By PETER S. GOODMAN
Published: December 30, 2007
FOR more than a quarter-century, the dominant idea guiding economic policy in the United States and much of the globe has been that the market is unfailingly wise. So wise that the proper role for government is to steer clear and not mess with the gusher of wealth that will flow, trickling down to the every level of society, if only the market is left to do its magic.
That notion has carried the day as industries have been unshackled from regulation, and as taxes have been rolled back, along with the oversight powers of government. Faith in markets has held sway as insurance companies have fended off calls for more government-financed health care, and as banks have engineered webs of finance that have turned houses from mere abodes into assets traded like dot-com stocks.
But lately, a striking unease with market forces has entered the conversation. The world confronts problems of staggering complexity and consequence, from a shortage of credit following the mortgage meltdown, to the threat of global warming. Regulation — nasty talk in some quarters, synonymous with pointy-headed bureaucrats choking the market — is suddenly being demanded from unexpected places. The Bush administration and the Federal Reserve have in recent weeks put aside laissez-faire rhetoric to wade into real estate, wielding new rules and deals they say are necessary to protect Americans from predatory bankers — the same bankers who, only a year ago, were being lauded for creativity. Were the market left to its own devices, millions could lose their homes, the administration now says.
. . . Adam Smith used the metaphor of the invisible hand to describe how markets should function: With everyone at liberty to pursue self-interest, the market omnisciently distributes goods and capital to maximize the benefits for all. Since the Reagan administration, that idea has weighed in as a veritable holy commandment, with the economist Milton Friedman cast as Moses.
. . . But now the invisible hand is being asked to account for what it has wrought. In this country, many economic complaints — from the widening gap between rich and poor to the expense of higher education — are being dusted for its fingerprints.