The Never-Ending Battle

Published September 16, 2008

Dear Editor:

The battle between the free market and the socialized market is the key economic battle of the next decade. It’s been coming to a head in recent weeks with the credit crisis.

Declaring the crisis a “failure of the free market,” some analysts are pushing for increased government control of the economy through tightened regulations and increased bureaucracy.

But it’s too soon to be writing an obituary for the free market. The true failure of this crisis lies with the institutions attempting to regulate themselves out of the mess they’ve made of the economy: the Federal Reserve and the Treasury Department. After years of interest rate manipulation of the money supply, the Fed is now reaping the “benefits” of the subprime market it helped to create.

Despite the quagmire of mismanagement at the federal level, evidence of the wisdom of the market still exists. In the aftermath of the fall of Lehman Brothers, banks became increasingly risk-averse with their money, which led to an increase in the overnight lending rate, the rate individual banks charge to lend to one another.

This was the fiscally responsible thing to do. Raising the interest rate leads consumers to save more, leading to more capital being available to banks. This is the market’s way of increasing capital … all without requiring a federal bailout at the expense of taxpayers.

The Feds would be wise to allow the market to run its course. It has a better track record of success then any government agency. ([email protected]) is a legislative specialist for The Heartland Institute.

Matthew Glans