Does the Crisis mean a failure of the “free market”?

Many experts and economists say, that the financial crisis proved that the “free market” is not so efficient as everyone thought and that there should be more regulations to ensure stability of the economy. They say the market can’t be left alone and that the 2008 crisis means a “failure” of the market.

You have to distinguish between market regulation (placing restrictions on the freedom to engage in market activities), from conducting normal monetary policy. And it is the wrong monetary policy, rather than lack of regulation, which is the major cause of the financial crisis.

Of course you may say that there were some areas not properly regulated. For example, banks were giving loans to almost everyone who wanted to get it. But - the fundamental reason for the problems were too low interest rates in US. FED was keeping them too low, because they thought it would be good for the economic growth. This crisis is not the first one that showed that you should not involve monetary policy in anything else than controlling inflation. Monetary policy - in the long term - will not affect economic growth positively. It may help in a short term, but later you’ll have to pay much more than you gained.

Tags: Financial Crisis, free market, interest rates, monetary policy