Reviving Darwinism

Great powers always rot from the inside. That’s what happened with the Romans, and that’s what could well happen to us if our politicians destroy capitalism, the greatest engine of wealth in human history.

Our system improves because we recover and learn from crises — the weak are crushed, and the strong are rewarded. Darwinism is the name of the game. It doesn’t just apply to biology. It applies to life, and it applies to the financial mess we’re in right now.

Lehman, Fannie, Freddie — the list of failed companies goes on and on. The government responded by bailing these guys out to the tune of $700 billion — that’s 5 percent of our GDP! What message does the bailout send? It tells failed companies that they don’t have to improve because they’ll always be able to count on government generosity. The conventional wisdom says that capitalism is dead, that free markets don’t work, and so on.

The reality is that we’re in the mess we’re in because of the government. The government fostered excessive investment in the housing sector, with the result that real estate prices became wildly overestimated. The bubble burst this year. We could take a lesson from the Japanese, who went through exactly the same problem in the 1980s. When their housing bubble burst, they tried to prop up insolvent banks and keep real estate prices high. Those policies prolonged their woes, and it was only when they let the market do its work that things got better.

In some sense, what we’re going through is similar to the Great Depression. It was bad government policies — protectionism and high tax rates during the 1930s — that made Black Tuesday a black decade.

I’m not saying that no one should watch the markets. As a tennis coach, I know how important it is to have referees and rules in place. If the players get out of hand and violate the rules, the referees should be there to put them back in place. That being said, they shouldn’t be telling the players how to serve the ball or return a cross-court shot — let the players decide. Similarly, if we’re heading for a bubble, economists should sound the alarm so that the market can adjust accordingly and prevent it from bursting. They shouldn’t, however, impose their solution on the free market — that’s when things get messed up.

Put another way, if it ain’t broke, don’t fix it. If the next administration unleashes the market’s full potential, the American economy (and world economy) will be back on its feet in no time.

Kathy Kemper is founder and CEO of the Institute for Education, a nonprofit foundation that recognizes and promotes leadership and civility locally, nationally and in the world community.

Tags Capitalism Economic bubble Economic liberalism Economic systems Economics Free market Real estate bubble

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