Economists will no doubt be debating the causes of the recent and ongoing global financial crisis a hundred years from now. It is far easier to identify likely contributing factors than it is to ascertain their relative significance.
But one proposition (made by a prominent political figure in a recent Herald article) can be confidently rebutted: it is that the crisis was caused by free markets, meaning the absence of a plethora of specific and intrusive government interventions. This situation can’t have caused the crisis – because it did not exist.
This article, entitled The Real Causes of the Financial Crisis, by a leading US businessman in the Winter 2012 issue of Cato’s Letter attributes the crisis in good part to the undesirable unintended consequences of specific, intrusive government interventions, based on his own experience and observations. In a nutshell, he identifies a ‘free-lunch mentality’ in government interventions that reduced personal responsibility.