On Regulating Economies v. Free Market Economies
November 9, 2012 § Leave a comment
I am reading a fascinating book right now, as I plan for my courses next semester, David J. Bodenhamer’s The Revolutionary Constitution, an history of the US Constitution. Bodenhamer does a brilliant job, I think, of tracing the history of the US Constitution and its uses in American history, politics, law, culture, and life.
One thing that is continually striking me is the on-going public argument in the United States and elsewhere between regulated v. free market economies. Maybe this is just the echo of the US election in my head. Or it could also be a reflection of all the info I have inhaled since the economy went kaputski in 2008. When FDR was elected in 1933, he sought to expand the state, based on Keynesian economies, to attempt to get the United States out of the Depression. FDR felt that free market economics were what got the United States into the mess of the Depression in the first place. And this has long been clear to me as an historian, but it is put in stark relief in Bodenhamer’s new book.
Fast forward to the present day. The recession of 2008 and beyond was caused, to a large degree, by unregulated economies. And yet, the right continues to argue that the free market will right all wrongs. Turns out we didn’t learn from the Depression. We let it all happen again in the 1990s and early 2000s. And this isn’t simply a right/left argument, either, as plenty on the left fell into this trap in the past two decades.
The problem with the free market economy is simple. Bodenhamer writes:
In recent years a conservative attack on this New Deal constitutionalism has emerged among scholars who asserted the superiority of a private market and sought to apply a cost-benefit analysis to public regulation. According to proponents of the so-called law and economics school, all people voluntarily make rational decisions to further their self-interest.
The problem is that people do not make rational decisions economically-speaking. If people did, the sub-prime mortgage meltdown would never have happened. If people did, I wouldn’t insist on drinking a latté in the morning instead of a cheaper coffee when my budget requires restructuring. If people did, we wouldn’t be carrying around crippling amounts of debt. The entire Enlightenment ideal of the rational behaviour of human beings has clearly been debunked. Ideally, we act rationally in matters of economics, politics, and so on. But clearly, in reality, we do not. If we did, the working-classes would always vote for the Democrats in the States and the NDP in Canada and Labour in England. But they don’t. They usually vote Republican and Conservative in Canada and England. That is not in their rational self-interest.
Indeed, as Canada’s Prime Minister, of whom I am no fan, likes to crow: Canada survived the meltdown to a large degree due to the strict regulation of Canada’s banking industry.
So why we continue to have this argument baffles me. In fact, I’d even go so far as to suggest that believing in the rational behaviour of the free market is, in fact, a completely irrational position and actually serves to de-bunk the arguments of these free market fantastists.