In the debate between Sarah Palin and Joe Biden, Palin proved that she has no understanding of the free market and no ability to defend it.
Moderator Gwen Ifill asked about the mortgage crisis: “[T]he next question is to talk about the subprime lending meltdown. Who do you think was at fault? I start with you, Governor Palin. Was it the greedy lenders? Was it the risky home-buyers who shouldn’t have been buying a home in the first place? And what should you be doing about it?”
Palin answered, “Darn right it was the predator lenders…”
No, it wasn’t.
Yaron Brook explains the real causes of the crisis in an article for Forbes. Brook points out that “Fannie Mae and Freddie Mac–the government-sponsored, government-regulated mortgage giants,” composed only one aspect of the “massive control over the housing and financial markets” exercised by the federal government. Brook notes that “for years irrational lending standards have been forced on lenders by the federal Community Reinvestment Act.” The purpose of Freddie and Fannie was to “purchase, securitize and guarantee loans made by lenders and whose debt is itself implicitly guaranteed by the federal government.” In addition to these problems, “the Federal Reserve Board’s inflationary policy of artificially low interest rates made investing in subprime loans extraordinarily profitable.” Finally, the federal government’s “quasi-official policy of ‘too big to fail'” communicated to lenders that, if they got into trouble, the federal government would pump in billions of tax dollars — which seems to be the policy now headed through Congress.
So federal politicians encouraged and required risky lending, and now many of these same politicians blame the non-existent “free market” for the problem.
Thanks to Palin’s ignorant remarks, Biden’s repetition of this lie was as easy as hunting moose in a barn.
Palin called for “government strict oversight,” implying that the problem was caused by a lack of such oversight, rather than the presence of foolish federal controls.
Biden was only too happy to amplify Palin’s false assumption. Biden said the problem was the Republican tactic of “cutting regulations;” he blamed “the tried and true Republican response, deregulate, deregulate. … You had actually the belief that Wall Street could self-regulate itself.” Morever, “John [McCain] recently wrote an article in a major magazine saying that he wants to do for the health care industry deregulate it and let the free market move like he did for the banking industry.”
Biden’s message is that the free market doesn’t work, deregulation equals the free market, deregulation has failed, and government controls are the alternative to deregulation.
Unfortunately, Republicans often have used the term “deregulation” because they don’t want to talk about the fundamental issue: individual rights. Because they don’t favor individual rights. As Bush II has proved, Republicans (in general, not in every particular) are enthusiastic about government controls and political power.
The problem is that the term “regulation” is a package deal. “Regulation” means to make regular. Well, we want things to be regular, don’t we, as opposed to irregular? For example, the Constitution grants to Congress the power “To regulate commerce with foreign nations, and among the several states…” Those of us of the individual-rights persuasion like to think of that clause as granting to Congress the ability to “make regular” trade; that is, to free it of state interference.
Government plays a crucial regulatory role. The proper role of government is to protect individual rights. In the sphere of economics, that means protecting property rights and the right to contract. It means fighting fraud. It means eliminating the initiation of force. In those functions, the government regulates — makes regular — the economy. Protecting individual rights is regulation.
But what Biden means by “regulation” is a host of federal controls that violate, rather than protect, individual rights. These rights-violating controls do not make the economy “regular;” they make it irregular and chaotic. For example, the federal controls that forced lenders to make risky loans are “regulations” of this sort. The mortgage crisis is a crisis not of the free market, not of the regulation of protecting individual rights, but of the “regulations” of government controls that violate rights of property and contract.
What we need is not some out-of-context “deregulation” or “regulation.” What we need is a government that protects individual rights rather than violates them. That is the very definition of the free market. That is what Joe Biden condemns, and what Sarah Palin cannot even conceive.
Update: As disturbed as I’ve been by the Rocky Mountain News’s endorsement of the bailout, the paper has done a good job at pointing to the federal policies that caused the crisis. In its Friday editorial, the News rightly complains that Palin “let Biden largely escape with his (and Obama’s) tedious riff that the current implosion on Wall Street is largely a result of Republican deregulation — when Democrats were by and large the strongest defenders of Fannie Mae and Freddie Mac’s trip into the wild side of lending.”