Government and the market

The Economist has a new article in which it cautions Obama and the Democrats not to go too far in restraining American business. The failures of American capitalism, we are told, are limited to the finance industry:

America has experienced a failure of finance, not of capitalism. Its broader economy remains an astonishing Petri dish of creative destruction. Even in boom times, 15% of American jobs disappear each year. Their places are taken by new ones created by start-ups and expansions. This dynamism remains evident today, amid the most crushing economic conditions most businesses have encountered (see our special report in this issue). As icons of consumer excess like Starbucks and Neiman Marcus stumble, purveyors of frugality like Burger King and Wal-Mart prosper. Americans are adept at finding opportunity in adversity.

By and large I agree with this. But it's important to remember that just a couple years ago, the Economist thought of finance as just another industry, and argued for caution in regulating it, too. It make me suspicious that the Economist, given its reader base (businesspeople), is constitutionally predisposed to be too wary of government action in the market. The Obama policies that the article cautions against, in fact, are either finance-related (regulating the credit card industry), or involve other areas where market failures are well known to exist (carbon emissions).

The broad point - that capitalism is essential to America's strength and prosperity - is right. But the magazine should give the Obama administration more benefit-of-the-doubt, as should its corner-office readership. Trench warfare between industry and government is to no one's advantage going forward; the best thing for America is for our business class to abandon its traditional fear that Democrats are closet socialists, and to work with the Obama administration hash out where the government should support business activity, where it should restrict it, and where it should leave it alone.