LAT: Americans losing faith in free markets

The LAT offer these thoughts on the topic here in a piece that was reprinted in the Ann Arbor news (it is replacing the local news it cut to reduce costs with wire service pieces in what strikes me as an odd strategy to maintain readership in a local paper most of whose readers will get their national news elsewhere).

The piece is chock full of silliness, as such pieces by the big MSM outlets usually are. Bascially, the article offers three examples of areas where Americans are losing faith in "free" markets: the housing market, the credit market and the gasoline market.

The housing market is perhaps the silliest example, given that Fannie Mae and Freddie Mac, implicitly treated by the article as representing the "free" market are in fact themselves creatures of earlier government intervention in housing markets. As with many supposed "market" failures, the culprit is in fact poorly designed regulation. The article also implicitly suggests that housing prices have never declined before, which is false, as the authors could have easily determined if they had bothered to look. And it really is a bit rich to bemoan a 19 percent drop in housing prices in East Coast cities like DC where they went up 80 percent or more in the preceding few years.

In regard to oil, it is not the markets that people do not like but rather the current price. It is not clear why this is in here at all, though it offers the authors a chance to shower the truly underserving John Dingell with some implicit accolades for demanding to know how more about those evil speculators who provide all that insidious arbitrage and risk-spreading in the oil market. And, of course, the idea that the oil market is somehow "free" when it includes a cartel composed of government producers on the supply side somehow puzzles me but not the authors.

Credit markets are, of course, another case of people not liking the outcome rather than not liking the market. Or, put differently, if I sign a mortgage contract that I haven't read carefully and do not understand I blame the bank when I have to bail out because I can't make the payments. Please. This is not market failure, it is individual failure.

A couple of closing remarks. First, the point is not faith in markets but knowledge about them and about goverment regulation. The optimal amount of government is not zero and markets are themselves institutions that exist within a legal environment. What matters is thinking clearly and looking at evidence. This article provides a fine example of the foolishness that results when serious thinking and consideration of the evidence are both absent. Second, Robert Litan is a lot smarter than he comes off in this piece; at the same time, I'd happily trade the old New Deal for a New Deal Lite.