Is the Human Capital Bubble a failure of the free market or a failure of government mismanagement? 

In his article on Yahoo Finance, Charles Wheelan makes the claim that the market sent out faulty signals.

While I agree with the premise of the article since I share Wheelan’s sense of disappointment that some of the brightest minds in the world clicking green and red buttons in front of monitors rather than building alternative energies and infrastructures, I strongly disagree with the notion that this phenomenon is solely the result of free-market forces.

The human capital bubble is not a reaction to free market forces, but rather the reaction to government influence on market forces.  Can anyone honestly claim we have a free market when:

The government controls the money supply by buying and selling securities in the open market?

Legal tender laws prohibit competing currencies?

The former CEO of an investment bank becomes the watchdog of the very organization he used to run?

A government literally creates money out of thin air to attempt to CONTROL the expansion of the economy?

Supposed regulators are asleep at the wheel… Harry Markopoplous tipped off the United States Securities and Exchange Commission repeatedly both verbally and in writing starting in 1999, when he argued that it was not legally possible for Madoff to deliver the returns he’d claimed to deliver.  The SEC took no action.

The government sets short term interest rates via committee?

The government jawbones to strengthen or devalue its currency at the whim of whoever is in charge?

Banks leveraged 30:1 borrow from the government at below market interest rates?


The message Mr. Wheelan neglects to mention is that an economic system which is constantly manipulated cannot possibly send out accurate signals.  If we want to avoid bubbles and misallocation of resources, we need a truly free market.  This means a private money system, a private banking system, competing currencies and a government that cannot obfuscate economic reality with accounting tricks.

This bubble was a perfectly natural outcome from the market responding to supply and demand.  When there is massive demand (for housing, caused by low interest rates), you can be sure that profiteers/businessmen/entrepreneurs will do everything they can to satisfy that demand by providing plenty of supply.

Markets are unavoidable since humans are always seeking to maximize their happiness and maximize their resources; it is for this reason that markets exists in prisons, elementary school cafeterias and even amongst people that don’t speak the same languages.

The genius of the free market is that it converts greed into consumer-satisfying productivity – Gary North

Takeaway:  Those of us that believe in individualism, freedom, liberty and no corporate welfare need to enunciate that the human capital bubble is not the result of free market forces, but the market reacting perfectly to politicians/economists meddling unnecessarily with interest rates.

Let us hope that as our economy contracts, the power government exerts on our economy will contract as well.

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