I was delighted to learn about the existence of a “free market” group in the country, especially that it seemed to have several prominent members.
But when I read further and saw that the same group acclaimed or endorsed the leadership of the local central bank for “steering” the economy and for producing “low inflation”—my enthusiasm faded. I got turned off and dismayed.
Suggesting that central banks can “steer” the economy essentially destroys the free market principle. Doing so suggests that socialism is superior to the free markets. If central banks can steer the economy, then why the heck bloviate about free markets at all?
There are many aspects to quibble with central bank operations, but the most important facet is the manipulation of interest rates.
Tinkering with interest rates represents a form of price control that causes price distortions which subsequently produces bubble cycles. In addition, maneuvering interest rates impels for indirect redistribution: from savers and creditors to debtors.
So essentially a central bank that dabbles with interest rates does this to promote the local banking cartel, (banks are financial intermediaries so lowering of interest rates attracts borrowers or clients for the industry) at the expense of the other industries and the consumers.
So what’s the essence of free market here? What you have instead is a banking cartel buttressed by state capitalism that essentially privatizes profits and socializes losses. (You will see this when a crisis surfaces)
As for low inflation, policies have intertemporal effects. Previous low interest regime was not due to central bank policies but due to many factors as globalization and technology aided productivity gains. Today’s rampaging food and energy prices are an offshoot to manipulated artificially suppressed interest rates, which promotes simulated unnatural demand, that will cause another global, if not, domestic crisis.
Thus, crediting central banks for current policies represents a naive and very narrow time oriented viewpoint.
It is of no wonder why free markets precepts in the Philippines have been denigrated.
They are founded on tenuous framework, which frequently gets obfuscated with the social democratic platforms.
In short, the free market principle is severely compromised and selectively and conveniently applied. This also means that the accommodation of the middle of the road policies such as the endorsement of central banking is a misguided way to promote free markets. It would seem like the devil who uses the Bible in order to mislead Christian devotees.
As the great Ludwig von Mises wrote,
The middle-of-the-road policy is not an economic system that can last. It is a method for the realization of socialism by installments.