Government vs The Market

Government, the Downturn, and Responsibility
03/01/09 - CafeHayek by Don Boudreaux

Mr. Nouriel Roubini is an economist, interviewed by the Wall Street Journal on Februry 21. He recommended nationlizing the banks because markets have failed to price and trade assets, due to excesses, greed, and irrational exuberance. Some readers responded in letters to the editor.

[edited] Mr. Roubini makes no mention whatsoever of the government interventionism that is largely the cause of our current crisis.

• Was the Federal Reserve's policy of holding interest rates below the real rate of interest and thereby causing a credit bubble and debt-fueled consumption a market failure?
• Or was the market failure that market participants did not read F.A. Hayek's "Monetary Theory and the Trade Cycle" and divine the peril that was not being signaled through the price mechanism?
• Or does Mr. Roubini consider it a market failure that lenders were coerced by the government to make mortgage loans that never would have been made based on market-driven underwriting standards?
• Is the failure of unqualified homebuyers to decline the cheap, no-down-payment loans that lenders were coerced to offer them another market failure?
• Was it market failure that lenders knew they would never have to suffer the consequences of reckless underwriting when they could dump their rotten portfolio on the taxpayers via the government-backed Fannie Mae and Freddie Mac?

The word "market" does not mean an old man in a turban who rubs his chin and suggests a price. It means all of the people with an interest in the problem, with intelligence and experience bought with thousands of hours of study and action.

These people are wiser and better than an academic economist who has spun theories and equations, claiming to understand what government-forced result is good for us all. But, the government pushes the self-interest of its politicians and favored interests, claiming that it knows best.