Bob Chitester on Free Markets and Interventionism

The following is a series of thoughts about free markets and interventionism from Free To Choose Network President, Bob Chitester.

When we talk about capitalism, what do we mean? Free markets? Or crony capitalism?

Free market capitalism, under the rule of law, has proven to be the most efficient and self-correcting forms of organization. Crony capitalism is what we increasingly have in the U.S. and, with rare exceptions, throughout the world.

Rule of law is the key -- and that means constitutional law; codified fundamental principles that all economic players, producers, consumers, investors, financiers can rely on over long periods of time. The ever changing legislation pouring out of governments large and small is what prevents you and I from being reasonably certain that a financial decision made today, based on today's laws, can be counted on tomorrow, next month, next year, etc. In that environment of uncertainty, the inherent stabilizing effect of markets is stifled.

Hoover's, FDRs and the Fed's intervention as the market began to provide correction of the 1929 crash, extended and deepened the crisis. Throughout the 30s you can trace improvements in the marketplace followed by government intervention and the collapse of those improvements. 

To me the bottom-line is not whether one trusts markets. if you want to devote a considerable part of your leisure time, you can find myriad case studies supporting the position that markets are highly efficient. By the way, Milton was not a classical economist in the traditional use of the term. He was highly critical of the mathematical modeling of "perfect market" scenarios. He was, like Karl Popper, an advocate of the continual process of stating falsifiable theses, which you tested by analysis of the factual result in the real world, then you modified your thesis and started testing again.  

The bottom line for me, against any argument for Keynesian economics or other forms of government intervention in our lives, is always the implied lack of faith that humans can sort things out without the guidance of their betters. The bell curves of human gullibility and human intelligence will always be with us. So lots of people will make dumb decisions and there will always be crooks to help them along. But the only thing that's accomplished when people start making choices for others is that, most of the time, those people are made worse off.

A related question I would ask advocates for intervention is: do you support foreign aid?

Intervention in the market is similar to foreign aid in that both temporarily cover up problems and make matters worse over the long run (all while crippling the capacity of human capital to be more productive). And, when things don't improve, the solution is ALMOST ALWAYS more intervention.

Norman Borlaug - who died recently - won the Nobel Peace Prize for his work developing new strains of food grains and new agricultural methods that extended and made more satisfying the lives of hundreds of millions of the world's poorest people. I spent quite a bit of time with him. He was a true humanitarian, still working in the field in sub-Sahara Africa in his late 80s and early 90s. 

His experience in India, China, Latin America and Africa led him to conclude that you must trust people to do the best that is possible if they are free to make their own decisions. By working through the inevitable mistakes, the result is an ever improving economy and quality of life. But you must have faith in that outcome. Otherwise, outside attempts to "tweak" the results will doom the process. 

That, I fear, is the fate of nearly all government intervention in the economy.

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