Suppose an erratic driver is caught weaving in and out of traffic. The driver has been heavily medicated for years. His medical records contain thousands of pages worth of prescriptions, many designed to stimulate the patient and cause him to take risks he would not otherwise take.

Suppose all the major newspapers report the incident and say it showed a failure of doctors to crack down on irresponsible behavior and that the doctors’ de-medication ideology had blinded them.

Suppose a new doctor vowed to fight the alleged de-medication ideology by prescribing yet more drugs, not only for this man, but for drivers in general who, he claimed, would prey on pedestrians and drive recklessly if left to their own devices.

Fiction, you say? Such insanity is now official policy.

Finance and banking are the most heavily regulated sectors of our economy. The federal government controls how much money is available, how much banks may lend and what accounting rules they may use. A single man (e.g., Alan Greenspan) is given the power to arbitrarily manipulate the entire money supply without regard to economic realities — such as setting interest rates below the rate of inflation!

Yet, almost every media voice from The New York Times to the Wall Street Journal is evading these facts and claiming that we are experiencing a crisis of de-regulation and free-market ideology. It’s hard to imagine a bigger lie.

There are over 100 federal agencies and commissions, including the IRS, FRB, FDIC, SEC, CFTC, NIH, DEA, BATF, EEOC, INS, OSHA, CAA, FAA, FEMA, FERC, FCC, FTC and NLRB (to mention a few). In the last 12 years there have been over 51,000 new regulations. The Federal Register last year contained 73,000 pages of regulations. The cost of administering and complying with these regulations is estimated at over a $1 trillion.

Is this de-regulation?

Even more perverse is the oft-repeated claim that irresponsible lending was the result of a free market. It was government that championed high-risk lending precisely because the market was unwilling to offer such loans.

Laws such as the Community Reinvestment Act (CRA) and government-created entities like Freddie Mac and Fannie Mae used government backing to encourage irresponsible lending. As reported by The New York Times in 1999, “Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton administration to expand mortgage loans among low and moderate income people,” and “by expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.”

In reality many low-income people cannot afford homes, and banks are naturally reluctant to lend to them. Rather than accept this fact, government intervention created the appearance of low-risk and enticed banks into making unsound loans.

This is not capitalism.

Are these facts being acknowledged? On the contrary. Despite massive regulation of financial and housing markets and the systematic practice of intervention designed to conceal risk and make unsound lending more palatable, the “solution” we are offered is more of the same.

Treasury Secretary Henry Paulson is now trying to conceal the actual financial state of banks and borrowers. Even banks that did not need or want the government’s handouts were coerced into selling their shares. Why? Because doing so makes it impossible for the market to judge credit-worthy banks from failing banks. It furthers the goal of keeping banks lending and homebuyers borrowing regardless of their actual financial status. It allows keeping up appearances despite economic realities.

At every step, official government policy has been to deny basic facts and circumvent economic reality. And if faking realty in the banking industry is acceptable, why not in the automotive industry too? It now appears that General Motors will be bailed out as well.

None of these policies have anything to do with sound economics or capitalism. Capitalism functions by allowing people to identify the facts and act accordingly to the best of their ability. Some will succeed, and some will fail. Companies will be created, and others will dissolve. Jobs will be created, and others lost. This is reality.

Pretending banks have money they, in fact, do not; pretending borrowers can afford homes they, in fact, cannot; pretending GM is able to make a profit when it, in fact, cannot; and pretending our system is one of capitalism and de-regulation when it, in fact, is not, is a recipe for disaster.

In place of such vacuous mantras as “change we can believe in,” I suggest this alternative: “Nature, to be commanded, must be obeyed.” One can choose to accept the facts or evade them. But in any war between wishes and facts, it is the facts that will win.

Jim Allard ([email protected]) is a graduate student majoring in biological sciences.