Slavish devotees to the free market must be mourning the news today as the U.S. government steps in to rescue the insurance giant AIG and (we're still hoping) to forestall a worldwide financial crisis.
This is what government does: it saves us from ourselves and from disasters we cannot anticipate. Good governments try to get ahead of that curve, setting policies and regulations that prevent totally stupid or predictable crises. I think its fair to say that this event suggests that good government has, recently, been in short supply.
Consider two obvious cases that we have before us: the financial meltdown and the global climate meltdown.
In the first case, you have a situation in which some clever (?!) souls gathered together to celebrate the overheated U.S. housing market by lending money to people who couldn't afford it, at interest rates that were destined to push the borrowers further and further into debt. These financial brainiacs then “securitized” the risk, selling all this (inevitably bad) debt to unsophisticated investors (Lehman Bros., Bear Stearns, etc.).
A reasonable argument can be made that this was predictable trouble - that a slightly more interventionist government could have prevented this crisis by noting that the underlying activity was rooted in greed rather than good judgment.
Now take the case of Exxon Mobil, the richest company in the history of companies and an organization that is reliant on a single, finite commodity. Irrespective that this commodity is in diminishing supply, and that its increasing use is threatening the habitability of the planet, Exxon has chosen to forsake all investment in energy alternatives - banking instead on its ability to convince gullible legislators and shortsighted people that the climate crisis might not be happening.
Now, aside from small town mayors in Alaska and U.S. Vice Presidential candidates, few people actually believe this, but the temptation to keep on making money is hard to pass up when your investments are doing poorly and the kids still need braces.
This, then, would be a perfect, and perfectly appropriate time for government to step in. This might be a time, for example, for responsible legislators to notice that during the period between 1972 and 2006, nearly 71 per cent of Americans thought government should be forcing automakers to make cars and trucks that use less gasoline. And during this same period, government did virtually nothing, while America's automotive free marketeers built bigger and bigger gas guzzlers that made climate change worse and put the country at greater risk because of its dependency on foreign oil.
Those car makers are now in crisis - slammed by a free market that allows smart consumers to buy Toyotas that are good on gas. And that puts American jobs and families at risk, both now, and in the future, when other jurisdictions will continue to outperform U.S. industry because they have been thinking ahead.
I'd like to think that foresight is also possible in the offices of Ford and Exxon Mobil - the lack of evidence notwithstanding. But for today, I'm left thinking that Churchill's withering criticism of democracy is equally applicable to the system of free markets: it is the worst imaginable - except for all the others.
I would not abandon free markets any sooner than Churchill would have foresaken democracy, but we should keep our heads, recognize that both systems are fallible and allow the strengths of one to support the weaknesses of the other.
Editor's note: the Progress Report has a very good article on this subject as well.