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Jul 12, 2010 6:34 pm

James K. Galbraith, anti-free-market economist, argues that what's required for the markets and the economy to start functioning again is a little discipline and punishment. There are plenty of liberal economists and thinkers who will agree with him and plenty of libertarian and free-market thinkers who will disagree vehemently. Who is right? There will never be any agreement on whether more or less free-markets, with more or less regulation, work best because it will be impossible to prove. Markets are too messy, government regulation is too messy, and human beings and the systems they create are totally fallible.

Jul 13, 2010 4:18 pm

First we need to avoid the trap of government can't do anything right, because then we might as well just go back to pre-civilization days and start beating each others' brains in to get what we want.  Sometimes government regulation is done well.  Air and water are a heck of a lot cleaner than they were before the EPA was established in the early 70's and the economy certainly didn't collapse because if it.  More relevant to this issue is that post-depression banking laws and regulation did pretty darn well for 60+ years in avoiding another crisis and fostering economic growth until they were dismantled beginning in the late 90's.

I certainly don't agree that it's just liberal economists saying that we need new regulations to prevent banks from engaging in excessively risky behavior.  Paul Volcker, Ben Bernanke, Warren Buffett and a bunch of other people who are moderate to conservative agree on this.

The middle path is usually the right one.  The trouble with our political system is that polarization has gotten in the way of that kind of problem-solving and compromise that has always been at the core of the American way.  The crisis should have helped restore that, but the very first moment it became apparent that TARP was going to get passed without Republican support (other than the Administration at the time) and that the financial system wasn't going to crumble, Republican leadership cynically retreated to pure obstructionism.  That has left us with one party to try and solve the problem and that never generates a great solution, as health care and financial reform legislation has demonstrated.