The American financial meltdown underlines a couple of basic principles:
1. Economic survival depends on functioning markets
The real threat to the world economy is the possibility that people, fearing the risks, will stop buying and selling capital - money, for those who want a simpler word. That’s like no longer buying and selling oil because you’re afraid of the price, only worse; some things don’t run on oil. But every economic transaction runs on credit, even if you pay with what you think is cash in your pocket. No capital transactions = everything stops.
2. Government Intervention
It IS the job of governments to ensure that markets function, because that’s a vital social activity. One doesn’t want the government actually running them, but it’s got to make sure they run. That means efficient and effective courts, legal rules, monetary policy, fiscal policy, bankruptcy laws, etc., etc, not to mention judicious regulation. Yes, regulation. The idea that that precious creation, the free market, is sustained by government going away is one of the most vicious myths people with libertarian tendencies have propagated. The free market is a delicate plant that needs a lot of cultivation.
I’m a conservative, but I don’t think serious conservatives have ever doubted that proper regulation and oversight of markets is critical in order to make markets function well. Regulation per se isn’t the enemy; there is a proper balance between more and less regulation at which markets function optimally over the long term. The balance isn’t fixed, but American market regulation has been way below optimal for a while.
When people who should know better - like American financiers - go on a binge, like a drunk at the wheel, then preserving the free market requires aggressive intervention. Now is one of those times. Watch what happens to that drunk when he’s wheeled into the emergency room after the crash. Watch the surgeon. Is he engaged in nonintervention? Is preserving the individual autonomy of the drunk on the gurney his highest concern? Does he act like he believes that the doctor who operates least, operates best? If he does, we’ll fire him after the funeral.
An economic crisis in America may leave the next President, whoever he is, with a lot less time and attention to deal with the Middle East Peace Process. It’s an ill wind, they say.
If the American economic tailspin deepens... Click here for the full article and analysis on how the new developments affect Israel.
Dr. Yitzhak Klein heads the Israel Policy Center in Jerusalem and is an economic policy analyst.