Is Washington calling the code on capitalism?

(Originally published 10/11/08)

No end in sight.

That’s how reporters described the markets’ freefall this week.

But it seems there’s also no end in sight to Washington’s frantic scramble to stanch the financial bleeding.

When Congress passed the $700 billion so-called bailout plan last week, lawmakers said it was only the first step toward restoring stability to an economy that suddenly resembled a sieve.

Well, at least they were right about that.

The initial Wall Street bailout was followed by a similar bailout of British banks by their government; an almost-unprecedented interest rate cut coordinated by the U.S. Federal Reserve, the European Central Bank and the central banks of five other countries – and another $37 billion crutch from Uncle Sam to AIG.

... After AIG executives returned from that cushy, $500,000 resort retreat to recuperate from the exhaustive exploits of their corporate marauding, of course.

But then came the devastating body blow to American capitalism: Reports that the U.S. government may now adopt the British philosophy and nationalize at least part of many banks as part of the $700 billion not-a-bailout plan.

But the markets continue to tumble. Why?

Could it be that the very actions meant to stabilize the markets is what is causing their continued instability? Could it be that investors are reacting to the idea that the government is taking over Wall Street?

Between the billions being given away hand over fist to corporations that have spent years defying the simplest good-business principles and the incomprehensible trillions of dollars that have simply evaporated on Wall Street over the past three weeks, Americans could be forgiven for missing the forest for all the felled trees.

I recently read an article in Time Magazine entitled, “How we became the United States of France.” In it, Bill Saporito catalogs the many ways the federal government has now intervened in various aspects of the free market while haughtily maintaining a disingenuous façade of laissez-faire superiority. “We don't want to interfere with market forces like the French do — until we do,” Sapirito writes. “We’re more French than France.”

Thank goodness Saporito treated his subject with humor. Without it, the underlying reality would be too depressing to describe.

I don’t advocate an unconstrained market. We live in the real world, not insulated by the illusory shelter of one that exists only in theory between the covers of economics textbooks. If the mortgage industry’s meltdown gifted anything to American economics and politics, it is the lasting lesson of the dangers of laissez-faire run amok.

But somewhere between willful government detachment and irresponsible government giveways, there must lie a sensible middle ground – a place where investors are free to dare and dream and build their fortunes, but where accountability awaits if they trample their fellow citizens along the way.

Over the next six to nine months, the United States of America will either affirm its lifelong commitment to capitalism – to entrepreneurship, to the underlying idea that it is the individual, not the government, that is the catalyst for wealth production – or abandon it to become the world’s newest welfare state.

There is no end in sight to signs of the latter.