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Is government interventionism ruining the economy? We explore how interventionist policies can generate economic crises, through excessive regulation and wrong incentives, and how the interventionist cycle creates new problems, instead of solving them.
When discussing the school of thought Liberal, it is important to consider how in recent years society has shown itself to be resistant to ideas that, although they work, are not yet widely accepted. Considering the context of the financial market represented by the São Paulo Stock Exchange, BM\&FBOVESPA, located in the Fera Lima region of São Paulo, a theory emerges: if you ask anyone in Fera Lima what the biggest problem they faced was, the most common answer would be the lack of regulation.
This scenario leads us to reflect on the liberal economy and how it is perceived by the general public. While the classical liberals defend the idea that the market should be free from interventions, many argue that the lack of regulation is the main problem. However, it is essential to understand that the economic liberalism it is not a question of a total absence of rules, but rather of a balance between economic freedom and efficient regulation. liberal politics, in this sense, seeks to find a middle ground that allows economic growth without stifling private initiative. The key is finding the right balance. Liberalism, at its core, is not against regulation, but rather in favor of intelligent and effective regulation..
Liberalism and the 2008 Crisis
Tom Wood's book 'Meltdown' offers a rigorous analysis of the 2008 financial crisis, highlighting how the government intervention and overregulation contributed to the collapse of the financial system. The dominant narrative at the time, supported by politicians, banks and stakeholders, blamed the market and lack of regulation. However, a closer look at the facts reveals that political pressure to loosen lending standards, particularly to help the poor, created the wrong incentives that fueled the housing bubble.
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The book highlights how the low-interest-rate policies of the Federal Reserve, led by Alan Greenspan and later Ben Bernanke, along with measures such as requiring mortgage lenders to buy more low-income loans, created an environment ripe for excessive risk-taking. The pressure to increase the supply of affordable housing led to an expansion of credit, which in turn inflated the housing bubble.
The Fallacy of Overregulation
The response to the crisis was more intervention and regulation, which only perpetuated the interventionist cycle. The idea that the market is the problem and regulation is the solution ignores the complexity of markets and the self-regulating capacity of the free market. The Keynesian approach, which advocates government intervention to correct market failures, fails to take into account that intervention can create new problems and distortions.
The example of the Cruzado Plan in the 80s, which froze prices and set price controls for meat, illustrates how government intervention can have unintended consequences. The measure led to a shortage of meat in supermarkets, as producers had no incentive to produce at a controlled price. The government responded by intensifying repression, with operations to seize cattle, rather than allowing the market to self-regulate.
Economic Liberalism and the Pursuit of the Higher Interest
Liberal economics, based on Adam Smith’s idea that the pursuit of self-interest can lead to the wealth of nations, is often misunderstood. The notion that the market is driven by self-interest and greed ignores the complexity of economic decision-making and the importance of cooperation and entrepreneurship.
Economic liberalism advocates individual freedom and market self-regulation, arguing that government intervention can create more problems than it solves. The 2008 crisis is an example of how excessive intervention and regulation can lead to unintended consequences. By better understanding how the economy and markets work, we can promote policies that encourage freedom and self-regulation, rather than perpetuating the interventionist cycle.
Source: ©️ Market Makers
