My good friend Jeff Friedman's response to my last entry made me, as usual with challenges from Jeff, think. I think Jeff is wrong. The free market side is not without an argument in this case. I also disagree with Jeff that economists don't study politics, but only theorize politics --- but lets leave that for another time. But what is the free market argument concerning the current situation?
The argument is not all that unique, though the facts of the situation are. The focus is on the structure of incentives and the quality and flow of informational signals that economic participants interpret and utlize in the process of economic decision making.
Gerald O'Driscoll published a piece last fall that discusses 'subprime monetary policy' and would be a good place to start in the policy discussion.
What is the best diagnosis of the current situation that you have read?