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May 5, 2010
As a result of the global financial crisis, the corruption of the international rating agencies, the subsequent global economic recession and the euro crisis in Europe---high unemployment and high government deficits--- people have criticized the government for withdrawing from the economic and particularly financial sphere and allowing private sector actors to do whatever they wanted.
One of the issues raised is the lax regulation of the finance industry. Hence the calls for reform of the financial system to arrest the dominance of a financial sector that looms too large on our economic landscape.
Wall Street fights back regulatory reform to ensure its political power, and even though the ideology of deregulation has been exposed as a failure, Wall Street and its political allies are still invoking the bogeyman of big government to fight off financial reform. They appeal to the U.S. values of free markets and minimal regulation:---the broad imperatives of globalization are marshaled by well-connected and "untouchable" business interests to defeat regulatory oversight of the financial system and elsewhere.
The lesson learned is that what is good for Wall Street is not necessarily what is good for America as this is an industry that makes toxic products with huge negative externalities. This raises a key question:
Do we think the government should simply act so as to correct the imperfections in free markets? Or do we see a positive role for government in determining what kind of an economy we should have?
It is true that some free market economists deny that the market has any failings or flaws (externalities) because of their "efficient markets" and rational market assumptions. However, most economists do favour a more active role for government; but they usually limit the government to correcting known problems with the free market so as to allow the economic machine to keep on ticking over.
Climate change highlights the issue of what kind of economy we should have, since addressing climate change requires shifting to a low carbon economy.
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One of the interesting things about free market conservatives in Australia is that they talk incessantly about small government and freedom or liberty , but they don't actually believe these things in any operational sense.
For example. Say there is a big oil spill off from X Company's oil rig in WA and the company says that it is a small, manageable problem. However, it turn out otherwise---threatens to destroy the pristine coast line
Would the WA conservatives would say that X company is responsible, its there mess, and they need to clean it up. Or would they call on the blue state's government --which they see, by definition as inherently ineffective and incompetent--to do more and X company to do less.
Would they demanding intervention, resources, and money from the federal government in response to the oil spill disaster? They would.
So the tough talk about small government continues until the free market conservatives need big government to help them out.