Keep the Capitol out of capitalism

The willingness to give government-sponsored enterprises still more governmentally conferred advantages shows that interventionism does political as well as economic damage. As the political scientist Theodore Lowi demonstrated 40 years ago in "The End of Liberalism," the American way of intervening in the market is not for Congress to pass laws distinguishing legal from illegal conduct. Rather, lawmakers delegate decision-making powers to regulatory agencies, which are assigned the hopeless task of perpetually tweaking the government's "standards" to make sure every interest group is "part of one big policy-making family." The result, Lowi says, is "a government that is unlimited in scope but formless in action." It "replaces planning with bargaining" and subjects its citizens to "policy without law."

This infinitely malleable regime puts entrepreneurs who excel only at making their customers happy and their investors rich at a disadvantage, relative to those adept at forging and using political connections. The point is not that the principles of laissez faire are sacred. Rather, it is that the economy and the government work better when capitalists stick to capitalism and legislators stick to legislating. The next era of reforming capitalism will only avoid the mistakes of previous ones if we insist that legislators make capitalists adhere to clear rules rather than murky ones they are required to renegotiate endlessly.