The free market myth

This is my latest comment from Fund Strategy.

One of the most peculiar aspects of contemporary political debate is the widespread insistence that free market ideas are dominant.

Whether or not an economy based on such policies would be desirable it is a poor description of what actually exists. I was reminded about this prejudice about the free market twice last week. On Monday a BBC2 documentary portrayed Ayn Rand, an ultra-free market Russian-American novelist who died in 1992, as somehow dominating American economic policy. To sustain the argument the programme made much of the fact that Alan Greenspan, a Rand acolyte, was a long-serving chairman of the Federal Reserve. Then on Thursday I debated someone who insisted that western economic policy was dominated by the “Chicago school” of free market economics.

None of these claims bear much relationship to reality. A closer look at Greenspan’s career shows that, whatever his professed views, he was far from a free marketeer in practice. He actively manipulated monetary policy to ease the pain of restructuring and bolster the economy over a prolonged period. Interest rates were kept artificially low for several years in the early part of the last decade. In contrast, a free market policy, for better or worse, would typically involve more limited monetary policy

Nor does fiscal policy bear any relationship to the free market ideal. In western nations state spending as a proportion of GDP typically ranges from 30% to 50%. This is a world away from the levels favoured by the likes of Milton Friedman and Friedrich Hayek. Even on a rhetorical level conservative politicians such as David Cameron have distanced themselves from free market ideas.

Whatever kind of economy we have it is not a free market.