WASHINGTON — For a generation, most people accepted the idea that the core of what makes America tick was an economy governed by free markets. And whatever combination of goods, services and jobs the market cooked up was presumed to be fine for the U.S. and its citizens — certainly better than government meddling.
No longer.
Spurred by the continued housing crisis, turmoil in financial markets, spiking oil prices, disappearing jobs and shrinking retirement savings, the U.S. and its political leaders have begun to sour on the notion that the current market system is the key to a fair, stable and efficient society.
“We’re at a hinge point,” said William Galston, a senior fellow at the Brookings Institution in Washington who helped craft President Clinton’s market- friendly agenda during the 1990s. “The strong presumption in favor of markets, which has dominated public policy since the late 1970s, has been thrown very much into question.”
Now, to a degree not seen in years, politicians and outside experts are looking with favor at more, not less, government involvement in the economy.
Of course, Americans always grouse during troubled times. And as market advocates are quick to point out, the current run of bad economic breaks has yet to result in the throwing over of free-market principles in favor of some drastically different approach — such as a government-directed economy.
“There may be a backlash against markets at the moment,” said Kevin Hassett, economic studies director at the American Enterprise Institute in Washington and an adviser to presumed Republican presidential nominee John McCain. “But the backlash doesn’t seem to be informed by any alternative view of how the world works.”
Yet the sheer volume of setbacks that people have been dealt has sent consumer confidence to some of its lowest levels in half a century, according to Reuters/University of Michigan surveys. A remarkable 84 percent of Americans say the nation is on the “wrong track,” according to a recent Gallup poll.
Also, the financial markets recently have provided ample new evidence that markets are not working smoothly.
Washington had to ride to the rescue of two government-chartered mortgage giants — Fannie Mae and Freddie Mac, which hold or guarantee nearly half of the United States’ $12 trillion in mortgage debt — after investors all but extinguished the pair’s market value amid fears that slumping home prices would push them into insolvency.
