NY Times Says Free Market a False Idol

Well, the New York Times certainly can't be accused of excessive free market idolization. Peter Goodman breaks off from his gloomy economic assessments to cheer for regulation in Sunday's Week in Review story "The Free Market: A False Idol After All?"

In Goodman's telling, there is no question mark, stating the argument against the free market in simplistic liberal terms, right down to echoing the Reagan-era pejorative of "trickle down economics."

"For more than a quarter-century, the dominant idea guiding economic policy in the United States and much of the globe has been that the market is unfailingly wise. So wise that the proper role for government is to steer clear and not mess with the gusher of wealth that will flow, trickling down to the every level of society, if only the market is left to do its magic.

"That notion has carried the day as industries have been unshackled from regulation, and as taxes have been rolled back, along with the oversight powers of government. Faith in markets has held sway as insurance companies have fended off calls for more government-financed health care, and as banks have engineered webs of finance that have turned houses from mere abodes into assets traded like dot-com stocks.

"But lately, a striking unease with market forces has entered the conversation. The world confronts problems of staggering complexity and consequence, from a shortage of credit following the mortgage meltdown, to the threat of global warming. Regulation -- nasty talk in some quarters, synonymous with pointy-headed bureaucrats choking the market -- is suddenly being demanded from unexpected places."

Did you know the Bush administration was laissez-faire? Neither did we.

"The Bush administration and the Federal Reserve have in recent weeks put aside laissez-faire rhetoric to wade into real estate, wielding new rules and deals they say are necessary to protect Americans from predatory bankers -- the same bankers who, only a year ago, were being lauded for creativity. Were the market left to its own devices, millions could lose their homes, the administration now says.

"Central banks on both sides of the Atlantic are coordinating campaigns to flush cash through the global economy, lest frightened lenders hoard capital and suffocate growth. In Bali this month, world leaders gathered in the name of striking agreement to slow climate change.

"Adam Smith used the metaphor of the invisible hand to describe how markets should function: With everyone at liberty to pursue self-interest, the market omnisciently distributes goods and capital to maximize the benefits for all. Since the Reagan administration, that idea has weighed in as a veritable holy commandment, with the economist Milton Friedman cast as Moses.

"As the cold war ended and Communism retreated, the invisible hand seemed to monopolize economic thinking. Even China, controlled by a nominally Communist party, has blessed private entrepreneurs and foreign investment. In Latin America, the International Monetary Fund financed governments that embraced market forces while shunning those that were resistant.

"But now the invisible hand is being asked to account for what it has wrought. In this country, many economic complaints -- from the widening gap between rich and poor to the expense of higher education -- are being dusted for its fingerprints.

Goodman at least balanced his story source-wise with analysts from the libertarian Cato and Hoover Institution quoted along with two left-wing economists at CEPR and the Economic Policy Institute. But a leftist got the last word.

"Liberal critics have long asserted that dogmatic devotion to market forces has skewed American society toward those of greatest means. More wealth is being concentrated in fewer hands, with rich people capturing the best housing, private education and health care services, and, as the argument goes, only crumbs left for everyone else.

"That critique informs proposals from Democrats vying for the presidency, as they debate how best to expand access to health care and ways to shift the tax burden to the rich. They are in essence calling for market intervention to redress imbalances. With the gap between the richest and poorest now greater than it has been since the 1920s, these pitches have emerged as central components of their campaigns.

"More notable, though, is how fervent proponents of unfettered market forces have lately come to embrace regulation."

....

"Some argue that the push back against market forces is a momentary pause in a steady march toward unfettered capitalism. The libertarian Cato Institute recently issued a report in which it found that economic freedom -- shorthand for smaller government and fewer regulations -- has never been greater.

"'Global economic growth significantly increases with the growth of the world's economic freedom,' said Ian Vásquez, director of Cato's center for global liberty and prosperity.

"Few policymakers have a beef with that characterization as a generality. But when things go wrong, demands grow for the government to step in and make them right.

"'Untethered market forces lead to bad things,' said Mr. Bernstein of the Economic Policy Institute. 'You simply can't run an economy as complicated as ours on ideology alone.'"

Wednesday's lead Business story, "In the Land of Many Ifs," was written by Goodman and fellow gloomster Vikas Bajaj.

"For months, the American economy has been assailed by a wave of troubling news, from plunging housing prices to the soaring cost of oil, provoking gloomy talk of a possible recession. Yet so far the economy has found a way to shrug it all off and keep growing."

....

"How much longer can the expansion carry on? As a new year unfolds, analysts expect a verdict soon: Either the negatives finally metastasize and drag the economy down, or a fresh source of growth emerges, helping to sustain consumer spending despite the ongoing worries about housing and tight credit.

"'There are even odds of a recession,' said Mark Zandi, chief economist at Moody's Economy.com 'It literally could go either way.'

"The year that just ended was not for the faint of heart. As mortgage debt became synonymous with toxic waste, banks got spooked and tightfisted. Job growth slowed. Inflation fears grew. Still, consumers kept spending, and unemployment stayed flat. American companies found enough sales abroad to compensate for weakness at home.

....

"This is what many economists deem the most plausible of the negative situations that could unfold in 2008: Housing prices fall, consumers tighten up, and companies eliminate jobs in response to declining business, particularly in retailing, restaurants and travel.

"Companies curtail investments, cutting jobs in real estate, construction and banking. This takes more money out of the economy, generating a downward spiral of declining activity. In a word, recession.

Goodman and Bajaj concluded:

"If the Fed's lowered interest rates do the trick, making banks feel more secure, an upward spiral could commence, as fresh lending spurs business and keeps the economy growing. But if jitters persist and banks remain tight, that could snuff out business, cut jobs and send the economy into a tailspin."

Finally, a Wednesday editorial, "The Economy and the New Year," began with this cheery prediction:

"As 2008 begins, house prices are still skidding, bank losses are still mounting, oil is again flirting with $100 a barrel and consumers are buying less as prices rise. To many, the wheels appear to be coming off the economy. To others, including President Bush and his aides, the economy is fundamentally sound and resilient.

"Obviously, both camps cannot be right. Unfortunately, the preponderance of evidence is grim."

And so is the Times' economics reporting.