Americans may be losing faith in free markets

Things are hard all over the financial landscape, and politicians and experts are now looking with favor at more, not less, government involvement in the economy.

By Peter G. Gosselin, Los Angeles Times Staff Writer
July 16, 2008

WASHINGTON -- For a generation, most people accepted the idea that the core of what makes America tick was an economy governed by free markets. And whatever combination of goods, services and jobs the market cooked up was presumed to be fine for the nation and for its citizens -- certainly better than government meddling.

No longer.

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Spurred by the continued housing crisis, turmoil in financial markets, spiking oil prices, disappearing jobs and shrinking retirement savings, the nation and its political leaders have begun to sour on the notion that the current market system is the key to a fair, stable and efficient society.

"We're at a hinge point," said William A. Galston, a senior fellow at the Brookings Institution in Washington who helped craft President Clinton's market-friendly agenda during the 1990s. "The strong presumption in favor of markets, which has dominated public policy since the late 1970s, has been thrown very much into question."

Now, to a degree not seen in years, politicians and outside experts are looking with favor at more, not less, government involvement in the economy.

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Yet the sheer volume of setbacks that people have been dealt has sent consumer confidence to some of its lowest levels in half a century, according to Reuters/University of Michigan surveys. A remarkable 84% of Americans are convinced that the nation is on the "wrong track," according to a recent Gallup poll.

In just the last week, the financial markets have provided ample new evidence that markets are not working smoothly.

Washington had to ride to the rescue of two government-chartered mortgage giants -- Fannie Mae and Freddie Mac, .....

Meanwhile, federal regulators seized IndyMac Bancorp...

And the already battered stock market took another sharp dip.

The fact that experts keep pushing back the date when conditions may improve and the failure thus far of any national leader -- including either of the major-party presidential candidates -- to offer a convincing vision of how America will make its way back to sustained prosperity suggest that the current crisis will probably be very different from other recent economic bad patches.

So may Americans' reaction to it.

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When Fannie Mae and Freddie Mac, which are government-chartered but investor-owned, began to teeter last week, the (Bush) administration quietly went to work on possible government action.

"If the pendulum swung away from government toward much greater confidence in markets during the last generation, the pendulum is clearly swinging back again now," said Daniel Yergin, whose 1998 book with coauthor Joseph Stanislaw, "The Commanding Heights," chronicled the worldwide spread of the free-market credo.

"Everything is weighing in at the same time, and that affects how people view markets and government," Yergin said.

"Nobody in this country really believes in unfettered free markets, and nobody really believes in socialism," said UC Davis historian Eric Rauchway, but economic crises of the past have produced constituencies favoring the reining in of markets and regulation of the economy -- constituencies that ultimately grew large enough to produce change.