We Cannot Build An Economy On Lies

In a recent issue, Time Magazine boldly declared, “The Free Market Is Dead,” and then added: “What Will Replace It?” Of course, one always can expect Time to be disingenuous at best and dishonest at worst, and as an academic economist, I have come to realize that after reading Time off and on for more than five decades, this is a publication that rarely gets it right when it comes to economic analysis.

bacon and eggs

Yet, we also are dealing with a publication that effectively reflects whatever the current spirit might be. In the mid-1980s, Time gave its readers the infamous cover condemning the bacon-and-eggs breakfast and gave massive publicity to the eat-more-carbs “experts.” America’s climb into obesity followed shortly afterward, and even Time had to backtrack on its original claims in 2014, admitting that the so-called food science truths it promoted turned out to be falsehoods.

One doubts, however, that Time ever will admit in any future edition that it has promoted outright economic lies while it promotes the policies of the Joe Biden administration. Instead, one figures that the publication will do what it always does when the government interventions it champions blow up: blame free market capitalism. For example, even more than a decade after the 2008 meltdown occurred, Time still claims that the free market did it:

We are witnessing the most profound realignment in American political economy in nearly forty years. President Ronald Reagan summed up the conventional wisdom that reigned from the mid-1970s onward in the United States: “Government is not the solution to our problem, government is the problem.” Economists, policymakers, and everyday Americans alike generally accepted that markets, unfettered and free, are the best way to create economic growth. (Emphasis mine)

That ideology began to crack after the Great Recession, and in the wake of the coronavirus pandemic, it has collapsed. The rise of ethno-nationalism on the right and democratic socialism on the left testify to the growing disillusionment with the conventional wisdom of how government and economics are supposed to work.

There is plenty of evidence to demonstrate that government housing policies, combined with the policies of the Federal Reserve System, helped drive the infamous housing and stock booms even if the editors of Time refuse to acknowledge its existence. No free market in real estate and banking would have created the utter recklessness that characterized the booms of the early 2000s, even as we see a current repeat of the housing and stock bubbles, houses of cards that have arisen in the aftermath of government’s near nationalization of the mortgage industry. The reckless behavior we observed happened because the Federal Reserve under Alan Greenspan and Ben Bernanke made public their infamous “put,” a promise to “provide liquidity” to the markets in case of losses.  With the Fed providing the financial backstop, investors were greatly incentivized (to put it mildly) to pyramid questionable securities atop each other until the whole unstable mass collapsed. Not surprisingly, the Krugmans of the economic and political world claimed the entire matter was due to rampant free enterprise.

Progressives, including journalists, politicians, academics, and corporate interests, for the past four decades have claimed that markets have caused a particular problem—a problem that usually is related to a past government market intervention—and demand governmental action to fix that same problem. The proposed intervention, after being implemented, then causes another set of issues (and it also fails to “fix” the original difficulty) that now requires even more governmental action. All the time, the media assures us, the economy has operated under total laissez-faire.

One is hard-pressed to understand how the onset of covid-19 discredited free markets, given that private enterprise was the entity that kept necessities delivered to American homes even while governments at all levels did everything they could to shut down the economy. It wasn’t the government that made massive adjustments on the fly to keep Americans fed, clothed, and relatively healthy. Instead, governments engineered the mass deaths in nursing homes (by ordering patients infected with covid to be put into the nursing home populations) and thoroughly botched the distribution of vaccines. But Time has spoken; the free market caused covid.

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