Remember Adam Smith, the man who coined The Market’s Invisible Hand phrase, the author of The Wealth of Nations? He gave rise or, rather, a voice to a philosophy of laissez-faire, of as little government intervention as possible.  In his view, the forces in presence, buyers and sellers, producers and consumers would always end up in balance benefiting everyone.  Prices too high? Competitors see an opportunity, customers go elsewhere, prices come down.  Consumers consume less?  Prices come down, demand restarts.  That, in an admittedly simplistic rendition, is what became known as the Invisible Hand keeping things in balance.  But there was/is another idea behind this: Government is inherently dangerous, once it acquires power, it won’t let go, it will oppress the very people its was supposed to serve.  America’s Founding Fathers remembered Pilgrims and their flight from an oppressive king.  And, in the 20th century, Friedrich von Hayek wrote the Road to Serfdom, describing and predicting (the book was written between 1940 and 1943) the ills of centrally planned economies.
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To oversimplify again, we ended up with polar opposites. Socialism said the people had to be protected against an oppressive privileged few.  The moneyed class would inevitably abuse its power and money to get more power and money by exploiting the less fortunate, the underclass, the proletariat.  Hence the need for a strong government, central planning of the economy and mandatory redistribution of wealth.  Free market ideology, on the other hand, viewed government as enslaving the citizenry, an obstacle to the creation of wealth, as bad for personal and economic freedom.  The polar opposition was well summarized by a Soviet-era joke: What is Capitalism?  The exploitation of Man by Man.  And Socialism?  The obverse.
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The end of the Cold War, the collapse of the Soviet Union resoundingly closed the debate: Free Markets ideology had won. Personal and economic freedom were better protected by The Invisible (unregulated) Hand than by the (regulating) Gosplan.  Ronald Reagan could come to power claiming: Government isn’t the answer, Government is the problem!
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Less than 20 years after the highly symbolic collapse of the Berlin Wall, we’re forced into government intervention of proportions not seen since the Great Depression, to the tune of $7 trillion – we’re told, all caveats hereby inserted, we still don’t know how deep the hole really is.  More than World War II, plus Vietnam, plus the Man on the Moon.  You probably heard the joke, sadder by the week: we privatize profits, we socialize losses.  Well, yes, dealers and hustlers in the financial systems made billions, but not trillions.  The trillions disappeared not because someone stole them, but because a belief system collapsed.  A bank has less money in its vault than the sum of its deposits, it lends some of the deposits out.  Usually, this is not a problem because depositors believe they can get their money whenever they want.  As a result, the (believed) value of their deposits is 100% of what the paperwork says. But, if depositors stop believing in the bank, if they all decide to withdraw their money, it’s called a run on the bank.  Depositors find out the total value of their deposits is much less than what the paperwork said yesterday.  Metaphorically, that’s how the trillions evaporated into a much more complicated set of multi-dimensional interlocking beliefs suddenly no longer held.
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Our predicament awakens us to the basic flaw of Free Markets ideology, the idea that laissez-faire is best: Let the Market regulate itself.
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(Just for momentary relief: Imagine deregulating traffic lights, privatizing them. The California Traffic Light Freedom Corporation would sell us another type of EazyPass toll road transponder, with a little keyboard so we could bid dollars for the right to turn the next light to green.  This would be fun.)
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Let’s be serious, in reality, the Invisible Hand never works.  The reason is simple: over time, there is no such thing as a Free Market. In practice, a player or group of players always end up controlling a sizeable fraction of the market (real estate, diamonds, operating system software, drugs -- pharmaceutical or otherwise).  As dominant players control supply, they control prices and the market is no longer free.  Money flows faster in one direction, inequalities accentuate and, voilà, we reach a new version of the joke: What is the difference between Socialism and Free Market Capitalism?  None, they both redistribute wealth.
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You see where I’m going.  The task for the next Administration isn’t to go Left or Right, it’s to re-create a government that avoids either too much or too little regulation, too much or too little government intervention.  We can’t afford to have another round of costly and ineffective Sarbanes-Oxley regulations.  They were a demagogical reaction to the Enron and WorldCom scandals (small accidents when compared to today’s explosion) and did nothing to prevent what we’re now facing.
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The years ahead will be fascinating because, on this re-creation account, our next President faces two challenges.
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First, there are today’s Augean stables to clean, restarting an economy that, for the moment, sinks faster every week.  Wait till we hear about Black Friday bleak sales and more layoffs everywhere as layoffs create more layoffs when newly unemployed people stop spending and when contracting businesses stop buying.

Second, there is the no less daunting task of selling a neither Left nor Right political direction.  One thing is to come to power by claiming, believably, to be different, to represent change, to be not-Bush.  At this level, it’s binary.  But defining and then selling a Goldilocks-type direction of not-too-regulated-but regulated-enough policies is a very different, mind-boggling task.
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[For relaxation, there is another Adam Smith, the nom de plume of a Wall Street insider who, in the seventies, wrote entertaining and informative financial thrillers: The Money Game, SuperMoney,
and Where Are the Customers’ Yachts?
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Enjoy!]  -- JLG

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