Laissez Faire

I never thought I would need to know very much about the economy. After all, I’ve never had any money to speak of. I thought, let the economy mind its own business and I’ll mind mine, quietly, under the radar, paying my taxes and hoping not to have to retire to a shack on one of my brothers’ properties too soon.

Well! What fun the last week has been! And how much I have learned as Wall Street moguls stride, in all their pomp and circumstance, up to Capitol Hill to beg the citizens of the country to bail them out of their sinking ship---but also caulk the ship and let it sail on to the same destinations. And the ships’ captains? They want their own little retirement islands somewhere in an undisclosed location. And us, the taxpayers? Well, we get to fix their ships, cancel their debts, AND treat them to some very pretty gilded castles on their islands.

What we are seeing is the collapse, at least intellectually, of the idea that the government should be really, really, teeny--responsible only for, according to Wikipedia, courts, defense, police, prison, and taxes. The people who believe this are one version of libertarian. They think, I suppose, that every person in the world deserves exactly what he or she gets and should suffer the punishment if anything goes wrong. The larger public should not be the keeper of its weakest members, and government should never help the unfortunate. Let private entities do that if they feel like it. Otherwise, it’s every man for himself, yadayada.

But Wall Street got way too greedy, this time, persuading Congress (through its lobbyists) to remove restraining regulations on lending so that mortgage companies could lend money to borrowers they knew couldn’t pay back their loans, and then bundling the loans so no one could tell what was a good loan and what was a bad loan. I don’t pretend to understand the details, but I do understand that many people got loans they had no business getting, and that these loans were later packaged and sold to investors as though they were worth something. But they weren’t. Now the big companies are failing right and left, the whole lending mechanism has ground to a halt, and there is no liquid capital to grease the workings of business. It is a true crisis for an economy based on lending and borrowing. And it’s entirely the result of intellectually dishonest dealings by people who should have known and did know better but couldn’t resist the slickness of the maneuver. Now, what’s happened to these free-market enthusiasts? They’ve screwed up big time. Truth will, as Shakespeare said, out. It has outed. And now it’s to Mama Government that they are running for a suck at the great public teat. Intellectually as well as financially these masters of the financial universe are bankrupt.

But I rant.

Today’s word (or rather, expression): laissez-faire. The phrase means “Let it alone,” or “Let [the economy] be free to do what it does without fetter or restraint.” The idea harks back to the 18th-century Adam Smith’s philosophy, expressed in his book, The Wealth of Nations. In it, Smith argued for a new way of viewing self-interest. He said that a society’s economy functions best when the society’s members are all acting out of their own essential self-interest. According to The Concise Encyclopedia of Economics (see link above),

“Someone earning money by his own labor benefits himself. Unknowingly, he also benefits society, because to earn income on his labor in a competitive market, he must produce something others value. In Adam Smith's lasting imagery, "By directing that industry in such a manner as its produce may be of greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention."

I think that many people, faced with a darn good image, assume the image to be the same, or virtually the same, as the underlying reality. But I think the “invisible hand” of Smith is not, as many conservatives touchingly believe, a sort of deus ex machina that will rescue them from their foolishness. In fact, when stock-market moguls did some very foolish things for the last eight years, I suppose they were hoping that the invisible hand would pluck their debts back up into the sky and hide the debts in its little vest pocket. Turns out, the hand did not appear. Only the great milky bosom of Government presented itself, and at that, the Secretary of the Treasury and the head of the Federal Reserve are busily begging for more na-na.

Disgusting.