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Economic crisis management by the state can be necessary, as it is now, to restore trust in the markets and the facilitators of commerce - the lenders. Mis-trust in its psychological aspects sometimes trumps rational behavior. The failure of trust undermines the self-correcting and virtuous power of markets to force efficient economic choices. This can be disastrous and it's where coordinated government intervention comes in: Saving banks and institutions that ‘should' go out of business is a lesser evil than letting credit markets freeze up and watch ‘innocent' actors go bust by the dozen. Governments can also help prevent money-runs of private lenders that would otherwise heighten the crisis.

So what's not to like about Europe and the US walking in lock-step toward economic recovery? Overreaction and overregulation. If governments get carried away in their zeal to reign in ‘run-away market forces' or if they think they can establish the primacy of politics over economics again, then they will prolong the crisis, not get us out of it. The market failed not because of too little politics, but - in part - because of too much political meddling. Greedy Wall Street bankers deserve some blame, but primary objects of outrage should be those politicians who, allied with sympathetic (and self-aggrandizing) bureaucrats, encouraged the sub-prime mortgage market; and the over-eager US Federal Reserve, which tried to spur growth, with unnaturally low interest rates.

Add to this the lack of transparency that resulted from the bundling, splitting, and trading of mortgage backed loans, and the linkage of all financial institutions through the opaque Credit Default Swap market, and you get the current crisis. (Prescribed transparency, when as convoluted as the Sarbanes Oxley law, has proven a snare and delusion. Here, too, it might be beneficial for the industry, which has intense interest in avoiding a repeat of the current crisis, to find proper, workable solutions - like a clearinghouse for the above, hitherto unregulated, transactions.)

If Europe and the US manage to stay in step in resolving the financial crisis, they should take lessons from F. D. Roosevelt in how not to. A recent study by economists at UCLA just calculated that FDR's "New Deal" policies prolonged the Depression by seven years, rather than shortened it. The problem then, as now, was that politicians and voters thought that the market was the problem, that it needed controlling, and that it inherently cannot be trusted. Historians know better: fundamental and fatal blunders in tightening credit, raising taxes, and blocking trade turned a sever down-market into a global collapse. So much for the benefits of hindsight.

Surely we know by now that governments can foster market transparency and accountability, but never control, plan, or dictate the market. The murderous folly that central planning is superior to the sometimes tumultuous forces and failures of the market ought to have been relegated to the same intellectual dustbin as the flat-earth theory and bleeding the patient. Yet central planning is again the rage, amid protestations (at least in the States) that it is ‘only temporary.' Unless enough politicians remember the virtues of a small state and free markets, precisely in this time of crisis, excessive European and US harmony might cost us dearly. What is more, the advent of a transatlantic presumption against free markets spells tragic loss for nations of the developing world most in need of the power of those markets to liberate them from poverty.

Jens F. Laurson is editor in chief of the International Affairs Forum. George A. Pieler is a senior fellow with the Institute for Policy Innovation.

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