Market Fundamentalism vs Free Market

I've came across an article by George Soros. The theme of the article is market fundamentalism. I guess some might find this topic is really boring, but for me it is really exciting (advocates of free-market might dislike this topic though). George Soros notes that the financial market has expanded for almost 60 years, since post World War 2 era. There were ups and downs throughout this period. However, every time the credit market went into trouble, central bankers in the world will intervene by injecting liquidity; to slow down the recession, or what most of the economists call as "soft landing". After that central bankers will find alternative ways to fix the same problem (in economy it is important to use different method due to market expectation), and thus ensure the market will keep expending. Most of us might think, what's wrong with fixing a problem and having a market that is expending forever and ever? He argues that the expansion is greatly helped by the intervention, instead of the fundamental of the economy itself. That is, the idea of free-market by Alan Smith do not work perfectly at all time.

Recently I've been reading a book by Alan Greenspan, a former chairmand of US Fed. He wrote how everytime there is a recession, Fed will intervene by reducing the interest rate, thus giving incentive to consumers and private sector to increase spending expand the financial market. This is a shining example of how market fundamentalism works. Without intervention, a free-market will continue to slow down and could be as bad as Great Depression in 1930 (in 1930 US Fed face a liquidity problem in which they are unable to encourage bank to reduce interest rate).

However intervention does not always work. For example, some put the blame for current market turmoil in US on the intervention. Frequent intervention has led people to feel optimist about their economy and some went as far as investing in an investment at a price significantly higher than it's intrinsic value . However bubble will definitely burst and it can destroy a large amount of wealth and cause continuing economic malais, as happened right now in US. That is, an intervention can prosper us as well as destroy the prosperity in a nick of time.

I reckon there is no justification in which theory is the best for our economy and thus the mix of them might be best. Probably the issue is not what policy should we use, but how do we use those policies.