by: Dom Armentano
It’s all the current fashion to dump on “capitalism.”
It was the greedy free market, supposedly, that created both the housing bubble and the housing bust and led, inevitably, to the “great recession.” Capitalism, according to most liberal pundits (and even Alan Greenspan in a bad mood), is an inherently risky and unstable system that requires government regulation to correct its flaws and moderate its excesses.
Let me dissent sharply from that conventional wisdom and argue that what talking heads are calling “capitalism” is actually “crony capitalism” and that it is crony capitalism that is responsible for most of our current economic difficulties.
A genuine capitalist economy assumes that each adult individual and business is free to buy and sell anything that they own and then keep the rewards (or suffer the losses) of enterprise. The only legitimate role for government (the political system) is to protect property rights, that is, to enforce contracts and prohibit theft and fraud.
So under capitalism, there would be no price controls on milk or mandates to purchase health insurance; BUT polluters who spill crude oil or corporate bandits like Bernie Madoff who commit blatant frauds would be prosecuted to the full extent of the law.
Crony capitalism, by contrast, assumes a far, far larger role for government in the economy. In this system, government employs various regulations, taxes, and subsidies to encourage or discourage specific economic activity that the political system considers desirable. For example, in crony capitalism, farm prices and outputs could be regulated; selected companies could get TARP money for commercial research projects; states could regulate liability and health insurance companies; and Freddy Mac and Fannie Mae could both exist to subsidize the real estate market.
And most importantly, in crony capitalism private firms that are considered “too big to fail” could be bailed out by government; and a central bank (the Federal Reserve) would exist to “print money” (unrelated to any gold reserve) and regulate the supply of credit in the economy.