The global financial crisis is seen by the left as the prima-facie case against free market capitalism. Just under 20 years after Marxism-Leninism was shown up, on live TV, for what it was, a cold ruthless oppressive heartless nightmare, those who quietly had to admit that communism didn't work were ready to gloat.
The collapse of investment banks demonstrated what happens when a handful of men are driven by a ruthless desire to make money using other people's money, with little regard for the risks or the consequences. That was and is the line taken by the left. The British Labour Party, with barely a hint of contrition, blames the banks - not the fact that it was in power responsible for the biggest bank of the mall, the one that all the others are dependent on, and nay encouraged to use for unlimited credit.
The first stage of the financial crisis saw banks face collapse over poor investment. In a free market economy a bank that does that would be allowed to fail, but the leftwing response (indeed the conservative rightwing response if one looks at the United States) was to bail them out. The left now claim that this is what free market capitalism is about. Really? Is there any sector where free market capitalists argue for state bailouts? No.
They who meme that capitalism is about privatising profits whilst socialising losses are talking utter nonsense. For this would not happen in a true free market economy. Indeed, in a true free market economy there would have been a couple of key differences from what happened.
One is the often repeated rules set up in the late 1990s by the Clinton Administration requiring lenders to loan to a segment of people who would otherwise be bad credit risks. That in itself meant people who shouldn't have had credit to buy homes got it. An explicitly redistributive measure that backfired.
However, the more intrusive role of the state is the central role it plays in creating money and issuing credit to banks. The state creates money from nothing and distributes it by lending it to banks at a centrally set interest rate which they then lend onto borrowers at a profit. That isn't free market capitalism, as a core component of capitalism - the means of exchange - is state created and its value managed by growing its supply (created managed inflation).
In such an environment, the state boosts the economy by ever increasing the money supply, with more credit being issued, supporting positive and negative investments, until at some point, the bubble in prices in investments, whether they be shares or property, bursts. In Ireland, the state, which offered an explicit 100% guarantee of deposits, shifted the burden onto taxpayers. In Iceland, the state let them all fail.
The so-called deregulated free market financial sector was nothing of the sort. It could operate largely as it wished in developing financial instruments with the public and businesses and each other, but it did not with the blood supply from the state of credit issued from nothing.
Free market banking is not banks that issue state issued credit which is turned on and off like a tap.
What we have had is mixed model banking, and we have it again now.
The second part of the global financial crisis has come directly from statism. Banks have finally figured out that sovereign debt in countries that run perpetual budget deficits, and don't even have the instrument of printing fiat money to pay for it, is not safe. Greece, Portugal, Spain, Italy and increasingly France, Belgium and Slovenia, are all facing up to reality. The economics of every single one of those states has been ever increasing spending, ever increasing state employment, ever increasing regulation of business and every increasing debt.
The model of the socialist state, that borrows and spends between elections, passing on the burden to the future generation, has been found wanting. It is a model that the UK has also embraced with aplomb under Gordon Brown and in the US, not just by Barack Obama, but also G.W. Bush and Bill Clinton.
The level at which people will tolerate taxation is below the level that the left have sold the state to them. It is that gap that needs bridging across the Western world. With few exceptions, this is the model that has been swallowed and which virtually all states are now trying to adapt to buy time - yet they are not dealing with the fundamentals.
The US Presidential election is a facsimile of that debate. Barack Obama believes the answer is to raise taxes to bridge the gap, albeit slowly and to continue with using debasement of the currency, through money printing (quantitative easing) to boost the economy and hopefully ensure GDP grows faster than debt.
Mitt Romney believes in cutting spending, albeit slowly, and although he would also debase the currency he is willing to investigate the merits of a shift to a commodity based currency, rather than currency based on nothing but confidence.
In New Zealand, this debate is what should be led by Libertarianz/ACT/ the new liberal party.
A belief that the state should hold ever decreasing amounts of public debt, that it should not spend more than it takes in revenue. That it should encourage independence not dependence, that it should encourage people looking after themselves, their families and each other, not to claim the unearned money of others by force. That it should promote the benevolence of civil society, community and fellowship, not the sneering, mob rule of people lobbying departments, councils, community boards for new laws, new money, new taxes, engaging in endless rent seeking paid for by force by someone else.
The global financial crisis was not due to free market capitalism, its solutions were not remotely anything to do with capitalism, and today the seeds are being sown for the next financial crisis. The seeds are quantitative easing, which has been a resounding success in keeping the Japanese economy stagnant for 15 years.
The anti-capitalists seen in leftwing parties and the Occupy movement had a point. The model that failed four years ago was a massive transfer from all of us to the owners and employees of banks that undertook malinvestments.
Yet it isn't capitalism that failed, and those who oppose it don't have an alternative, just anger and a desire for more government.
We do have an alternative.