This week's New Republic features a column by editor Charles Lane essentially defending free-market capitalism against those who say that the recent global turmoil is evidence that there's something fundamentally wrong with the system. As Milton Friedman has recently argued, Lane says that "the current crisis shows what can go wrong when governments and international institutions interfere with the market." Given the fact that speculative crises of the kind that have wrecked emerging markets have been a perennial feature of capitalisms of all sort, Lane's piece seems a bit undertheorized. He writes, "The free flow of global capital is to blame for all of this only in the sense that a lot of investors made stupid decisions to put their money into questionable businesses in these patently flawed economies." Well, right. That's the only sense of "blame" that matters. But what's really curious is Lane's line: "Who seriously took the position that markets should be 'utterly unregulated'?"
I find that line curious because one answer is: many Slate readers. In the wake of two pieces last week challenging the orthodox free-marketeer position on the events of the last year, I received a deluge--well, OK, not a deluge, but a steady flow--of e-mails arguing not merely that Friedman was right and I was wrong, but that any attempt to regulate hedge funds, capital flows, or currency values was bad not only from a policy perspective but from a moral perspective as well. Those writing the emails were the very definition of serious: Their defenses of the classical liberal perspective on economics and the state were well-argued and sophisticated. So Lane is performing the odd feat of accusing critics of the free market of setting up straw men--the opponents of all regulation--when in fact those straw men are quite real and quite vocal in their opinions.
As far as those opinions go, the one thing about them that seems unsatisfying is the ease with which any call for regulation--or even the possibility of regulation--is immediately construed as the first step down the slippery slope toward Soviet-style planning. Limiting capital flows into and out of a country becomes the moral equivalent of dictating which companies get funding and which don't. For that matter, capital controls--which might mean simply putting a tax on hot-money investments, or, as Chile did, requiring foreign investors to keep a percentage of their investments on deposit for a year--are treated as identical to those old rules that wouldn't let you take $10,000 out of the country. There's no middle ground, it seems, between Adam Smith and the Soviet Union.
But, of course, there is a middle ground, and we've been living there for the entire history of the United States. If you live in a country in which the central bank can print money, you live in a country in which the state plays a key role in the economy. The same is true if you live in an economy in which the government spends a great deal of money to keep old people and babies healthy and an army in the field. Economic life in this middle ground is a ceaseless process of balancing priorities--social justice vs. freedom, growth vs. inflation, lenders vs. creditors--against each other. And it's naive to think that the market by itself creates the optimal state for everyone. Ultimately, what's unconvincing about the anti-regulatory critique is its equation of a market-determined outcome with a socially beneficial outcome. The market has decided that 40 million Americans don't have health insurance, and that is bad. That doesn't mean there's an easy way to figure out how to change matters, but then if it were easy we already would have done it.