Marc Gerstein

Four Myths About the Free Market and Its 'Demise'

I think we may be missing something by trying to cast the entire debate within the realm of economics.

I suspect it can be proven that the free market is the most effective economic system there is. The question, though, is whether that's really what we're after. There are social, political, etc. realms that also exist in our world and they, too, will assert themselves.

The goal of the generally-free-sorta-r... markets we have now may be not so much the best possible economic system but the best possible balance of a variety of interests; economic and otherwise.

Perhaps this continual balancing and tuning is one of the reasons why our society has proven remarkably resilient over the generations, and why, even in our most heavily regulated phases, our economy was able to stay a heck of a lot more open than even the most liberal among socialist economies.

Rigid adherence to any sort of dogma, pro market or otherwise, is what might prove most dangerous. In this specific crisis, I hope the Feds do whatever has to be done, economic theory be dammed, to make sure damage to Joe Average is reasonably contained. Main Street hates, but has learned to live with layoffs, retraining, rising prices, falling prices, etc. But tampering with Joe average's notion of risk-free savings . . . we really don't want to mess with that (the crackpot looking for 10% on a money market fund is one thing; someone who assumed safety with a 1% money market fund better not be told "You lose!").

Actually, this isn't really all that alien to finance. So much of the theory we utilize depends on the existence of risk-free investing as a starting point. Taking that away puts everything back to square one; all economic theorists erase everything, pull out the classic utility functions, and start over.

We grew up with the notion that FDIC was enough to suffice. But that was set up a long time ago. We may need to modernize a bit.