Oh dear, free markets make us less free do they?

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Now I don’t want to scare y’all but we’re all doomed.

At least in the opinion of two clever chaps writing in today’s Sunday Telegraph. They start well:

"According to the economist Friedrich von Hayek, the development of welfare socialism after the Second World War undermined freedom and would lead Western democracies inexorably to some form of state-run serfdom."

Not a lot to argue with there – Hayek, along with Popper, was the man who exposed socialism for what it really is: a threat to our freedoms. But then Peter Boone and Simon Johnson go and spoil it with this execrable nonsense:

Hayek had the sign and the destination right, but was wrong about the mechanism. Unregulated finance, the ideology of unfettered free markets, and state capture by corporate interests are what ended up undermining democracy both in North America and in Europe.

Oh dear, free markets make us less free do they?

This simple sentence contains its own contradictions – the words “free market” and “state capture by corporate interest” do not sit together. After all the state is captured (by whatever interest) in order to fix things to the benefits of that interest. That, my clever friends, is neither “free” nor a “market”.

More importantly, Hayek was absolutely and specifically right in the reasons for the problem – the inexorable expansion of the welfare state. And there, at the heart of the credit crunch, lie the real issues – corporate welfare in the form of guarantees to banks and individual welfare in the form of requirements to bend lending rules to match “social outcomes”. Yet the new masters of the universe are those grand men, trained in dirigisme by France’s grand schools, who propose further intervention, direction and control as the solution.

Our bloated welfare systems suck up nearly 20% of GDP – we’ve ended up like the wealthy family who supports Uncle Edward out of duty, supplying his whisky, allowing him to lunch out with friends and to stay in the old house despite him contributing precisely zero to maintaining the family’s wealth or income. And worse still the rest of the family has been spending the kids’ inheritance on trips to the theatre, season tickets for the opera and generally living high on the hog.

We may not like what has happened. We may be righteously angry with the bankers. It may be imperative to make substantial changes to the way financial systems operate. But if you think – like these two clever chaps do – that the “market” for money is in any respect free, unfettered, unregulated or gung ho, think again. Along with property markets, finance is the most controlled, interfered with, worried over and state-directed sector of our supposedly free system.

The current problems are a failure of regulation rather than a consequence of freedom. And we are to believe that putting in place a new super-structure, new rules and different oversight will make it all better? We’ll be back – in five, seven or ten years – with a new crisis, another recession, another failure of regulation. But we’ll clutch ever tighter to the welfare state that protects us failing to recognise that it is that very welfare state that, like a giant parasite, is eating up our wealth, our authority and our civilisation. Hayek was right and these two ever so clever chaps are wrong – intervention, regulation, control and state-direction are the problem not the solution.

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