Bailout Pits Free-Market Against Gov't Regulation While politicians blame each other for the House's rejection of the $700 billion bailout bill, some economists warn that if the bill had passed, it would have signaled the end of the "free market" structure in the United States.
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Bailout Pits Free-Market Against Gov't Regulation

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NEAL CONAN, host:

This is Talk of the Nation. I'm Neal Conan in Washington. After the defeat of the bailout bill in yesterday's 777 point plummet on Wall Street, the sun did rise in the east this morning and so far, at least, markets have rallied to recover nearly half of those losses. But as Congress vows to get back to work, big important questions are being asked about government's role in finance and the role of free markets.

Almost 30 years ago now an important part of the Reagan revolution was to remove the shackles of regulation and unleash free-market capitalism. But after the dot-com bubble, Enron - now especially after the housing bubble and the crisis on Wall Street - some are starting to lose some faith. As many Americans lose their job, their home and watched their retirements dwindle, is the free market to blame and is it time to re-regulate? Shortly we'll speak with a reporter about how we got into this mess. We'll also talk with a couple of economists who differ on markets and regulations. Later, long lines at the pump, some community colleges cancel classes after the one-two punch of Ike and Gustav, drivers in the Southeast still face severe gas shortages.

But first, free marketeers, is your faith shaken? Our phone number is 800-989-8255. Email us, talk@npr.org. You can also join the conversation on our blog at npr.org/blogofthenation. And joining us now from our bureau in New York is Peter Goodman, national economic correspondent for the New York Times. And Peter, thanks very much for being with us today.

Mr. PETER GOODMAN (National Economic Correspondent, New York Times): Thanks for having me.

CONAN: And this argument about free markets, is this in some ways the elephant in the room?

Mr. GOODMAN: Yeah, I mean, there's no question that we've come through this extraordinary period in the last 25 years or so where unleashing the animal instincts of the market was the justification for a whole range of initiatives - lifting restrictions that prevented investment banks from doing things that commercial banks were restricted to doing, lifting some of those lines, talking seriously about privatizing social security, putting formerly national companies in the hands of private enterprise - and basically, just paring back the role that government has played in the economy. And now, there's a sense that some of these animal instincts are maybe running feral through our streets and they're - you know, there's serious talk that it's time for the regulators to step back in and play a stronger role.

CONAN: And I think what we're talking about is a measure of degree. I mean after all, I don't think markets were completely unfettered, ever. And I don't think they were completely regulated either.

Mr. GOODMAN: Well, that's right. I mean that's an important point. There are all sorts of ways in which we haven't really had a free market - as I'm sure some of your later guests will talk about. I mean, we still subsidize a lot of important commodities, the government is still involved in picking the winners in areas such as national security, there all sorts of restrictions on flows of capital. But yes, in the margin, by degree, the guiding philosophy has been deregulation is good. Market forces can be left to sort out how money moves in this economy. And now, by degree, there's a sense that the government's got to look a little more carefully at how money is moving and with what consequences.

CONAN: And a big disagreement is over the risks that companies take and free marketeers would say, well, if Lehman Brothers or AIG, or Fannie Mae and Freddie Mac for that matter, if they take disproportionate risks and they're wrong, they should be allowed to fail."

Mr. GOODMAN: Well, the problem with that way of thinking according to most economists now is that - as we're all discovering - that what happens on Wall Street isn't just restricted to Wall Street, and even if you don't play the market or work on Wall Street, your life, if you're an ordinary American, is tied up, to one degree or another, in the decisions that are made there. And if all of the sudden credit is not available because huge banks are in danger of going out of business, and other banks find their finances are intertwined and there's a reluctance to lend money, that means you can't finance home purchases, you can't buy a car, you can't send children to college, you can't get your hands on capital to expand a business which means you can't hire people.

And here we are - you know, we've lost 600,000 jobs in this country since the beginning of the year. And we're hearing a lot of small businesses are in distress and we all know that a lot of homeowners are in distress from taking more money out of their homes or taking on more expensive homes than they can afford. All because of what was once this very free-flowing gusher of credit that's now pulled back.

CONAN: And a lot of people, though, would say, hey, all that prosperity that we enjoyed? Well, that was partly a result of the free market.

Mr. GOODMAN: Well, that's right. And there's no question that there are many ways in which the market is very good at figuring out where capital ought to go. It can be very efficient and our system has made a lot of people rich and there has been a lot of trickle down. But the question is, just how much responsibility do we want to hand the markets and what do we make of the disaster that we now have where we have very large Wall Street institutions who've executives have taken serious money off the table for themselves coming to Washington saying, we need a check for $700 billion. How did we get here and what do we do going forward is the question that a lot of people are now asking.

CONAN: And some people would say, hey, the market's up by 360 points so far today. That's about half of the losses yesterday. All right, a bad day on Wall Street, no doubt about that, but things are stable. Maybe we don't need a $700 billion bailout bill.

Mr. GOODMAN: Well there is that argument. I mean, there are people who say we've been hearing from the beginning of this debate that if we don't do this bailout, we're headed right into the abyss. And most of the people I talk to think that the risks are sufficiently large. I mean, you know, this is a puzzle that we're putting together with different data points.

CONAN: And none of us have ever been here before.

Mr. GOODMAN: This is unchartered territory. And I mean most of the economists that I talk to seem to think it - and they differ about the means and how to be fair to the taxpayer and who should ultimately foot the bill. But most people seem to think the risks are so big, that we have to do something. But there is a minority view that says, well, hold on a second, unemployment's bad, but you know, it's about six percent. It was 25 percent during the Great Depression. We still have some, you know, tepid economic growth, and we've been living by this system where the markets dictate what happens for a long time. And let's let the markets play a role here in cleaning up the mess.

CONAN: You know, we got to take the bad with the good.

Mr. GOODMAN: I mean, there is that view. It's - there is a fundamental debate now about how much responsibility we want to give to the markets over our day to day lives.

CONAN: Let's get some callers in on the conversation. We're talking with Peter Goodman, the national economics correspondent at the New York Times. 800-989-8255. Email, talk@npr.org. Free-marketeers, is your faith shaken? Now let's talk with Steve. And Steve's with us from San Jose in California.

STEVE (Caller): Hi Neal, great show.

CONAN: Thank you.

STEVE: I would take what your guest is probably going to consider a pretty extreme free-market view and say that - and I'm not remembering the name of the firm a little over 10 years ago that was leveraged about 30 to one, where there was a government intervention that bailed the market at that point. I would submit that if that would've been allowed to work its way through the system, we wouldn't be in the position we're in now. And even going further back to continental Illinois and even the savings and loan bailout, if we had allowed the markets to operate where risk was valued correctly without the government's interference, we wouldn't be in this situation. And further, that we don't - you know, doing something is not in and of itself a good thing because we don't really know what the results of what the action are going to be.

CONAN: So you're saying that bailout sometime ago sent the wrong signal to the market that people came to believe that even if they took ridiculous risks, the government would come in and bail them out?

STEVE: That's right. And further, that the government set it up by setting up Fannie and Freddie.

CONAN: As quasi-governmental institutions and - but the savings and loans, those monies were - that was federally insured, those deposits. They had to - the government was obliged to pay them back.

STEVE: Well, and there's another interference in free market.

CONAN: All right. Well, then I'm sure you're not thrilled with the idea floated today by both presidential candidates of increasing FDIC limits from $100,000 to $250, 000? But anyway, that's what they're talking about.

Mr. GOODMAN: Well, Neal if I may...

CONAN: (Unintelligible). Go ahead. Yeah.

Mr. GOODMAN: Yeah. I mean, there's an important back story here. I mean, one can certainly argue that when the government steps in, and bails anybody out, there's a possibility of what economist referred to as moral hazard that, you know, the next guy who's about to take a reckless bet figures, well, why not, because I'm not really playing with my own money?

If it really works out terribly, I'll be bailed out. That is a serious problem, and that's a problem that policy makers take into account. But let's remember that, you know, a generation ago, a lot of people had pensions, they had to find pensions where they retired, and the company agreed to pay them, you know X number of dollars a month, regardless of what happened in the market, and more people had health insurance, and there were union jobs that regulated the conditions of people's employment.

Now we live in a world where there's incredible fluctuation, and people now tend to have their retirement accounts, if they're lucky enough to have retirement accounts, in 401(k) plans which fluctuate daily with the market, as a lot of people are finding out on the downside, you know, these last few weeks.

So, there's a lot more livelihood that's directly connected to the market than there used to be, and that's the basis for those who are - you know, that the government has to play a role here in making sure that people are taken care of.

CONAN: Steve, I'm sure you'll disagree, but I'm going to have to cut you off, because I wanted to ask one last question to Peter Goodman before we have to let him go. And, Peter that is - yesterday the bill failed in the House, today we saw the leaders of the Democrats and the Republicans in the Senate come out and say, we're going put bipartisan issues aside, and we're going to get this done by the end of the week. Where do we go from here? Are they going to be tinkering with the same bill that lost yesterday in the House, or are we back to square one?

Mr. GOODMAN: It seems like they're going to be tinkering. It seems like their - the general sense is, this thing is so messy, and if we open this up and we start again, we run the risk of alienating even more votes. But you know, I'm not really close enough to it to say that with authority.

I mean, what is clear is that there's no safe ground for any of these lawmakers. And you know, on the one hand there's the fear that through inaction there really is a disaster that lawmakers have to answer to. And yet, there's the equal fear that at least for those people who voted against this thing, and are still on the sidelines, that they really don't want to be in a position where they're writing a big check to Wall Street, at a time when ordinary people are losing their homes and losing their jobs. So, there's no sideline to stand on here that safe ground.

CONAN: And again, the liberal Democrats who voted against it say, look, by doing this, we're privatizing profits and socializing losses and - but the majority of the votes against it were right wing Republicans who said, look, this Un-American, this violates these principles of free markets.

Mr. GOODMAN: That's right. I mean, we've gone through this period where we, Americans, have been lecturing too much of the rest of the world, whether we're talking about the Chinese financial system, or Latin American Companies and governments, that the way to run your economy, the way to maximize prosperity is to get the state out of the way.

And now we're in a position where, you know, at a time when American banks for instance have been going over to China, and advising Chinese financial systems on how to let the private sector arise, how to let the private sector determine where money should go. We're talking about the government stepping in, and playing a very strong role in our financial system.

CONAN: Peter Goodman, thanks very much for your time today, we appreciate it.

Mr. GOODMAN: Thank you.

CONAN: Peter Goodman, the national economic corresponded for The New York Times with us from our bureau in New York. We're talking about the troubled U.S. economy and faith in the free market.

Has your faith been rattled? 800-989-8255, or send us an email talk@npr.org. Up next, a free marketeer and a free-market critique face off, and more of your calls. I'm Neal Conan. Stay with us. It's the Talk of the Nation from NPR News.

CONAN: This is Talk of the Nation. I'm Neal Conan in Washington. After the record-setting point drop on Wall Street yesterday, Venezuelan president, Hugo Chavez, wasted no time criticizing the U.S. This morning he called the U.S. financial crisis a quote, "failure of free-market capitalism."

Chavez of course, never a strong fan of the United States, but even in this country, some fans of the free market are starting to lose their faith. Obviously, we're talking relative terms here, government involvement in the U.S. economy comes in degrees, not 100-percent free market, but also never completely centrally planned either.

At this moment, we want to hear from free marketeers in our audience, given the litany of recent bad news. Are you starting to lose some faith? 800-989-8255, email us talk@npr.org, and you can read what other listeners have to say on our blog at npr.org/blogofthenation.

And joining us now are two men who think about these issues. We'll begin with St. Paul - from Minnesota Public Radio in St. Paul, Devin Foley, he's director of development at the Center of the American Experiment. And Devin, very nice of you to be with us today.

Mr. DEVIN FOLEY (Director of Development, Center of the American Experiment): Neal, thanks for having me.

CONAN: And joining us by phone from here in Washington D.C. is Dean Baker, an economist and co-director of the Washington-based Center for Economic and Policy Research. And nice to have you back on the program, Dean Baker.

Mr. DEAN BAKER (Economist; Co-director, Center for Economic and Policy Research, Washington): Thanks a lot. Thanks a lot for having me on.

CONAN: OK. And why don't we begin with Devin Foley in Minnesota. You've written that the cure for this problem is to free the markets. Obviously some people disagree.

Mr. FOLEY: Absolutely. I would say that the notion being tossed around that there are free markets currently, and that the free market is failing is utter rubbish. Point to me anywhere that there's a free market, point to me one good that isn't somehow heavily regulated by the government.

If you look at U.S. tax code, we've gone from 400 pages in 1913 to 54, 000 pages in 2004. I would argue that there are no free markets in America right now, and there haven't been for a very long time.

CONAN: And the solution to the problem is to make them freer?

Mr. FOLEY: Absolutely. What you're seeing right now is actually the failure of government and markets though regulated and in a box if you will, taking place. People are pulling their money out of a system that they do not trust or at least of companies and various stocks that they question as how well will these do or perform in the future. This is a natural thing. This is human nature working in its own way.

CONAN: Dean Baker, is that true to you?

Mr. BAKER: Well, I actually surprisingly agree with Devin, at least half (unintelligible), that we're very, very far from a free market, and you know, frankly, I don't know anyone maybe of an exception here with Devin, who really wants to have anything that looks like a free market.

I mean, we have a situation where the government intervenes in the economy in all sorts of different ways, and really permeates just about every economic act we could think of. And you know, sometimes for good, sometimes for bad.

Now, I've argued that very often you've had people who've argued for free-market principles really on the guise of having the government intervene to make the rich richer. And I'll just give you one example, I think, you know, also illustrates the point, we had a reform of the bankruptcy law back at, I believe, is in '05, that imposed much tighter conditions on borrowers.

And this is often presented, well, were going to, you know, make these dead beats pay, sort of story. But if you step back from a moment, you go, what exactly was going on here? Well, you had a lot of banks, a lot of credit-card companies, in particular that had extended credit unwisely, and had a lot of loans that weren't getting paid back.

And what they decided was, well, we're losing money, we want the government to come in and beat these people up for us, so we can get more money out of them. So they signed contracts, they're supposed to be adults, they signed contracts under one set of circumstances, turns out while they were making money, but didn't make as much money as they wanted, so they asked for the government to come and change the rules, and go out and beat people up.

Now, that's not free market. And let's say that we find that in place, after place, after place, so I would actually agree with Devin that we don't have a free-market system.

What that would look like, we'd get rid of pens, we'd get rid of copyrights, we'd get rid of all these forms of government intervention in the economy. I don't even know what that looks like, but I certainly agree with him that we don't have a free market now.

CONAN: And let me ask you what I suspect is another point of agreement though for different reasons. Neither of you were very happy with the bailout bill that lost yesterday, and are - Devin, are you pleased that it failed?

Mr. FOLEY: Absolutely. I definitely would be glad that it failed. I think that giving another $700 billion into the system - I mean, it's really like giving a guy in AA a bottle of Jack, when he's having a bad day, you just don't do it.

We are already heavily in debt as a nation, which actually Dean pointed out too, and I would agree with him. There was an extension of credit, and a lot of folks are pointing to, well, house prices are declining, and it's a result of this that we're in this mess. Well, let's just ask the fundamental question of why did house prices go up so much.

House prices went up for multiple reasons. The first and the very fundamental reason is that extension of credit which is a result of the government. The government operating under Keynesian ideas that they believe that somehow we can manage the economy, that we can either speed up the flow of money, slow it down so that we have perpetual growth.

And really, that is a false notion, you cannot continue to do that without having a correction, and so, that is what is playing out right now. The second issue is actually if you look at Fannie and Freddie. They have made - in the notion of making housing quote, "affordable," you set - you let people buy houses that couldn't necessarily already afford the house.

So you get them in, which only then with easy, cheap credit, which drives house prices up further. On the flipside, if somebody can't afford a house, and I wrote this in a recent article, I mean if you look at anything, if something's priced too high, what generally happens?

It comes down in price until somebody can afford it. Unless of course, you're the government and you intervene to prop that price up, either through direct regulation, through direct subsidies, or indirect subsidies by giving them to consumers.

CONAN: Hm. And Dean Baker, you wrote a piece where you said you couldn't see anything in the bill that you liked.

Mr. BAKER: Yeah. I mean, we clearly have problems with the financial system, and you know, that's part of a larger problem of a collapsing housing bubble, we've lost on the order $45 trillion of housing wealth over the last year and a half or so. And we're probably going to lose another three to four trillion.

And that's the basis of the problem, and that has also obviously created very severe stress in the financial system. And this will at best help to alleviate, and I would just say help, not very well, it's not very well spent money to alleviate that distress.

And I think the Bush administration has just been incredibly irresponsible in, you know, using these scare tactics, talking about the great depression. I - you know, I've talked to people, like what exactly does that even mean?

Holding up the specter of the Great Depression if we don't pass this, and today I was told that I actually see this that he was jumping on the fall on the stock market as more evidence for his plan. I mean, if we're going to start doing economic policy by the ups and downs in the stock market, boy we're really in trouble.

So, you know, and this was, you know, this was really hyped and created this fear among the elites here in Washington, because I know everyone I talk to is, like, oh my god, it didn't pass, which is just totally unwarranted with the underlying realities of the financial situation.

We are in trouble, no doubt about it, but the key problem for the economy again is the collapse of the housing bubble, and the financial stress that we're seeing, you know, it's a problem, but you know, it's a problem with don't have stimulus to. I mean, it's just not that big a problem, they've really misrepresented the proportions here.

CONAN: Let's get some callers on the line. We'll begin with Brian. Brian's with us from Drexel Hill in Pennsylvania.

BRIAN (Caller): Hello.

CONAN: Hi, Brian.

BRIAN: My major concerns are the Republican values and the basic American economic values that have been put at thread here. I'm not a Republican, but when people found out how extensively involved Freddie Mac and Fannie Mae were in the home-mortgage business.

CONAN: Seventy percent.

BRIAN: Yes. That is unreal. It should never ever in the name of anybody be over 15 to 18 percent. And why it is that high, is beyond comprehension. I think that terrorized the public more than anything else, just to learn that. And the unregulated market, where is it going? Let it go.

This is part of our basic American economic values, just let it go, and see what happens. This is our statement to the world that our system works.

CONAN: Dean Baker, quick reply.

BRIAN: Take the chance.

Mr. BAKER: Well, you know, I do think we have to be concerned about the financial fall which is heavier. But in terms of Fannie and Freddie, their share rose to 70 percent in the last year, so basically because the private side of that market has disappeared. So, it had been lowered, it was only after the private side disappeared.

Fannie and Freddie were not leaders in the subprime push by the way. This has been a myth that's been pushed in the last, you know, few months or so. They were definitely trailers, they were losing market share in '04, '05 and '06, the height of the subprime nonsense.

So to try and pin that on Fannie and Freddie, it's really misleading, although I'm not going to defend Fannie and Freddie, they deserve their fate.

CONAN: OK. Brian, thanks very much for the call, appreciate it.

BRIAN: OK.

CONAN: Let's see if we can go now to George. George with us from Sheridan in Iowa.

GEORGE (Caller): Yeah. Yeah. Hi. Yeah, I think we need to look at our history books, and realize that stock-market crashes and things happened long before John Maynard Keynes was even born, like in 1873.

And that the world that's been created since his advice, has - had been ignored after World War II, you know, it created - we've created a totally unsustainable economy, where we get our food from clear over on the other side of the world, where we use fossil fuels like there's no end of it.

And where were cram people into cities, looking for jobs that often don't exist, when they could have stayed in their rural communities. And so we need to look back at what John Maynard Keynes provi - proposed, when he said never again can we allow an economy to crash.

And he - so he wanted to have international commodity agreements, so that people in rural communities all over the world would get paid for what they produced, and people's labor would be valued, and the environment would be taken care of.

Instead of creating everything based on debt that eventually won't ever be repaid, and will lend to end in another great depression, just like we saw over, and over, and over again through our whole history.

CONAN: Devin Foley, I'd get a response from you or not?

FOLEY: Absolutely. I'd take, you know, note as far as McCain saying, never allow an economy to crash. Well, I - that didn't really work out too well for the Soviets. The very notion that...

GEORGE: (Unintelligible)

CONAN: George...

GEORGE: Proposing the economy for the Soviet, he was trying to prove...

CONAN: George, would you please give him a chance to talk? You had your chance. Go ahead Devin. I'm sorry. Sorry.

FOLEY: Again, the very notion whether it's Kearns(ph) - I'm not implying that Kearns is a full-blown communist. He might have some fascist tendencies, and not in the evil, holocaust nature, but simply as a structure of government partnering with corporations, and things of that nature.

I would be alert to seeing some signs of today, and it would be worrisome, but the notion that you can somehow control and manipulate the economy, I'd point actually to the '30s, and actually Nixon the same experience, wage and price controls. The attempt to say, well, we're going to fix things, we're going to stabilize things by blocking the market out, and trading wage and price controls.

It's a great play out. If you look at wage and price controls, what did they do? Businesses couldn't compete for workers, because workers would actually stay put. So they instead started to offer health benefits. Well, health benefits then, the government gave a wink and a nod to the corporations, and the corporations now had a tax deduction for providing health benefits to workers.

This is enshrined in the U.S. tax code, and is the fundamental root of our health care problems now, where everybody's dependent upon their employer providing health care. Break the system down, we need to free the system, and allow the actual consumer to be the one that's dictating what prices are and things of that nature. And that's just one example on health care.

There are numerous examples of where government trying to run things from the top fails miserably and, of course, the biggest sign of that is the communists. And I think if you look at the Chinese, where they are deregulating and successfully growing, they seem to have learned the lesson, as well as the South Koreans, as well as the Vietnamese, as well as any number of economies around the world.

CONAN: Here's an email on that point from Philip in Cincinnati, Ohio. I visited the Soviet Union, in pursuit of business opportunities in 1991. I was immediately struck by the fact that the Soviet business culture was totally different from that of most of the world. The difference was control. Every enterprise there was a state-owned monopoly.

While the large banking and financial enterprises in the U.S. are not purely monopolistic, they are large enough to virtually control their own fate at the expense of their small-scale customers. Close regulation must take place of market forces in controlling the accesses of enterprises large enough to do what they want, and too large to fail.

We're talking with two economists, Devin Foley, director of development for the Center of the American Experiment, and Dean Baker, who is an economist and co-director of the Washington-based Center for Economic and Policy Research. You're listening to Talk of the Nation from NPR News. Let's go to Ian. Ian, with us from Nashville, Tennessee.

IAN (Caller): Hi! One comment on that is, we've never been able to seem to find a good middle ground between communist regulation and free-market piracy. I have a couple of other comments I wanted to throw in here too, but I'd like to kind of hear what your people have to say about this.

CONAN: All right. Let's go first to Dean Baker. Obviously, we're somewhere in that middle ground.

BAKER: Yeah. And it's not about anything that's really where the debate is, and I just think it's helpful to try to, you know - again, Devin might be the avid free-marketer here. But I think apart from a very, very small segment of the population, I think that's where the argument has to be, not based on ideology, but based on pragmatics.

And you know, taking the point that the earlier caller had made about concentration. We see that in sector, after sector, after sector, and certainly we're seeing that today in the financial sector with the failure of some major banks. It looks like we're going to end up with the situation where (unintelligible).

Go out of business and tell all the depositors, you're out of luck. So the question on my mind is what - how do you regulate them? Not whether you do. Just how do you do it? And I think that's really - you know again, Devin may be the exception here but I think, you know, that really is the debate and in principle, you want to do it clear eyes. You know, what's the public interest? Obviously, you know the banks hire their lobbyist.

They have a lot of people out there pushing their case. What we need to try to do, is make sure that these regulations get made in the public interest, not to suit the bankers' profits.

CONAN: And Ian, I know you've got more to say, but I wanted to get some more emailers in.

IAN: OK. Have a good day, sir.

CONAN: Ian, thanks very much for the call. Appreciate it. This is from Nate in Des Moines, Iowa. This crisis doesn't make me lose faith in the free market. It makes me lose faith in our government's faith or dedication to the ideals of the free market. Adam Smith would slap us with an invisible hand if he could.

The government solution to everything is more government. And this from Suzanne in Portland, Oregon. I haven't lost faith in the free market, because I never had any in the first place. You have to make assumptions. One of the most important one of which is that people will behave honestly, and we know that simply isn't true.

People are greedy and they will cheat, lie, and steal at any opportunity. Without laws and rules, it will be a literal jungle, and the average person in the U.S. will lose, the rich will get rich, and the poor poorer. And Devin Foley, I wanted to give you a chance to come back on that.

Mr. FOLEY: Oh, absolutely. I heard a lot of great points and issues to talk about. As far as that last point on there will be greed, and cheating, and all these things, and we need the rule of law. No free marketeer is going to really be saying that, oh, there are no laws, there are no orders.

It is just anarchy, that's - it's just a false - it's a straw-man argument actually to make against free marketeers. You need the rule of law, but you need equality under the law. You need private property rights, things of this nature. And actually, the free market presupposes and depends upon actual human nature. There is greed in the system.

To try and believe, or to ignore what we know is human nature, what we've seen over thousands of years of unchanging human nature, markets work simply because of greed. If you put the proper rules within the system, where there is equality, where there is property rights, where there is trust within the system, great things can happen.

But when you begin to over regu - when you actually regulate, not just have a law, but you actually regulate things, or you prop certain things up. Dean made the point of, you know, well, these major banks are coming together. Well, you can't say that the government isn't picking and choosing some of the winners here. You've got Lehman - well, what happened there?

Bear Stearns gets pulled out. Money is moving around. There is definitely - it is not a free-market system currently, picking the winners and the losers for the banking system right now, and even to the greater point as far as these very large corporations, and not having competition. Let's us just look to the domestic auto makers.

They may have had that, but competition is driving them to actually question whether or not they'll even be around.

CONAN: And I'm afraid we're going to have to end it there. But thank you both for an interesting conversation. Devin Foley, director of development at the Center for the American Experiment, with us from the studios at Minnesota Public Radio in St. Paul. Thanks very much.

Mr. FOLEY: Thanks, Neal.

CONAN: And Dean Baker at the Center for Economic and Policy Research with us by phone from here in Washington. Thank you, too.

BAKER: Thanks a lot for having me on again, Neal.

CONAN: The gas crisis coming up next on Talk of the Nation, NPR News.

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