No, the economic downturn doesn’t prove you right

In a post entitled “The Relevance of the Great Depression“, David Friedman states:

One can imagine a future in which President Obama, supported by Democratic majorities in both houses, engages in massive interventions in the economy following the massive interventions already under way and the result is a serious economic downturn prolonged for years, perhaps for two terms. If that happens many people–most obviously, the same people who insist that the collapse of Fannie Mae and the associated difficulties are the fault of laissez-faire and deregulation–will conclude that only massive intervention preserved us from a still worse outcome.

He is absolutely correct and beat me to a blog post about it. As soon as I heard people blaming the free market, it rung as a false claim to me. Or, perhaps not false, but a conclusion not justified by the evidence at hand.

Whether or not free markets are “bad”, the current crisis says little about them. Economic markets are already heavily regulated, but whether or not we need more, different, or less regulations is by no means clear.