The current financial crisis reminds me of a discussion I had recently with a conservative friend of mine. We’ll call him Harry. Harry believes that the free market is a serene clean money machine that benefits everyone — unless you mess with it — in which case it coughs and sputters and is likely to give money to the poor and starving and huddling masses, those folks who did not earn it but rather just sat around drinking beer and smoking dope and waiting for welfare to come their way.
“Just let the market alone,” Harry would say. “The gubment will screw things up. We’re talking capitalism here, what other economic system works as well?”
But what exactly does “the free market” mean? It conjures images of a country fair where folks bring goods to a rough-hewn table to exchange with their neighbors for money or other goods. It’s a process we see every day when we go to Reliable Market and observe one of the Pachicos laboring over a cut of meat or tending a cash register. Or when we buy something at the farmers’ market or in one of our local shops. The free market — folks striving and working hard to make a living and send their kids to school.
Who can argue with that?
It has occurred to me, however, that while such a market — let’s call it the small market — works well with little or no government intervention it’s not the market that is about to remove seven hundred billion dollars from our pockets. That market — call it the big market — is a different kind altogether. It is not transparent like the one we see at work on our main streets. And it’s not small. Nor is it easy to understand. Do you know what credit default swaps are? Or mortgage backed securities?
In that big market, investments are passed from hand to hand under the cover of complicated accounting schemes and at each hand a little bit is squeezed out as profit as the bundle of — whatever they are — moves from America to France to China or wherever. Take mortgages, for example. In the old days you borrowed from a local bank that held the mortgage until you paid it off. And they generally were paid off because the banker knew you and those who shopped at your store or paid you to fix their house. But now your mortgage is bundled up with thousands of others — with no oversight — and passed on until so much profit has been squeezed out that nothing is left.
We all run our lives on the basis of images, and the free market is one of them. It’s just that the image most of us hold in our heads is that of the small market where transparency and localism and common sense and real knowledge is at play. We’ve got to adjust to the fact that — in the big market — things are not transparent and folks are shuffling around money in ways that allow them to take just some of it — rather than earning it — eventually leaving us all to pay the bill for not understanding the difference that size makes. “Too big to fail.” Have you heard that one?
Oh, and that conservative friend of mine? With his retirement fund at risk he has suddenly seen a useful role for gubment after all.
Sam Low lives in Oak Bluffs.