Book Review: The Failure of Free-Market Economics

By Martin Feil
Published by Scribe Publications
Reviewed by Dan O’Gorman SC

The author (who has 40 years experience in trade and industry-policy issues) intends this book to be a wake-up call, arguing that the global financial disaster (as he refers to what is more commonly known as the global financial crisis) is an economic version of the 2004 Boxing Day tsunami in that its full force will be felt when institutions, companies, people and governments have exhausted their resources.  He argues that we should not simply sit and watch the next massive wave of losses and unemployment roll in because it is likely to result in the biggest setback to our standard of living, our employment prospects, and our savings that we have experienced in our lifetimes. 

Feil argues that while the implosion of financial sector between 2007 and 2009 is the “worst recession in 75 years” and has already surely damaged a great number of people, we have only seen the beginning and it will change all of our lives.  We have yet to face the spectra of part of our population being permanently impoverished and jobless and without any prospect of recovery, even after the global financial crisis has passed. Over 7 million people were dragged into the vortex of the jobless whirlpool in the two years to December 2009, and American commentators expect that the number of housing foreclosures in the US, which has been the epicentre of this economic tsunami, will increase from 2.4 million in 2009 to as many as 8 million between 2009 and 2013 (with the result that up to 20 million displaced, poor and now often bankrupt Americans will be looking for somewhere to live), and foreclosures between 2010 and 2014 will damage the American economy even more than the first wave from 2006 to 2009 has done. 

To Feil, the GFD is the direct result of an economic theory that saw government refusing to intervene and stop the biggest financial scam in history and its spread to all industrialised countries through collateralised debt obligation packages that are of no value.  This economic theory, which began as economic rationalism and then became free-market economics, was initially known as Reaganomics and was a creation of US President Ronald Reagan and Britain’s Prime Minister Margaret Thatcher. However, it was later made more palatable by President Bill Clinton’s commitment to a third way between free-market economics and government intervention, and also by Prime Minister Tony Blair.  Similarly, Australian Labour Prime Ministers Hawke and Keating blunted Labour opposition in Australia to the notion of a rampant services-led economy.  Free-market economics, at its most extreme, allows government virtually no role in a mature market economy.  Education, the police, defence, water, and roads are all functions that might be initiated by individuals or alliances of individuals.  According to this approach, the only possible function of government is to intervene in the event of market failure.

This book argues that world indifference to the obvious signs of an out-of control free-market economy created the environment for the GFD.  The economic iceberg that sank the free-market, sub-prime Titanic was essentially greed, deception, and a reckless reliance on economic models that did not relate to the trading environment.
 
Feil believes that we need to rethink our approach to the economy, that we must discard free-market economics as we cannot afford to keep facilitating rogue developments in the dark that destroy our economic stability when they are finally exposed to the light – we cannot continue as a country that has changed from making the majority of things we need to a country that imports the majority of things we use.

Feil is of the opinion that while the Australian government’s response to the GFD has been excellent, we have escaped the full force of the GFD by a combination of good luck and good government management and intervention.  However, there is a long way to go.

This publication graphically outlines the extent and effect of the financial crisis of the past three years and advances explanations for that crisis.  It also ponders how the chances of such a crisis occurring in the future can be minimised.  However, its weakness is that it does not clearly argue how such measure will minimise the changes of a similar financial crisis in the future.  That said, it is an illuminating publication that deals with some very important current issues that are of relevance to all in our society.

Dan O’Gorman SC