FED. RESERVE BANK OF ST. LOUIS, THE FINANCIAL CRISIS: A TIMELINE OFEVENTSANDPOLICYACTIONS(2009).15.DavidGoldman,CNNMoney.coms BailoutTracker,CNNMONEY,http://

money.cnn.com/news/storysupplement/economy/bailouttracker/index.html (lastvisitedFeb.19,2010).16.JOHNB.TAYLOR,GETTINGOFFTRACK,atxi(2009).

17.RAGHURAM

G.

RAJAN

&

LUIGI

ZINGALES,SAVING

CAPITALISMFROM

THE

CAPITALISTS(2003).18.Id.at2.


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FannieMaeandFreddieMac.19Thismanipulation,andtheproblemsassociatedwith it, stem largely from the forcedentanglement ofbusiness andpolitics.Remember,Fannie andFreddie

areGovernment

Sponsored

Enterprises.

Now,

thanks

tothe

bailouts,manymorefirmsareinextricablylinkedtothefederalgovernmentfortheforeseeablefuture.

IV. EXIT,STAGEFARLEFTBadmonetarypolicyalsoplayedapivotalrole inthefinan

cial crisis. From late 2002 through 2004 the Federal ReserveBankheldinterestratesonloanstobanksataboutonepercent,whichmade the real federal funds ratenegative.20UncleSamthus subsidizedbanks tomake increasingly risky loans, andthe resultwas the subprimemortgagemadness that caused

massiveforeclosures.

This

was

not

amarket

dysfunction,

but

a

governmentone,notwithstanding theblindeuphoriaof lenders andborrowers in the housingmarket that contributed tothemultitrilliondollarrealestatebubble.Loosefiscalpolicyaccompaniedloosemonetarypolicyinthe

years runningup to the financial crash inSeptember 2008.Asmentionedabove,GeorgeW.Bushwasnotasmallgovernment,freemarketconservativethoughhetalkedasifhewere.PresidentBushpresidedoveroneof themostbiggovernment administrationssinceLyndonJohnson.ItiswidelyassumedthatmostofPresidentBushsspending

anddebt increaseswerearesultofthedefenseandhomeland

securitybuildup

after

September

11,

but

those

increases

only

accounted for about forty percent of all new spending. From2001 to2008,afteradjusting for inflation,education spendingwas up fiftyeight percent, incomesecurity programs uptwentyseven percent, Medicare up fiftyone percent, andcommunityandregionaldevelopmentspendingupninetyfourpercent.21ItwasinmanyoftheseareasthatPresidentObama,then candidate, claimedwe had an investmentdeficit. PresidentBush,hopingtokeephisownershipsocietybonafides,

19.PostingofLindsayRenickMayertoCapitalEyeBlog,http://www.opensecrets.org/news/(Sept.11,2008,11:26EDT).

20.FED.

RES.

BOARD,

INTENDEDFEDERAL

FUNDS

RATE,

CHANGEAND

LEVEL,

1990

TOPRESENT,http://www.federalreserve.gov/fomc/fundsrate.htm.21.BRIANRIEDL,HERITAGEFOUND.,FEDERALSPENDINGBYTHENUMBERS4(2009).


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neverdeniedPresidentBarackObamasassertion thathehadcontributedtothose investmentdeficits.PresidentObamahasthusbeenable tocontinuearguing thatgovernmentspending

programsurgently

need

more

funding.

Nevertheless, the traditional spending increases forwhichPresidentBushwasresponsiblearedistinctfromthespendingthatoccurredduringthefinancialcrisis.InDecember2008,afterthegovernmentrespondedtoayearofmarketturmoilwithmassivebailoutpackages, President Bush explained hisdogmaticdriftby saying, Ive abandoned freemarketprinciplesto save the freemarket system.22Of course, lurching towardgovernmental solutions during times of crisis hasbeen commonplace throughoutAmericanhistory, especially in the lastcentury.Butsuchsolutionshaveseldomworked.AmityShlaespointsout inherbookon theGreatDepression,TheForgotten

Man,that

almost

all

ofthe

New

Deal

programs

failed

tobring

the economy anywhere near full employment and failed todrivetheeconomyoutofadecadelongdepression.23Evenby1940,morethansevenyearsaftertheNewDealwaslaunched,theU.S.economywasstillflatonitsback.24

V. ENTERLEVIA.THANPresidentObamaignoredallofthehistoricalevidenceofthe

failureofKeynesianinterventions,andheabandonedanysuggestionthatthefreemarketsystemcouldrevivetheeconomy.Insteadhedoubleddown on theBushAdministrationsgov

ernmentbuildup.

Data

from

the

White

House

Office

ofMan

agementandBudgetshowthatbetween2007and2010thefederal governments share of the economy is expected to havegrownby thirtyonepercent to thehighest levelssinceWorldWarII.25Onereasonthespendingboomdidnotcreateaneconomic recovery or a return to hiring is that all of the new

22.Bush says sacrificedfreemarketprinciples to save economy,AGENCEFRANCEPRESS,Dec. 16, 2008,http://www.google.com/hostednews/afp/article/ALeqM5jyyKrPjYt7VhpS8G8DrRkr18B0hA.23.AMITYSHLAES,THEFORGOTTENMAN(2007).24.Shlaesnotesthatunemploymentin1940wasat14.6percent,andchronicles

thepopularityofRepublicanpresidentialcandidateWendellWilkie,whoran in

thatyear

largely

on

opposition

toNew

Deal

policies.

Id.

at36683.

25.OFFICEOFMGMT.ANDBUDGET,MIDSESSIONREVIEW:BUDGETOFTHEU.S.GOVERNMENT25(2010);OFFICEOFMGMT.ANDBUDGET,HISTORICALTABLES2526(2005).


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spendinganddebt translates intohigher future tax increases,which stuntbusinessexpansion.A study in2009by thenonpartisan Tax Foundation found that to return to abalanced

budgetwith

the

new

levels

ofdebt

under

President

Obama,

tax

rateswouldhavetonearlytriple.26Accordingtothestudy,thehighest taxratewould rise tomore thanninetypercent.Whowantstoinvestduringthattaxtsunami?Itisalsoaseriousmistaketoassumethatgovernmentspend

inganddebtwillfadeastherecessionends.ResearchfromeconomichistorianRobertHiggsshowsthatintimesofeconomiccrisisgovernmentgrowsandrecedes,butitnevershrinksbacktoitsgrowthtrajectorybeforethecrisis.27Inotherwords,crisesthat bring about largescale market intervention result in apermanent increase in the size ofgovernment.We are in themidstofacascadeofmarketinterventions.

Theoriginal

purpose

ofTARP28

was

solely

tobuy

up

toxic

assets.29 However, TARP turned into a slush fund for theTreasuryDepartmenttoassistautocompanies,insurancecompanies, and the alreadysubsidized housing industry. Themoney,whichsomebankswere forced to take,alsocamewithstringsattached:Firmsweresubjectto(sometimesadhoc)regulationsincludingcapsonexecutivepaycompensation.30WealsosawTARPmoneyusedforthepreposterousCashforClunkersprogram,whichmerelypaidAmericanstotakegoodcarsofftheroadsothatthegovernmentcoulddemolishthem.Thisprogramfellforthebrokenwindowsfallacy:Youdonotbreakwindowssoyoucanputpeopletoworktryingtofixthem.

Thegrowth

ofgovernment

certainly

does

not

stop

with

banksandfinancialfirms.PresidentObamasaysthattheenvironment isalso incrisis,andwemustactquicklyand...actboldly to transform our entire economyfrom our cars and

26.WILLIAMAHERN,TAXFOUND.,CANINCOMETAXHIKESCLOSETHEDEFICIT?2(2009).27.ROBERTHIGGS,CRISISANDLEVIATHAN:CRITICALEPISODES INTHEGROWTH

OFAMERICANGOVERNMENT(1987).28.EmergencyEconomicStabilizationActof2009,Pub.L.No. 110343, 122

Stat.3765.

29.Joe

Nocera,

Editorial,

First

Bailout

Formula

Had

It

Right,N.Y.

TIMES,Jan.

24,

2009,atB1.30.Editorial,RollinguptheTARP,WALLST.J.,Oct.27,2009,atA20.


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our fuels toour factoriesandourbuildings.31TheBrookingsInstitutepredicts thecapand tradecomponentofsuchanendeavoralonetocausea loss inpersonalconsumptionof$1 to

$2trillion

inpresent

value

terms.32

Even

ifthe

prospects

ofcli

matechange legislationnow seemdim, theAdministration ismakingthreatsthatitwillbeabletoaccomplishthesamegoalsthrough the Environmental Protection Agency. As SenatorsJohnKerryandLindseyGrahamexplain:

Failuretoactcomeswithanothercost.IfCongressdoesnotpasslegislationdealingwithclimatechange,theadministrationwill use the Environmental ProtectionAgency to imposenew regulations. Imposed regulationsare likely tobetougherand they certainlywillnot include thejobprotectionsandinvestmentincentivesweareproposing.

Themessagetothosewhohavestalledforyearsisclear:kill

ingaSenatebill isnot success; indeed,given the threatofagencyregulation,thosewhohavebeencontenttomakethelegislativeprocessgrindtoahaltwouldlatercomerunningtoCongressinapanictosecurethekindsofincentivesandinvestmentswecanpasstoday.IndustryneedsthecertaintythatcomeswithCongressionalaction.33

Inotherwords,businessesmustpayprotectionmoney to thegovernment throughcapand tradeor theywillbehitupsidetheheadwithEPArulesthatwillbemuchmoresevere.Thisiswhatsomemightcallextortion.The disastrous $787billion American Recovery and Rein

vestmentActof200934(thestimulus)wasPresidentObamas

crowningachievementinhisfirstyearinoffice,butitfailedtostimulatejobsorgrowth.Inareportputoutbeforethelegislationwaspassed,CouncilofEconomicAdvisorsChairwomanChristinaRomerandVicePresidentJoeBidenseconomicadvisorJared Bernstein argued thatwithout the stimulus unemploymentcouldapproachninepercentbytheendofthethird

31.BarackObama.com,BarackObama&JoeBiden,NewEnergyforAmerica,http://www.barackobama.com/pdf/factsheet_energy_speech_080308.pdf (lastvisitedFeb.19,2010).32.WARWICKMCKIBBIN, PETEWILCOXEN & ADELEMORRIS, BROOKINGS INST.,

CONSEQUENCESOFCAPANDTRADE31(2009).

33.John

Kerry

&Lindsey

Graham,

Yes

We

Can

(Pass

Climate

Change

Legislation),

N.Y.TIMES,Oct.11,2009,atWK11.34.Pub.L.No.1115,123Stat.115.


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quarterof2009,butthatwiththestimulus,itwouldstaybeloweightpercent.35 In theendof the thirdquarterof2009,unemploymentwasat9.8%.36TheVicePresidentclaimed that they

hadmisread

the

economy

and

did

not

realize

how

bad

the

situationwas.That,however,isthepoint.37Econometricallymodeledguessesaboutjobs thatthestimu

luscouldcreate(orsave)areamicrocosmofotherattemptsatplanning.Failuresinthemarketplacearefarmorepreferableto failures of government, as economist and Nobel laureateMiltonFriedmanexplained:

I believe that what really distinguishes economists is notwhethertheyrecognizemarketfailure,buthowmuchimportancetheyattachtogovernmentfailure,especiallywhengovernmentseekstoremedywhataresaidtobemarketfailures.Thatdifferenceinturn isrelatedto the timeperspectivethat

economistsbring

tovarious

issues.

Speaking

for

myself,

Ido

notbelievethatIhavemorefaithintheequilibratingtendenciesofmarketforcesthanmostKeynesians,butIhavefarlessfaiththanmosteconomists,whetherKeynesiansormonetarists,intheabilityofgovernmenttooffsetmarketfailurewithoutmakingmattersworse.38

Theselfcorrectingcapacityofmarketsisinfinitelydynamic,butonlyifprotectedfromthefacadeofomnisciencethatgovernmentplannerstoooftenhopeandpretendtopossess.

VI. FACINGABOLDNEWECONOMYFordecades, therewillbe squabbles among scholars about

whether this recession was the worst downturn since theGreatDepression.Not in dispute, though, is that its impactupontheconscienceofthecountry isoneofepicproportions.TheeighteenmonthsfollowingthecollapseandbailoutofBearStearnsinMarchof2008have,atleasttemporarily,fundamen

35.CHRISTINAROMER&JAREDBERNSTEIN,THEJOBPLANOFTHEAMERICANRECOVERYANDREINVESTMENTPLAN4fig.1(2009).36.News Release, Bureau of Labor Statistics, The Employment Situa

tionSeptember2009(Oct.2,2009),availableathttp://www.bls.gov/schedule/archives/ empsit_nr.htm#2009.37.GeorgesBottomLine,http://blogs.abcnews.com/george(July5,2009,10:10EDT).

38.BRIAN

SNOWDON,

HOWARD

VANE

&

PETER

WYNARCZYK,

A

MODERN

GUIDE

TOMACROECONOMICS:ANINTRODUCTIONTOCOMPETINGSCHOOLSOFTHOUGHT174(1994).


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tally remade American capitalism.We have moved from amodel of survival of the fittest inbusiness to survival of theunfittest. The new dogma of too big to fail creates huge

moralhazard

problems

as

taxpayers

underwrite

bad

business

betsbybanksandinvestmenthouses.Inotherwords,thevastand sweeping government interventions thatbegan in early2008didnotsavecapitalism,asPresidentBushhadhoped.Instead, theyhavegivenway tomorepoliticalcorporatismorcrony capitalismwheremarketdecisions and capital allocationareincreasinglysteeredbypoliticiansinWashington,D.C.Wall Street is no longer the financial capital of theworldCapitolHillis.Eachyear,theFraserInstituteputsoutareportshowingthe

correlationbetweeneconomicfreedomandprosperity.Theauthorsprefaced their assessment of the impact of financial&

economiccrises

on

economic

freedom

with

some

optimism

thisyear,despitesetbackstomarketorientedpolicies:

[T]hose who predict capitalisms demise have to contendwithone importanthistoricalfact:capitalismhasanalmostunlimitedcapacitytoreinventitself.Itcannotbeamerecoincidencethatallprosperouscountriesarecapitalisticinthesense that theyareorganizedaroundprivatepropertyandletmarketsplayamajorroleinallocatingresources.39

Thosewhohave lost faith in themerits of capitalismhavedonesoonthebasisofafalsepretext.Thoughtheoutlookforthenextfewyearsseemsbleak,freemarketcapitalismwillfinditswaybacktotheheartsandmindsofAmericans.

Markets are the greatest engine of prosperity ever known.HarvardeconomistAndreiShleiferrecentlypublishedanarticleintheJournalofEconomicLiteraturetitledTheAgeofMiltonFriedman. The article documents the progress of mankindover the quarter century from 1980 to 2005. [A]s theworldembraced freemarket policies, living standards rose sharplywhile lifeexpectancy,educationalattainment,anddemocracyimproved and absolute poverty declined.40Numerous othersuchaccountsexist and support thenotion that freedomand

39.2009FRASERINST.ANNUALREPORT,ECONOMICFREEDOMOFTHEWORLD25

(citationomitted).

40.AndreiShleifer,TheAge ofMiltonFriedman,47J.ECON.LITERATURE123,123(2009).


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capitalismhavebeen thegreatestantipovertyprogram in thehistoryofhumankind.Ifanygood is tocomeoutof thegovernmentalexpansions

duringthegreatfinancialcrisisof2008and2009,itwillbetheaddedevidencethatgovernment interferenceoftenmakescrises in the financialmarketsworse.WewillneverknowwhatmighthavehappenedhadWashington steppedaside and letthestrongsurviveandtheweakperish,butourhunch is thatunemployment would be much lower, the recession wouldhavebeenmuch shorter, and thenationwouldbe $3 trillionlessindebt.

Documents

Moore Grimm Paper