The current market turmoil is not due to an insufficient amount of government meddling; quite the opposite, as the Washington Post notes in an editorial today:

[T]he problem with the U.S. economy, more than lack of regulation, has been government’s failure to control systemic risks that government itself helped to create. We are not witnessing a crisis of the free market but a crisis of distorted markets.

[...]

We’ll never know how this newly liberated financial sector might have performed on a playing field designed by Adam Smith. That’s because government interventions of all kinds, from the defense budget to farm supports, shaped the business environment. No subsidy would prove more fateful than the massive federal commitment to residential real estate — from the mortgage interest tax deduction to Fannie Mae and Freddie Mac to the Federal Reserve’s low interest rates under Mr. Greenspan. Unregulated derivatives known as credit-default swaps did accentuate the boom in mortgage-based investments, by allowing investors to transfer risk rather than setting aside cash reserves. But government helped make mortgages a purportedly sure thing in the first place. Home prices seemed to stand on a solid floor built by Washington.

Since no government regulator can know in advance how new man-made economic rules will affect the financial choices people make, no regulator is ever capable of understanding the full set of potential pitfalls those regulations could create. Any wholesale changes to the functioning of our markets is therefore extremely risky.

In a political environment like this, new regulations are an easy sell. People will support any bill that puts a stop to Demonized Financial Activity X—as long as they think it’ll only cost other people. But when deciding whether to support a particular regulatory solution, remember that you’ll never get to hear a full accounting of its possible downsides. That’s because there’s no human or computer on the planet capable of accurately modeling the quintillions of variables that will also change as those regulatory changes ripple through the world’s economic oceans.

New regulations may seem obvious, but the damage they can cause rarely is, sometimes even in retrospect.

Since those with an ample supply of pessimism are already comparing our economy to that of the Great Depression—I’m not denying there’s the potential for pain in our future, but call me once the economy has contracted by 33% or when unemployment hits 25%—perhaps it’s useful to recall what happened in the 1930s when government bureaucrats in their infinitesimal wisdom decided that they knew better than markets:

Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.

After scrutinizing Roosevelt’s record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

[...]

“The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes,” Cole said. “Ironically, our work shows that the recovery would have been very rapid had the government not intervened.”

Sadly, our country once again seems to be blindly groping its way towards socialism.