In the New York Times today, David Brooks has a column in which he describes two theories about the financial crisis: “greed” and “stupidity.” The “greed” theory is not what you might be thinking—it is not the simplistic notion that Wall Street is just full of greedy capitalists that swindle the people out of their money. It is a little bit more sophisticated than that, because it involves the government bailing out the banks. They do this, of course, because politicians earn handsome rewards for it. This theory has some merit.
The second theory, “stupidity” is also more sophisticated than it sounds. Wall Street did not know that it was engaged in such risky behavior. The theory as presented blames the complex financial instruments, but one could as easily blame monetary policy, subsidies, bailouts, or policy uncertainty, for creating this influence.
Government certainly had a hand in creating this crisis, yet now these same leaders are attempting to blame free markets, and resurrect socialism. Right before our eyes we are seeing the pattern: even as government spending backfires, we cede more control to it, and the love and faith in politicians grows. Even free market economists forget the basics.
Now more than ever, we need to return to the fundamentals. We need to relearn our Adam Smith, our Frederic Bastiat, the roots of liberalism and the morality of freedom. Only if the people understand these basic principles do we have a chance. Then we can see through the politicians, and not let them take our freedom and control our lives.