In defence of free markets

In defence of free markets
At the time of Lehman Brothers' failure, 74 per cent of risky loans were on the books of United States government agencies Fannie Mae and Freddie Mac.

Researcher Woo Jun Jie called for a political and economic system that mitigates the weaknesses of neoliberal capitalism, citing how the 2008 global financial crisis laid bare the "deficiencies" of the unfettered free markets that form the centrepiece of neoliberal capitalism ("Beyond neoliberalism: A road map for Singapore"; March 14).

But the cases he cited are examples of how state institutions interfered with the market system, leading to unintentional and often disastrous consequences.

Take the example of the 2008 crisis. At the time of Lehman Brothers' failure, 74 per cent of risky loans were on the books of United States government agencies Fannie Mae and Freddie Mac. These agencies were governed by law to meet a quota of home loans - in essence, to boost American home ownership, even at the expense of borrowers who were not able to afford such loans.

After the crisis, Mr Barney Frank, then chairman of the House Financial Services Committee and principal backer of the affordable housing goals, admitted that the policy had been misguided and even called for Fannie and Freddie's abolishment.

That a free market increases inequality is also a myth. The ordinary man has been able to attain higher levels of living standards when the free market has been permitted to operate. And nowhere is the gap between the rich and the poor wider than in societies that do the opposite. That is true of feudal societies such as mediaeval Europe, India before independence and modern-day South America.

The notion that there needs to be a person (or group of persons) to perform the role of redistributing income is akin to giving the person the right to take things from others.

To quote the late economist Milton Friedman: "A society that puts equality before freedom will get neither. But a society that puts freedom before equality will get a high degree of both."

Leaders would be wise not to think they can control every facet in a society and economy, and to acknowledge that their knowledge is limited when confronted with the very different lives, needs and wants of each individual.

Alan Ng Zhi Yang


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