Messing With Markets Again

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Currently the housing market has been of particular interest to politicians and the media. For example, the Bush Administration seized control of the two mortgage giants Fannie May and Freddie Mac. This takeover is an example of government control which hinders a free market society. “Consider the fate of mortgage lenders and homeowners,” writes Llewellyn Rockwell Jr. in Market During Crisis.

“The markets became wise to the fact that loose credit led to a fantastic bubble and that trillions in traded mortgages might not be serviceable in an environment of downward price pressure. Companies that were once seen as valuable and liquid are suddenly seen as unstable and wasteful. Their stocks are shorted by sellers. Their price crashes. Reality is revealed.”

Now, government interference prevents the market from correcting itself, Rockwell points out in the The Free Market newsletter, which is published by the Ludwig von Mises Institute.

“Bad investments need to be avoided. Good ones need to replace them. That is the very core of what all this economic activity is all about. If the informed guesses of traders turn out to be wrong, there is a profitable opportunity for other traders to guess more accurately. To dampen this spirit is to do nothing but prop up illusions and perpetuate error.”

Another point of interest for consumers, politicians, and corporations has been the increasing price of gas. “[Toyota recently decided] their plant in Blue Springs, Mississippi (which is under construction) will produce the gas-sipping hybrid Prius, not gas-guzzling SUVs. They are also going to consolidate their truck production operations in their San Antonio plant,” explains Art Carden in the same issue of that newsletter. Toyota’s decision came after months of high gas prices and consumer concerns.

“Toyota [however] did not need to follow thediktat of a centralized bureau of automobile construction and distribution. They made their decision based on their expectations of the future structure of prices for inputs and outputs,” writes Carden. “Even a large concern like Toyota has to yield to the wants and wishes of consumers. Consumers are the ones who pay the piper and are therefore the ones who call the tune.”

And, consumer control over the market is what keeps it going, not government regulations.

“Any company that wishes to remain profitable must listen and respond, and any company that refuses to listen to consumers does so at its peril,” states Carden. We, the consumers, control that market.

“People say that markets are not democratic,” writes Rockwell. “In fact, what we have here is the ultimate economic democracy, one in which all of us as individuals vote in the use of our time and resources, as William H. Peterson argues. We determine through our buying and selling decisions, which lines of production succeed and which ones fail.”

The market will fix itself. Government interference will only stall the problem. Rockwell finishes, “Markets are beautiful in good times, but especially impressive in bad. There is no better occasion that a crisis of this size and scale to marvel at how the institutions of private enterprise can cope better than any political leader, or all of them put together.”

Lance Nation is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.