How Capitalism Will Save Us (54 page)

A
s the 2008 financial crisis spread to nations around the globe, world leaders like German chancellor Angela Merkel and British prime minister Gordon Brown called for more regulation of the global economy. Writing in the
Washington Post
, Brown suggested expanding the authority of the World Bank and the International Monetary Fund to allow close scrutiny and greater control of financial institutions. At the 2009 World Economic Forum in Davos, Switzerland, Merkel called for creation of a new international entity similar to the UN Security Council and “a new charter for a global economic order” to make sure such a severe worldwide financial crisis doesn’t happen again.
⁴⁷

Weeks later, before the G-20 economic summit, both China and Russia
made another proposal—replacing the dollar as the world’s international reserve currency with International Monetary Fund-issued Special Drawing Rights (SDRs), a “globalized” currency under IMF control. It would be based on the values of a group of national currencies. The selling point was that it would not fluctuate as much as the dollar does today, providing a more stable global market for world business and investment.

Lofty-sounding proposals for world currencies and regulatory bodies carry the weight of high authority, especially when made by heads of state at global forums. But they’re no more likely to work in the Real World than any other bureaucratic solution that ignores markets.

If there is a Real World lesson to be learned from the present crisis, it is that regulation, from any source, is no guarantee of protection. The United States was once considered by the rest of the world to be a model of regulatory best practices, particularly with the capital markets. The Securities and Exchange Commission was a standard setter for securities regulation. But none of these vaunted regulatory practices were able to avert the financial crisis or Bernie Madoff’s massive fraud.

There was also plenty of regulatory warning about the coming mortgage-lending crisis in the United States. But as we’ve already noted, policy makers chose not to listen. If the United States, the font of entrepreneurial capitalism, can make ghastly regulatory mistakes, why should one assume that international bodies will do any better?

Merkel’s proposal of a UN-based financial regulator—a possible UN Economic Council—raises the question of what power such an institution would have and how it would actually function in the Real World. Would an international body really have done a better job preventing U.S. banks from making dodgy mortgages than American regulators, who were on the scene and more familiar with local institutions? Are banks now to have two sets of auditors, one from their home country and another one from, say, Brussels?

Since 1988, the world banking system has had guidelines through the Basel Accords. The chancellor’s desire for an entity resembling the UN Security Council was especially ironic, since the real-life UN body is notorious for getting very little done, and then only after painful, time-consuming, and generally useless compromises.

This is not to say global organizations and agreements can’t be effective. Since World War II, the nations of the world have signed on to a
succession of major agreements that, by reducing tariffs and regulatory barriers, facilitated an explosion in growth-producing world trade.

Two big successes have been the General Agreement on Tariffs and Trade (GATT) and the subsequent World Trade Organization (WTO). Countries that have joined the WTO adhere to these trade agreements and obey its rulings concerning trade disputes. The World Trade Organization works because, beneath the political maneuvering, countries know that reducing trade barriers and adhering to trade agreements and rulings is good for them and for peaceful global commerce.

Putting aside the fact that the regulatory ideas bandied about by the Merkels of the world are overwhelmingly vague, the truth is that existing international organizations do not have an untarnished track record. The World Bank, for example, has repeatedly been accused of corruption—lending untold billions to governments whose politicians have looted the treasuries of their own countries.

Do we really want to place our economic destiny in the hands of international bodies subject to the politics of other nations? Policy analyst Brett Schaefer of the Heritage Foundation believes “any international effort should be consultative and advisory, engaged in such matters as the development of best practices standards, rather than bent on establishing new international regulatory authorities possessed of dictatorial or coercive powers over such matters.”
⁴⁸

And what about the idea of a one-world currency? Ambassador Terry Miller, director of the Center for International Trade and Economics at the Heritage Foundation, rightly argues that it doesn’t solve anything—and may even make matters worse.
⁴⁹
For one thing, an IMF reserve currency has no intrinsic value. It has even less meaning to people in the world’s marketplace than today’s fiat dollar. World currency controlled by the International Monetary Fund would be vulnerable to even more political caprice than today’s fluctuating greenback. The supply and value of money would be subject to the political desires of nations around the world whose interests might not always be in line with our own.

There would be new opportunities for corruption. IMF procedures for setting the value of money and interest rates would be less transparent than those of the U.S. Federal Reserve Bank. They would involve other countries whose representatives have different political agendas and are not as accountable to an open grilling by America’s democratic government.

The best way to foster a healthy global economy is not through new global regulations or a single world currency, but through currencies that remain steady in value. Strong, stable currencies create a predictable environment that invites entrepreneurship and investment. Updating the gold-based Bretton Woods international monetary system, which served the world well from the end of World War II until the early 1970s, would go a long way toward ending economic volatility and restoring the stability sought by advocates of “one-world” economic solutions.

A
merican health care is the best in the world. Thanks to high-quality medicines and technologies, Americans have higher survival rates
for illnesses ranging from cancer to heart disease. America leads the world in new drug development. We have greater access to care and advanced medical technology than patients in other advanced nations. The quality of U.S. health care draws people from countries with state-run health-care systems, who come seeking the best care medicine has to offer.

Some people who buy into the Rap on capitalism believe America’s expensive advanced drugs and technology are a major reason that a “free market” simply can’t work in health care. It’s simply too expensive. They blame capitalism—namely, “greed” on the part of insurance and drug companies—for what they call “the health-care crisis” of upwardly spiraling medical and insurance costs. They’re wrong. The problem in today’s health-care market is not too much capitalism, but too little.

Our system has very real problems. Between 2004 and 2008, the cost of health-insurance premiums has skyrocketed by some 27 percent. Since 1999, it has increased a startling 119 percent. The average annual cost for an individual plan is rapidly approaching five thousand dollars, while the cost of a family policy is nearly thirteen thousand dollars. These staggering premiums are blamed for the existence of an estimated forty-six million uninsured Americans.

Not only the uninsured feel abused by the system. In 2008 the nation was riveted by the story of seventeen-year-old leukemia patient Nataline Sarkisyan, whose request for a liver transplant was denied by her insurer, CIGNA Health Care, on grounds that the procedure was too experimental. After headline-making demonstrations and calls from politicians, CIGNA eventually agreed to pay for the operation. Tragically, Sarkisyan died before it could take place.

More common is the story of fifty-four-year-old Tod Smith. The Connecticut children’s book illustrator was denied coverage for forty thousand dollars in medical bills after his first heart attack. Smith was forced to sue his insurer, Assurant Health, after it claimed that his “angina episode” was a preexisting condition. Other people, meanwhile, are often stunned to discover their insurance doesn’t fully cover expensive prescription drugs, which can reach six figures a year for the most costly medications.

Meanwhile, the quality of medical care seems to grow increasingly cold and impersonal. The house calls and personalized care of the 1950s and ’60s are a distant memory. Patients endure hurried treatment by
physicians and hospitals under cost pressure by insurers—or unnecessary testing by health-care professionals practicing “defensive medicine” out of fear of malpractice suits.