Kargarlitsky: Blind Faith of Free-Market Cheerleaders

This is from the Moscowtimes. While Kargarlitsky's account of how free market ideology helped produce the global crisis he has little to say on how a new and better economy would look. He does not even mention the boo-word socialism! Defenders of market capitalism will simply maintain that there needs to be some reform of regulations to stop the unbridled greed that wrecked the system. Libertarians on the other hand will manage to blame government regulation such as mandating Freddie and Fannie to lend money to people who really couldn't afford to purchase the American Dream home.

Blind Faith of Free-Market Cheerleaders
16 October 2008
By Boris Kagarlitsky
Vasily Koltashov was relatively unknown among Moscow's economic analysts. That is, until the young journalist moved to Athens and began publishing his economic forecasts there -- each prediction was more dire than the last. Unfortunately, they all came true. After a closer reading of his analyses, it is possible to draw parallels with Karl Marx's "Das Kapital" and the theories of Soviet economist Nikolai Kondratyev, who argued that capitalist systems go through 50- to 60-year cycles of boom followed by depression.During the past decade, many economic analysts not only refused to consider the criticisms that leftist authors leveled at the global economic order, but they also ignored intrinsic contradictions and problems of the free market that even avowed supporters of capitalism articulated. As a result, economic advisers have tended to act as cheerleaders of the status quo economic model. In addition, politicians and business people, who also believed in the infallibility of the existing system, made one bad economic decision after another. They had blind faith in the virtue of Adam Smith's "invisible hand" -- that market mechanisms would somehow automatically correct their foolish decisions. In practice, however, the cult of the free market turned into a bacchanalia of greed, negligence, irresponsibility and deceit.
By nature, people like to believe that things will turn out well -- especially when it involves the consequences of their own decisions and actions. The flip side is also true: As an automatic self-defense mechanism, they tend to dismiss or diminish warnings from others that their actions may be risky. In Greek mythology, nobody listened to Cassandra and Laocoon's gloomy prophecies for the very reason that they spoke the truth. Similarly, liberal critics of globalization were dismissed and ridiculed, and their analyses and warnings were ignored or rejected outright. As a result, for the past 15 years, authorities failed to put even minimal economic safeguards in place. To make matters worse, many countries dismantled their economic and social regulatory agencies on the grounds that they obstructed the free market.Then, when the unobstructed free market finally led to an unprecedented global financial crash, politicians rushed in to save the economy by infusing of hundreds of billions of dollars in taxpayer money to bail out the bankrupted private sector. Unfortunately, this life buoy won't save the sinking economy. Indeed, the United States' $700 billion and Russia's roughly $200 billion allocated for bailing out their respective economies will not accomplish much -- not only because the financial holes these funds are intended to fill will get bigger and bigger, but because there are no channels or mechanisms that can guarantee that the money will be delivered to the right place or used in the right way. We are witnessing a fundamental breakdown of the global financial system. Under such conditions, the usual cyclical recession turns into an uncontrollable disaster for which there is no miracle cure. And the problem is not how to stave off the crisis or soften its impact, but how to devise a new economic system to replace the ruins left by the current economic model.The attempt to build a world order based on a free market economy has turned into a catastrophe on a global scale. The only good news is that the global economy will collapse long before humanity has time to destroy the planet's ecology. Thus, we still have a chance to save Earth from physical extinction, and that is the best news to come out of all of this. Who knows, there may be a silver lining to the current global economic crisis after all. Our descendants may look back at it as marking the start of a new, more humane epoch in history.Boris Kagarlitsky is the director of the Institute of Globalization Studies.