Lame Duck Defense

Yesterday, the Wall Street Journal reported the results of a forecast survey of economists. The most optimistic forecasts predicted that U.S. GDP growth is not likely until mid-2009 and economic expansion will not return to pre-crisis levels until 2010. Those forecasts are generously optimistic.

Coincidentally, President Bush addressed the Manhattan Institute at the Federal Hall National Memorial in New York City, just steps from the NYSE. In one of his more articulate speeches, he defended free-market capitalism while the clamoring throngs demand more government intervention. See this link for a full transcript of his speech and below for excerpts.

History has shown that the greater threat to economic prosperity is not too little government involvement in the market, it is too much government involvement in the market...And there is a clear lesson: Our aim should not be more government - it should be smarter government.

All this leads to the most important principle that should guide our work: While reforms in the financial sector are essential, the long-term solution to today's problems is sustained economic growth. And the surest path to that growth is free markets and free people.

Like any other system designed by man, capitalism is not perfect. It can be subject to excesses and abuse. But it is by far the most efficient and just way of structuring an economy. At its most basic level, capitalism offers people the freedom to choose where they work and what they do, the opportunity to buy or sell products they want, and the dignity that comes with profiting from their talent and hard work. The free market system provides the incentives that lead to prosperity - the incentive to work, to innovate, to save, to invest wisely, and to create jobs for others. And as millions of people pursue these incentives together, whole societies benefit.

Free market capitalism is far more than economic theory. It is the engine of social mobility - the highway to the American Dream. It's what makes it possible for a husband and wife to start their own business, or a new immigrant to open a restaurant, or a single mom to go back to college and to build a better career. It is what allowed entrepreneurs in Silicon Valley to change the way the world sells products and searches for information. It's what transformed America from a rugged frontier to the greatest economic power in history - a nation that gave the world the steamboat and the airplane, the computer and the CAT scan, the Internet and the iPod.

Ultimately, the best evidence for free market capitalism is its performance compared to other economic systems. Free markets allowed Japan, an island with few natural resources, to recover from war and grow into the world's second-largest economy. Free markets allowed South Korea to make itself into one of the most technologically advanced societies in the world. Free markets turned small areas like Singapore and Hong Kong and Taiwan into global economic players. Today, the success of the world's largest economies comes from their embrace of free markets.

Meanwhile, nations that have pursued other models have experienced devastating results. Soviet communism starved millions, bankrupted an empire, and collapsed as decisively as the Berlin Wall. Cuba, once known for its vast fields of cane, is now forced to ration sugar. And while Iran sits atop giant oil reserves, its people cannot put enough gasoline in their cars.

The record is unmistakable: If you seek economic growth, if you seek opportunity, if you seek social justice and human dignity, the free market system is the way to go.

Stories like these show why it is so important to keep markets open to trade and investment. This openness is especially urgent during times of economic strain. Shortly after the stock market crash in 1929, Congress passed the Smoot-Hawley tariff - a protectionist measure designed to wall off America's economy from global competition. The result was not economic security. It was economic ruin. And leaders around the world must keep this example in mind, and reject the temptation of protectionism.

We're facing this challenge together and we're going to get through it together. The United States is determined to show the way back to economic growth and prosperity. I know some may question whether America's leadership in the global economy will continue. The world can be confident that it will, because our markets are flexible and we can rebound from setbacks. We saw that resilience in the 1940s, when America pulled itself out of Depression, marshaled a powerful army, and helped save the world from tyranny. We saw that resilience in the 1980s, when Americans overcame gas lines, turned stagflation into strong economic growth, and won the Cold War. We saw that resilience after September the 11th, 2001, when our nation recovered from a brutal attack, revitalized our shaken economy, and rallied the forces of freedom in the great ideological struggle of the 21st century.

The world will see the resilience of America once again. We will work with our partners to correct the problems in the global financial system. We will rebuild our economic strength. And we will continue to lead the world toward prosperity and peace.