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People who believe in the power of individual liberty and free enterprise have had a rough time lately. And with so many recent examples of government intrusion, its hard to feel good about the future of capitalism.

In the case of financial markets, the tide has never really turned in favor of free markets. At the federal level, the 2010 Dodd-Frank Act effectively enshrines as law the progressive movements paternalistic view of regulation. Under this view, its not enough to merely deter and punish fraud; the government also has to protect everyone from virtually everything that could go wrong.

Thankfully, theres a ray of hope for everyones inner capitalist a spirited defense of capitalism from Frank Keating, president of the American Bankers Association. In a recent Wall Street Journal interview, Keating argued its not the federal governments business to dictate private companies salaries. According to Keating:

[I]f its private money, if its not FDIC-insured money, for example, if its private capital, private stockholders, whatever they pay or dont pay is their business. This is a free enterprise capitalist system after all.

Now, if youd like to remain in a state of capitalistic bliss, read no further in that interview. Please. Because the rest of Keatings interview displays symptoms far more in keeping with the paternalistic approach to regulating financial markets.

This approach goes well beyond simply providing legal protections for property rights and against fraud. Instead, it defines exactly what people must consider high risk versus low risk, and it dictates which risky activities are acceptable for which people.

As a result, we end up with exactly what we have: a giant mess that hinders the formation and use of capital and subjects it to political whims.

The last part of Mr. Keatings defense is dead wrong because we really dont have a free enterprise capitalist system. We havent had one for decades.

To paraphrase financial journalist Jim Grant, what we have is much closer to some sort of smiley-faced socialism. Government doesnt fully own the means of production, but it directs the daylights out of them. Especially in financial markets.

The 2010 Dodd-Frank Act is a great example of the ills that come with smiley-faced socialism.

See the original post:
Capitalism vs. "Smiley-Faced Socialism"