07/15/2009 05:12 am ET Updated May 25, 2011

If We Are Recovering, Thank Government, Don't Blame it

Like night follows day, free market ideologues and some just plain conservative diehards are now saying those who warned that unfettered financial speculation has led to economic crisis have, as will claim they told us all along, embarrassingly overreacted. The economy is already bounding back, they say, and all those fears about market instability and a worldwide collapse were nonsense. Worse, it was all just an excuse for government meddling on the part of the Left, for which we will all now pay the price in high interest rates and inflation.

Such commentary has been going on a while on CNBC, of course. But the establishment is now following up. On Friday, a regular Financial Times columnist had a remarkable piece, entitled, "Crisis? What Crisis? The market confounds the left."

You see, capitalism isn't failing. You've all not gotten your wish. Rather, all we needed was a little adjustment to help those who suffer the inevitable pains of creative destruction -- thankfully, he did not use the favored Schumpeter phrase -- which is the heart and soul of economic advance. Buck up. Expect such dislocations.

Here's the utter silliness -- let's be honest, outright irresponsibility -- of this argumentation. We've just had the largest worldwide government stimulus in history, and Philips in this piece -- and many others like him in other presentations -- makes no note of it. No mention whatsoever. They argue that the invisible hand did its job with no help from government. No aggressive Federal Reserve policy no Obama stimulus, no Chinese stimulus. Just good old market adjustments.

This is the sad consequence of success. If we are really nearing the bottom, of which I am hardly sure, some observers with axes to grind will forget how it happened. In fact, we learned lessons from the Great Depression and applied them. Capitalism, unfettered by proper regulation and limits, did fail. If the economy is reaching bottom, government intervention did indeed save the day.

And one last very important point. The cost to come in higher debt is not the result of government errors, which so many on the right are now arguing. Rather, it is the result of capitalistic excess that required radical government action in order to avoid major -- major!! -- catastrophe. Moreover, there is a very good chance we can absorb the debt and Fed Reserve creation without high inflation.

Hold on to your seats. We will now see and hear this argument about debt and government overreaction all the time. The people who truly understand the economy must speak up loudly and clearly so the American public understand what's really going on. I fear the Obama advisers will not fight it hard enough, and thereby become part of the problem.