Wednesday, November 11, 2009

Free Market Capitalism Needs Clear and Enforced "Rules of the Game"

Appreciate all the Seeking Alpha comments I've received on my article on "It's time to champion real free market capitalism."

Several have said that "real" free market capitalism should have no government involvement.

First, I don't believe that either Friedman or Rand would agree with that statement.

See this clip of Ayn Rand and Mike Wallace from 1959 (watch all 3 clips but the business/free market aspects are in the 2nd clip of the interview).

Wallace specifically asks her if all she cares about is protecting the "robber baron" (i.e., monopolist or oligopolist) capitalists. She clearly says she doesn't want to see monopolies and is favor of breaking them up. She also, of course, played an influential role in the 1st term of the Reagan administration when they (among other things) broke up Ma Bell.

I am not sure she wouldn't have supported keeping Glass-Steagall or breaking up Too Big To Fail Banks.

Friedman and Rand clearly saw a role for government for police, defense, and our legal system. Clearly, an extension of those agencies would touch business. After all, why else would she support the break-up of AT&T?

But let's all -- as proponents of free markets -- think for ourselves instead of only speculating about what Rand would have thought. After the last 2 years, to me, it's clear that government's primary role in relation to a healthy free market system is to set and enforce the "rules of the game" such that the entire game isn't at risk of stopping... as it almost did last year.

Rules of the game means preventing monopolies that inhibit choice. It means -- to me, and I don't care what Friedman or Greenspan used to think on this -- you prosecute no-talent fund managers who cheat their investors by illegally trading on insider information. It means giving shareholders -- the true owners of the corporation -- the right and freedom to toss out under-performance directors.

On the other hand, I don't think the government should be setting pay, deciding that Bear should get bought and Lehman should go under. They also shouldn't be saying that more sub-prime borrowers have the right to own a home as part of "the American Dream."

Strong "rules of the game" set and enforced by the government allows 'real' free market capitalism -- and they would have the secondary benefit of also removing crony capitalists who have stopped competing on ability and instead compete on lobbyist dollars spent.

Sphere: Related Content
blog comments powered by Disqus