Ending the Myth of “Market Fundamentalism”

Progressives have wailed against “market fundamentalism for the last quarter-century. They complain that conservatives want to eliminate the government and leave everything to the market. This is nonsense.

The Right has every bit as much interest in government involvement in the economy as progressives. The difference is that conservatives want the government to intervene in ways that redistribute income upward. The other difference is that the Right is smart enough to hide its interventions, implying that the structures that redistribute income upward are just the natural working of the market. Progressives help the Right’s cause when we accuse them of being “market fundamentalists,” effectively implying that the conservatives’ structuring of the economy is its natural state.

This is not just a question of framing, although the framing is important. Economic outcomes that appear to be the result of the natural workings of the market will always sound more appealing than the machinations of government bureaucrats, especially in the political culture of the United States. If we label the Right’s interventions as nothing more than the free market left to itself, then we place progressive policies at an enormous political disadvantage.

But the confusion that this misguided war against market fundamentalism creates in designing policy is even more serious than the political damage. Progressives have no reason to look to government to reverse market outcomes. Rather, like our conservative opponents, we should look for ways in which we can structure market rules so that markets have better outcomes from a progressive perspective.

The most obvious recent government intervention to redistribute income upward has been the bailout of the financial industry. Faced with complete collapse in the fall of 2008, Goldman Sachs, Citigroup, Morgan Stanley, and the rest did not yell that they wanted the government to leave them alone. No, these financial behemoths insisted that the government lend them money at below-market interest rates and guarantee their assets. Firms like Goldman Sachs even insisted that the government make good on the debts of bankrupt business partners, such as AIG.

Deregulation also increases profitability and has nothing to do with the free market. In other words, the financial industry wants the government to provide “insurance” through the Federal Reserve Board, the Federal Deposit Insurance Corporation, and various ad hoc channels, but it doesn’t want to pay for it. It also doesn’t want the insurance to come with any restrictions. In effect, the financial industry wants to run an explosives factory out of its home and pay only the standard residential insurance premium. That’s not the free market.

The demands of the financial industry on government are not qualitatively different from what other sectors get as a result of government interventions in structuring the market...