Thursday, October 23, 2008

Is Laissez Faire Responsible for the Financial Crisis? (George Reisman)

Professor George Reisman destroys the myth that laissez faire capitalism is responsible for the mess we're in and places the blame squarely where it belongs, on the state:

The news media are in the process of creating a great new historical myth. This is the myth that our present financial crisis is the result of economic freedom and laissez-faire capitalism.

The attempt to place the blame on laissez faire is readily confirmed by a Google search under the terms "crisis + laissez faire." On the first page of the results that come up, or in the web entries to which those results refer, statements of the following kind appear:


  • "The mortgage crisis is laissez-faire gone wrong."

  • "Sarkozy [Nicolas Sarkozy, the President of France] said 'laissez-faire' economics, 'self-regulation' and the view that 'the all-powerful market' always knows best are finished."

  • "'America's laissez-faire ideology, as practiced during the subprime crisis, was as simplistic as it was dangerous,' chipped in Peer Steinbr├╝ck, the German finance minister."

  • "Paulson brings laissez-faire approach on financial crisis…."

  • "It's au revoir to the days of laissez faire."


Recent articles in The New York Times provide further confirmation. Thus, one article declares, "The United States has a culture that celebrates laissez-faire capitalism as the economic ideal…." Another article tells us, "For 30 years, the nation's political system has been tilted in favor of business deregulation and against new rules." In a third article, a pair of reporters assert, "Since 1997, Mr. Brown [the British Prime Minister] has been a powerful voice behind the Labor Party's embrace of an American-style economic philosophy that was light on regulation. The laissez-faire approach encouraged the country's banks to expand internationally and chase returns in areas far afield of their core mission of attracting deposits." Thus even Great Britain is described as having a "laissez-faire approach."

The mentality displayed in these statements is so completely and utterly at odds with the actual meaning of laissez faire that it would be capable of describing the economic policy of the old Soviet Union as one of laissez faire in its last decades.

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