Free market dogma is easily summarized: the market is always more efficient than government, so government can never do anything (health care, weather forecasts, renewable energy subsidies) as well as the private sector.
As Greenspan famously testified (my emphasis):
I believe, as I have noted in the past, that the federal government should eschew private asset accumulation because it would be exceptionally difficult to insulate the government's investment decisions from political pressures. Thus, over time, having the federal government hold significant amounts of private assets would risk sub-optimal performance by our capital markets, diminished economic efficiency, and lower overall standards of living than would be achieved otherwise.
Now that Greenspan's successor may transfer hundreds of billions of dollars of assets from the country's most sophisticated private-sector investors to the government, Greenspan and the free-market fundamentalists must be really, really concerned about the risk of suboptimal performance.
And they are... sort of. As Greenspan wrote in today's Financial Times:
It is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition.
That's right, folks.. the biggest risk from the ongoing financial meltdown is that it might lead to inhibition of the market.
But I'm getting ahead of myself.
Greenspan's comments quoted above are excerpted from his 2001 testimony to a House Committee considering Bush's tax cuts. Greenspan pointed out that there was a real risk that the national debt might vanish in the foreseeable future, which would lead to serious problems ("suboptimal performance" associated with government investing a surplus). Consequently, he argued, we should cut taxes immediately, to avoid paying off the national debt while there was still time to do so.
Again, one of the biggest economic problem Clinton left us with was that we might pay down our debt too quickly. Thank goodness Bush helped us dodge that bullet!
Now, we've read a lot about Bernanke's $200bn plan to bailout banks at risk of failing. (For those who missed it, it allows banks to borrow $200bn worth of treasuries using mortgage backed securities as collateral.) Many have pointed out the ironies of the Fed spending hundreds of billions on banks, even as it refuses to invest in health care, etc. But I'd like to look at this from a Greenspanian perspective.
You see, suppose the banks default. In that case, the Federal government would be left with the collateral, the hundreds of billions of dollars of mortgage-backed securities.
(Now some of you might argue that the value of securities would be somewhat south of "hundreds of billions" and closer to "bucket of warm spit." Silly people. As Greenspan himself wrote, the notion that businessmen "would attempt to sell unsafe food and drugs, fraudulent securities, and shoddy buildings" is a "collectivist myth." So I'll just assume that the securities are worth hundreds of billions, and I won't ask why they don't just borrow against them on the private market.)
Anyway, the government could soon find itself in possession of hundreds of billions of dollars of assets-- and that's just from this bailout. What about the next one?
That could lead to suboptimal performance.
You see, when the securities are transfered from Wall Street banks (you know, the most sophisticated capitalists out there) to the old suboptimal government, all kinds of suboptimal decisions could be made. Because government, bless its heart, just can't do as good a job at making economic decisions as the sophisticated risk managers who owned the securities before the bailout.
This is, of course, a fundamental truth of free-market fundamentalism, which underpins the arguments against single-payer health care, public weather forecasts, subsidies for renewable energy, and anything else that might benefit large numbers of people.
So the next time you read that some investment bank staffed by millionaires has traded worthless securities for treasury bills backed by your tax dollars, remember the real problem: now that the government is involved, sub-optimal decisions could be made.
And whatever you do, make sure you don't even think of any reforms or adjustments that might inhibit markets. That could lead to even more suboptimal performance.