What the free market needs

The free-market system, it is now fashionable to say, is to blame for the current financial crisis. By way of rejoinder, a growing cohort of commentators have argued that the crisis should be understood not as a failure of free-market economic theory but as its vindication. They argue that the U.S. government perverted the wisdom of the market by encouraging banks to make loans no rational actor would make -- and that the players took the risks they did because they held a reasonable expectation of a government bailout should things get hairy. The problem, in this view, is not that the markets were free but that they weren't free enough.

By Claire Berlinski

October 21, 2008