Free market needs to be politics-free

If you are confused, welcome to the club.

Newest members also include Hank Paulson and Alan Greenspan.

MY OPINION: THOMAS OLIVER
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In normal times, humility from our leaders would be refreshing. But these are not normal times, so their mea culpas are hardly comforting.

Not only did Greenspan fall on the sword he once swung to defend the “self-interest” of banks and investment firms as the best form of regulation, but he also admitted to Congress last week that he’s clueless as to how it all went so badly.

Those less than enamored of the free-market system get almost giddy when a capitalist suggests regulation might be necessary.

But logic and debate teachers call that a straw man, or misrepresenting an opponent’s position.

Free markets require rules. Without laws and courts, for example, the market wouldn’t be free; it would be chaotic. Free market never means Wild West.

The question is always whether the law or regulation enhances competition or hinders it, whether prices reflect supply and demand or government fiat.

But what’s going on now is more about preventing failure than regulation.

Many point to the failure of Lehman Brothers as the tipping point that froze credit and caused stocks to crash. In defending their decision to let Lehman Brothers go under, Paulson and Ben Bernanke have been anything but free marketers, claiming instead that by law they had no choice.

But with the Emergency Economic Stabilization Act, Treasury and the Fed were given broad powers, and since then nothing has been allowed to fail.

The bailout bill that brought Washington to a halt was all about the government buying up poisonous mortgage-backed assets that supposedly had brought the economy to its knees.

No one mentioned that the government would take the $700 billion and begin buying preferred stock in the nation’s biggest banks.

Those toxic assets? They are still out there.

Now what’s left of the $700 billion might be spent to guarantee restructured mortgages, which the FDIC says must be done to prevent more foreclosures.

But not all troubled mortgages are the same. There are homes that are “under water” — the price has dropped below the mortgage. And then there are mortgages that should never have been made or sought.

Economist Roger Tutterow of the Stetson School of Business at Mercer University said the goal of intervention shouldn’t be to buy people out of bad decisions.

Even for free-market economists such as Tutterow, there will be times when there is market failure and government must come to the rescue.

But in times like these, he warns, we should be careful not to confuse policy with politics.

Because in any market, especially the marketplace of ideas, there are those who will try to take advantage.