Sowell: Bailout Could Have Ended Free Market

The $700 billion Wall Street bailout the House rejected Monday could have signaled “the end of the free market” as it is structured in the United States, a financial expert said.

In an exclusive interview with Newsmax before the emergence of the deal’s final details, Thomas Sowell said sacrificing America’s free markets in order to save Wall Street would be “a tragedy of tremendous magnitude.”

Sowell, the respected Hoover Institution economist, columnist, and author strongly disagrees with those who say an unbridled free market is to blame for Wall Street’s excesses.

Rather, he attributes the crisis to “very cynical political rules that protected people who went way out on a limb financially, because they knew they had the taxpayer’s money to back them up.”

Citing the late Nobel prize-winning economist Milton Friedman, Sowell said economic losses are just as important to capitalism as profits, because losses help people learn to make better decisions.

Bailout plans “don’t take into account that people learn from paying the price for their mistakes,” he said.

Market interventions inevitably result in unintended consequences, said Sowell, author of “Economic Facts and Fallacies.”

“The smallest change in a market has reverberations throughout,” he said. “There is no way to predict how the plan will ultimately impact the U.S. economy.”

A bailout would encourage an entitlement mentality in which people seek to earn profits while being protected from losses. People need to take individual responsibility for their decisions instead of looking for taxpayers to cover the losses, he says.

Sowell cited Americans’ migration away from unprofitable farms in the 20th century as an example of how people respond to changing economic circumstances. That workforce later fueled the rise of American manufacturing. “Now, we could have kept all those people on the farms, you know, and the standard of living would be a lot lower than it is right now,” he says.

Sowell conceded that not coming to Wall Street’s rescue also would be dangerous. The nation’s leaders, he said, should try “to restore as much of the free market as possible” and minimize any bailout’s reach.

“Go to the American people and tell them, ‘There is no Santa Claus folks. If you want to take risks you are going to pay for it,’” Sowell said, adding, “Compassion should extend to taxpayers as well as everybody else.”

© 2008 Newsmax. All rights reserved.