Mailvox: doubting the invisible hand

JS still isn’t convinced that government shouldn’t attempt to legislate away the business cycle:

I come at this as a liberal Democrat, so full disclosure right away. But let me ask you if you have considered that Ayn Rand style-libertarian economic policies have their limits as well. “Free markets” work in theory efficiently when every participant in the market has the same bargaining power and the same access to information. In the real world, that is never true. Oligarchs will always be oligarchs, whether that involves use of goverment pressure to exert their power or economic pressure and access (through superior funds) to better information to exert their power. But more importantly, psychology and groupthink work their way into markets, even markets as transparent as the stock exchange, but certainly in less transparent markets like real estate. Bubbles are a recurring theme in free markets, and when they pop, things go badly for people who were simply doing what 6 months ago was brilliant. And as we have seen several times (in the 1930’s and now today) a popping bubble can cascade through many sectors of the economy and cause an overall crash that crushes real business activity. In the long run, of course, the economy rebounds, but that’s little comfort for people in bread lines who in the 30’s tended to become interested in totalitarians of the left and the right, and so I think a legitimate societal interest would be in putting shock absorbers in the system so that downturns don’t become another depression. We can argue whether this or that policy will accomplish that task, but I think arguing that complete free markets is the way to go is as utopian as the communists’ worker’s paradise claims of most of the 20th Century.

I find it amazing, if entirely unsurprising, that the first reaction of many people to an economic crisis caused entirely by government intervention is… to express the same sort of doubts about the free market that originally justified the aforementioned government intervention.

JS clearly doesn’t understand what the point of the free market is… but I’ll explain that later today.