The Free Market Screws Most Stakeholders

The problem with laissez faire economics or dependence on the "market" to regulate is that it screws most of the stakeholders.

In a laissez faire system, the market is said to control. But in fact, millions of decisions of companies are made by owners and by boards answering only to stockholders. But the interests of many others are at stake. That includes customers and those with land next to factories and many more.

All of us have a stake in the outcome of the recent escapade with sub-prime mortgages, mortgage tranche securities and "credit default swaps" (CDS's). As weighty as may be the outcome on everyone, the important decisions were made by no more than two dozen people, probably fewer.

How could that happen? In large part because a wave of belief swept over at least the US population beginning in the Reagan years and ending this past November. The belief was that, as Adam Smith supposedly wrote, business should not be regulated, because the market will cure all problems. Of course, he never wrote that. Also, he was writing in a political economy in which the king or queen's corrupt ancillaries routinely used "pay to play" in handing out monopolies.

We were undone by decisions during the Democratic Clinton administration, when banks, insurance companies and stock brokers were allowed to intermingle their businesses, and when the federal government was prohibited from regulating hedge funds such as CDS's. Now we need to get back to a balance between owners' rights and those of all the other stakeholders, with reasonable regulation.