Reflecting upon the current financial crisis, I am struck by how popular discourse moves between extremes. A few months ago, markets could seemingly do no wrong, and almost everyone was enthralled by the seeming virtues of getting government out of the way. Today, there is growing enthusiasm to ask the government to become an active player in financial markets, even to the point of nationalizing major financial institutions.
Unfortunately, neither approach works. Under a laissez-faire regime, some private actors — who too often exhibit an overabundance of greed and overconfidence — try to game the markets. Periodic scandal and collapse ensue. Similarly, the “command-and-control” approach fails for the core reason that government has little expertise in trying to allocate resources from the top down. To boot, “bailout” plans trouble many citizens, concerned about the hypocrisy of those who extol the virtues of free markets, then conveniently come begging for help. Not to mention grave worries about how taxpayer dollars will be spent, and why it is proper to reallocate resources from already suffering taxpayers to the corporations that were imprudently chasing higher profits. There is also the “snowball” effect: Not only banks, but credit card issuers, insurance companies, real estate developers and even automobile manufacturers now want in on the bailout fun.
Block the four facilitators
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