You are invited to read the latest commentary from the Free Enterprise Foundation. It will make you think!

Dear Dapray,

“Certainly the US government did not ask for the scenario described in the Free Enterprise Foundation’s commentary of June 2, 2009. While politicians are not blameless, the current financial crisis is largely the making of our corporate leaders in finance, automobile manufacturing, insurance, etc. The government was dragged into all this, as it has been before when private enterprise screwed up, as in the 1930s and the 1980s (among others).” Dapray Muir, letter found in this issue at Letters to the Editor.

Dear Dapray, thank you for your letter in response to my column of June 2 in The Charleston Mercury. I am saddened by your failure to pierce through the national financial catastrophe we are experiencing to correctly identify the cause of our problems as too much government not too little. Financial corporations today in The United States have been heavily regulated by the federal government since at least the great depression, and the great depression was itself brought about by a failure of the Federal Reserve to act with vigor in 1929 when the bank failures first became a problem. While the New York Fed was prepared with a plan that might have worked, regulatory differences and egos prevented the prompt action that might have made the situation much less of a problem than it became.

Our economy that we refer to as being “free” and “capitalist” is hardly either. Decades of local, state and federal government regulation, taxes and fees face business at every turn and become a major factor in business planning and cost structure. American business is the second highest taxed among all our major trading partners and beyond that is regulated heavily in virtually every facet of its business. While, the market remains the ultimate arbiter of success or failure, increasingly free market forces are corrupted by government regulation.

I accept that in those areas I have defined in previous columns as “public utilities,” a level of regulation should exist, but I cannot fathom why anyone would think that our federal government, which had a major hand in our current economic misfortune, could be counted on to effectively extricate us. The purpose for Federal regulation in the financial sector should be to assure that misfortune or misbehavior in those sectors will not threaten the smooth operation of the general economy. Regrettably, financial sector regulation has for at least a decade not assured that financial organizations are operating with complete transparency. Even worse, in our current situation, it has been heavy handed federal programs that have led the financial sector into the financial activity that has brought us low.

Our current financial meltdown can be traced directly to a series of decisions conceived in government, enacted by government and then carried out over a decade creating a “Madoff” like pyramid of debt tottering on its pinnacle, rather than its base. It has been ready to topple in the gentlest breeze. The breeze was provided by the government in actions initiated at The Federal Reserve and Fannie Mae. But let’s not dwell there. Politically there is more than enough blame to spread around.

Dapray, your focus is on the right question. How do we get our national balance sheet back in order? Assessing blame is only useful in assuring we learn the right lessons and don’t repeat the mistakes of the past. To be acceptable as a solution, however, proposals should be arrived at through rational evaluation and be consistent with our constitutionally protected rights and their emphasis on personal liberty. It has been my experience and the lesson of history that solutions that ignore man’s innate right to “life, liberty and the pursuit of happiness” are no solutions at all, and inevitably they end up requiring compulsion to be enforced. Another lesson of history is that “planned” economies succeed only in creating a condition in which its citizens share in scarcity not in debating the division of plenty. We are now well on our way to such an economy.

Government should be counted on to establish the “foul lines.” It should be competent to oversee “public utilities” like finance so that no institution gets big enough we cannot afford to let it fail, but government’s role should stop there. It marches to a different drum than commerce and is incapable of playing “nice” in the free enterprise sandbox. Its involvement inevitably crowds out commercial competitors that must meet the discipline of the bottom line. It should be banned as a player in those areas. It must instead work to assure that the natural limiting processes of a truly free market are available to check those who would not play fair, including permitting failure by those whose product or service does not meet the markets’ needs.

Most of our countrymen are no longer schooled in the history of our great land, or the canny thinking of our founders. We live life daily concerned only with making it through the day. Economic theory is remote and no part of the daily equation. We no longer “count the teeth” of the horse before we buy it. So long as it promises to take us through tomorrow, we no longer worry whether it may be diseased and cost us dearly the day after.

Well, we had better start looking beyond just the present challenge to be sure the “solution” isn’t worse than the illness, or we all are going to pay the piper for our hedonism, and the price will be much more painful. An honest assessment today that looks to solutions that are energized by the free market could propel us forward rather than miring us in the quicksand of collectivism.

I accept that our president is both well intentioned and very bright, but even a Cray computer that is improperly programmed will lead us to wrong answers. The axioms from which he reasons are false and certain to lead to piling on a debt equal to all our past debt that itself threatens to lead to national bankruptcy. The payment that it demands from taxpayers over time is beyond any concept of what can be sustained and will lead only to impoverishment for our offspring and their offspring.

There needs to be a paradigm shift in how we relate to the federal government. Government responds to political pressure, not free market economics. Whatever the public screams about most goes to the top of the in-box. Often that action is based solely on political expediency not on maintaining the health of the market system. We have been doing this for years, and the market system on which we ultimately do depend for our welfare is showing the strains.

As for Social Security, certainly programs that older workers rely upon should be available in full for all who spent so many years looking forward to receiving the supplemental assistance in their later years. Younger workers do not, however, feel the same; most, taking account of our profligate federal spending, doubt they will see it at all. Whether the proposal by President Bush to reform social security was the ultimate answer, it had prudent, workable ideas at its core. It was dead on arrival purely for petty partisan reasons, and we should be ashamed of ourselves for taking a serious proposal and allowing fear and rhetoric to elevate it into a poster child to create opposition to anyone who doesn’t wear a particular political orthodoxy on his sleeve.

In previous columns that can be found on our website set out below, I have written on virtually all the major issues of the day, and there just isn’t enough space to repeat those suggestions here, but leave it understood, there are solutions that keep our principles intact, moderate, if not entirely eliminate, the huge economic challenges down the road and provide us with substantial financial room to retrain and assist those who would be displaced by adherence to free market principles in a once in a century industrial recalibration of our economy. There are no solutions that do not start with preserving our liberties. On the current road we face both national impoverishment and loss of freedom brought to you by The U.S. Government but caused by our own ignorance and neglect.

Copyright © 2009 by Robert E. Freer, Jr. All rights reserved

About the author: Robert E. Freer, Jr. is President of The Free Enterprise Foundation. He is a Visiting Professor, at The Citadel and elected in 2005 to be their first John S. Grinalds Leader in Residence. A regular contributor to the Mercury, He can be reached by E-mail at The Citadel . Copies of his earlier columns can be found The Free Enterprise Foundation.