Who's to blame for the current financial crisis asks Eamonn Butler, author of the forthcoming The Best Book on the Market

7th April 2008: Who's to blame for the current financial crisis?  asks Eamonn Butler, Director of the Adam Smith Institute. A lot of people blame 'the market'. But markets are no more than a series of human actions and interactions. So by blaming the 'market' we're really blaming our own bone-headedness. Well, it's a fair cop. Whatever the economic textbooks tell you, none of us is all-knowing. We might be very wised-up on our own little part of the world, but we can't know what's happening everywhere in the wider economy, and we can't predict the future. And stuff just happens, and sometimes it gives us a battering.

People blame markets, and in particular 'market failure', but they should really be blaming government failure. It's governments, and their central banks and regulatory authorities, that got us into the mess. They are the ones that are supposed to look after our money, and they are the ones who should get the blame when it becomes worthless.

The fact is that government authorities have been happily fostering boomtime for years. Because they feel good, and get congratulations when things seem to be going well. And politicians get more votes when business is good than when the unemployment lines are growing. But it's like a drug. Sure you get a high out of expansionary economic policies. But before long you need larger and larger doses of it to have the same effect. Eventually you just can't manage any more of it. Then bang - you get the inevitable hangover.

Government have been pumping steroids into our financial system for so many years that the hangover won't be pleasant, and won't be short. But eventually we'll get back to normal, and for a few years at least, people in government will be more wary about over-expansionary policies. But as Milton Friedman said, governments don't learn: only people learn. And when the present bruised politicians have retired, there will be a new generation who see that expansion and inflation make them feel good and win them congratulations. Until...

Dr Eamonn Butler is the author of The Beat Book on the Market: How to Stop Worrying And Love the Free Economy to be published by Capstone in May 2008, ISBN 07981906465056, £14.99  Hardback

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