IT WAS an unprecedented and historic move. Not since 1929 has anyone seen something like this. Democratic senator Chris Doodd, chair of the Senate banking committee was quoted as saying the United States “may be days away from complete meltdown of our financial system.” To avert economic cataclysm, the Bush administration announced a US$700-billion financial rescue package.

To prevent more US financial institutions from collapsing, the US government will buy bad debts, worthless assets and other toxic assets clogging the financial system. Bush asked Congress broad and sweeping authority to do this. Although the measure will cost the American taxpayers US$700 billion, analysts believe the amount could reach $ 1 trillion. In concrete terms, every American man, woman and child will shoulder $ 2,300 for the bail out plan.

Justifying his action Bush declared “The federal government should interfere in the market only when necessary… given the precarious state of today’s financial markets, and their vital importance to the American people, government intervention is not only warranted; it is essential.” This statement coming from a Republican president is hair-raising.

As a result of this historic and unimaginable turn-around of government policy, the US government rescued ailing financial giants – Fannie Mae and Freddie Mac, Merrill Lynch and Bear Stearns from total collapse and the nationalization of the American International Group (AIG). Architects of free-market capitalism would be turning from their graves.

These developments are unthinkable when free-market capitalism was on a rampage three decades ago and achieved dominance not only in the academic sphere but in the political arena as well.

Neo-liberalism as an ideology was on the retreat after the Great Depression of 1929. Keynesian economics became the dominant economic theory after 1929, marginalizing the neo-liberal thinking. Roosevelt’s New Deal and reforms were rooted to the Keynesian economics and even after World War II, the ideas of Keynes illumined the economic path of the world. There must be government regulation and control of the market is the basic creed of Keynesian economics.

Neo-liberalism however did not disappear. It started to rebuild itself in small academic enclaves in Europe and America, remaining resolute in achieving dominance in the future. Friedrich von Hayek and his student, Milton Friedman were the principal gurus of the neo-liberal economic ideology.

It was in the mid-1970s when the neo-liberals started their revolution in Britain. Margaret Thatcher seized the leadership of the Conservative Party and eventually become prime minister. Thatcher was a disciple of Hayek and upon assuming power launched the neo-liberal revolution in Britain.

Thatcher’s revolution, under the slogan TINA (There is no alternative) dismantled government’s role in the economy. She pushed Britain to the path of privatization, deregulation and liberalization. Government-owned and -controlled corporations were sold, and its role in the market marginalized.

Neo-liberals opposite of Keynesian economics are against government intervention, control or involvement in the market. The market should be left alone and the government must not and should not tinker with its operations. Heavily influenced by social Darwinism, neo-liberals glory in competition and advocate a survival of the fittest attitude in the economy. Only the strong survives and dominates the market in an unbridled orgy of greed and profit.

In America, the victory of Thatcher’s ideological soul mate Ronald Reagan gave neo-liberal the dominance it long sought. Reagan reduced the role of the government in the economy. The government that governs least governs best.

Both Thatcher and Reagan did not only promote neo-liberalism in thetheir countries, they pushed it on a global scale. Through the World Bank and International Monetary Fund (IMF), countries, particularly those in the Third World, were forced to accept neo-liberal economic prescriptions. Liberalization, deregulation and privatization were unabashedly promoted and imposed. Neo-liberalism is now the dominant economic theory, replacing Keynesian economics and it appears its triumph is imminent.

Then came the event last week, the meltdown of the US economy and Bush rescue package. It exposed the limits of free-market economy. With the US government intervening to avert economic catastrophe, governments should be, must be in the market. In a single act, Bush demolished the heart and soul of neo-liberal economics.

What happened in the American economy last week signals the demise of the neo-liberal ideology. The market is ruthless and dangerous to be left alone. Governments must regulate the market to prevent economic disaster. John Maynard Keynes is smiling from his grave.

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