My degree in economics has allowed me to analyze government’s knee jerk response to the financial crisis and the trend that is emerging has me worried.  The housing bill and the pork filled bailout are just two of the many “rescue packages” that governments around the world have put together to “save” our economy.

The election has only complicated matters.  Politicians refuse to take responsibility for the crisis, blaming each other and deregulation.  It is this attack on the free market that I find most disturbing.

In this article, Alan Greenspan admits that his market ideology was wrong, stating that “his free-market ideology shunning regulation was flawed.”  The article states that Greenspan regrets the fact that he didn’t regulate the derivatives market to prevent irresponsible lending because private firms didn’t do enough to protect their investors.  What the article fails to point out is the fact that the free market’s ability to self regulate was thrown away when the Clinton administration forced the irresponsible lending in the first place.  Remember “Every American Should Own a House?”  It is also important to point out that Bush then failed to stop these government policies that forced  lending institutions to lend money at non-viable rates.  Blaming the crisis on the free market is completely insane when the market was never free in the first place.

This whole thing started with Fannie and Freddie, moral hazard, and the concept of too big to fail.  Two government sponsored institutions with 50% market share in the mortgage market and government policy of low interest rates so banks give away money like candy hardly makes for a free market.  These two institutions and government policy were then able to single handedly bring the highly interdependent global financial market to its knees in an epic chain reaction.  I’m not claiming that Wall Street is innocent, but none of this would have happened if the government kept its hands out of the market.

If you don’t believe me, and considering I am just a blogger with a degree in economics I won’t hold it against you if you don’t, I finalize my argument by presenting you with Milton Friedman.  If you don’t want to hear it from me, at least listen to what the Nobel Prize winning economist that happens to be responsible for the last 25 years of economic prosperity has to say. I can only hope politicians listen too.  Capitalism does have its flaws but it is still the best economic system we have.