The Crisis of American Financial Dirigisme

Every story you see that suggests that the financial crisis portends doom for laissez faire is based on the erroneous assumption that the markets that have just collapsed so dramatically are especially free. But financial markets are perhaps the most thoroughly saturated with government regulation. If our most regulated markets fail, that somehow bolsters the case for more comprehensive economic regulation? David Boaz puts it well:

[I]f this crisis leads us to question “American-style capitalism” — the kind in which a central monetary authority manipulates money and credit, the central government taxes and redistributes $3 trillion a year, huge government-sponsored enterprises create a taxpayer-backed duopoly in the mortgage business, tax laws encourage excessive use of debt financing, and government pressures banks to make bad loans — well, it might be a good thing to reconsider that “American-style capitalism”

Right on. The government’s approach to the crisis appears to about the same as Bush’s approach to Iraq: when your strategy is failing, double down.