the tindog coffeehouse

There seems to be a lot of debate on the Interwebs these days about whether good-ol’ American free-market capitalism is still alive.

First the Washington Post declared it dead on October 10th:

The worst financial crisis since the Great Depression is claiming another casualty: American-style capitalism. …

“People around the world once admired us for our economy, and we told them if you wanted to be like us, here’s what you have to do — hand over power to the market,” said Joseph Stiglitz, the Nobel Prize-winning economist at Columbia University. “The point now is that no one has respect for that kind of model anymore given this crisis. And of course it raises questions about our credibility. Everyone feels they are suffering now because of us.”

The Post then clarified its remarks on October 20th by saying, no, it wasn’t really dead because the market was never free to begin with:

Is this the end of American capitalism? As financial panic spread across the globe and governments scrambled to contain the damage, reality seemed to announce the doom of U.S.-style free markets and President Bush’s ideology. But this is wrong in two ways. The deregulation of U.S. financial markets did not reflect only the narrow ideology of a particular party or administration. And the problem with the U.S. economy, more than lack of regulation, has been government’s failure to control systemic risks that government itself helped to create. We are not witnessing a crisis of the free market but a crisis of distorted markets. …

Government-sponsored, upside-only capitalism is the kind that’s in crisis today, and we say: Good riddance.

Then the Ottawa Citizen (yes, from Canada) chimed in on the 22nd, opining that this is all irrelevant, that we just need to throw out the fallacy of the laissez-faire capitalist economy and accept the fact that, like every other developed nation, we are a liberal democracy:

Look at the world with a little historical perspective — even a mere century would do — and it’s obvious that no country in the developed world comes anywhere close to being “socialist,” at least not if that word is used in any meaningful sense. And no country remotely resembles the genuinely “unfettered capitalism” of, for example, the late-19th century U.S.

Every one of them is a liberal democracy. Every one of them has an economy built on free markets. Every one of them regulates those markets. And every one of them constantly expands, contracts and otherwise fiddles with its regulations.

It is that fiddling that constitutes the largest part of modern politics. Conservatives generally want less regulation and intervention; liberals more. Americans tend to favour less; Europeans more. In the 1990s, those on the less-regulation side usually won these arguments. Now the wind has turned.

But apparently that memo hasn’t reached Steve Forbes, who argues that not only is free-market capitalism still alive and well, it’s the only thing that can save us:

The world is flush with cash. It’s frozen because of fear, but the cash is there. Productivity gains are burgeoning.

So, will this global boom resume next year, slowly at first and then with increasing momentum? It should. Whether that happens, however, depends on the next, highly dangerous phase: the political aftermath.

Will we and other countries pursue policies that hinder growth and retard or abort a full-blown recovery, e.g., regulations that stifle innovation and taxes that harm the creation and deployment of capital? Washington politicians are asking: If the federal government can bail out banks, why not other battered businesses? …

If we have the kind of policies that marked the 1980s and not the kind that marked the 1930s and 1970s, we will be in for a dazzling era of innovation and economic advances. Free-market capitalism will save us–if we let it.

So who’s right? Is Adam Smith’s idea of a laissez-faire free-market economy a fallacy that needs to be put to rest in today’s modern world? Or is the Reaganomics of the 1980s the model we should be following?

In a way, it’s a little of both. Yes, tighter regulation of U.S. financial markets is necessary, especially in the short term. But the government is not the best decider of supply and demand; just ask the Soviet Union. So in that regard, we need to give the market plenty of room to sort itself out.

After all, it’s the American way.