Where’s the invisible hand when you need it?

I AM old enough to remember when the Soviets were building a strong economy through central planning – until it crumbled and the Berlin Wall came down.

And when the Japanese were eclipsing the US economy through the keiretsu, large affiliated industrial companies working hand in hand with government – until Japan’s Lost Decade became two. Now it’s China’s turn, with a new leader for life who has consolidated decision-making to target his country’s economic goals in 2025 and beyond.

In each case, statists in America are more impressed by the foreign top-down designs than with the track record of free-market capitalism at home. Capitalism is under attack, and we move further away from capitalism with each presidential administration.

For eight years the Obama administration disparaged the efficacy and fairness of capitalism. Government’s influence grew in every aspect of life. The cost of regulation doubled, corporate America was attacked to engineer social equality, and our health-care system was made even more inefficient.

I did not support Donald Trump, but after he was elected I was hopeful for an inflection point in the trend away from capitalism. Yet while there has been some regulatory relief and a cut in corporate tax rates, some of the most egregious trends are continuing – and new elements that violate the principles of capitalism have been added. For starters, free trade is now under assault.

The best tech companies in the world are in the US, thanks to the mix of education, immigration, finance and meritocracy. Is there a better example than Amazon? Its founder, an immigrant’s adopted son, is revolutionising business. Capitalism is intolerant of high-cost providers, middlemen, rent seekers, and those who extract more value than their due.

But the rule of law is the central pillar of America’s economic success. The president’s personal view of Amazon’s founder should have no bearing on its success. If the government intervenes based on his feelings, America will be no better than countries where corruption and rent-seeking produce stagnation and mediocrity.

The US allocates an ever-increasing share of national resources to government transfer payments. I spent two years visiting universities in an effort to get young people energised by the explosion in entitlements and their decreasing share of the economic pie. I got enthusiastic responses.

But I was so ineffective in the national debate that the only thing Hillary Clinton and Trump agreed on was that entitlements shouldn’t be touched. We missed a golden opportunity to offset some revenue lost and address generational inequity when Congress passed tax reform.

Instead, debt as a percentage of gross domestic product, which doubled in the past decade, is set in the decade ahead to increase to World War II levels, with no postwar reduction in sight. We will have sacrificed our future during a relatively peaceful period of economic growth because politicians can’t say no.

Finally, let me address a distortion that is one of the greatest threats to a properly functioning capitalist system. For years a mix of financial repression and central-bank intervention has led to long-term interest rates largely determined by government fiat. Bond buying by central bankers, commonly referred to as quantitative easing or QE, has become part of the Fed’s conventional tool kit. A tool once reserved for depression or financial crisis is now to be used at the first inkling of a recession.

I am old enough to have seen the dangers of price controls, which lead to allocation of resources by political actors, another great affront to capitalism. Yet 40 years after economists and policy makers soundly rejected price controls in the industrial economy, we are allowing the most important price of all, long-term interest rates, to be distorted by public intervention.

The excuse has been the obsession with a fixed 2.0% inflation targeting rule. The decimal point shows the absurdity of the exercise. Anything below 2% is considered a risk of deflation, the bogeyman of the 1930s. This has meant that even years after the Great Recession ended, the Fed has not only kept interest rates below inflation but accumulated an unprecedented US$4.5 trillion in assets via QE. Global central banks, in part to prevent their currencies from appreciating against an overly abundant dollar, followed with more than US$10 trillion of their own QE.

The irony is that over the past 700 years, world-wide inflation averaged marginally above 1% and interest rates a little below 6%. We are seeing unprecedented ultraexpansionary monetary policy during a time of average inflation. Moreover, the three pernicious deflationary episodes of the past century did not start because inflation was too close to zero. They were all preceded by asset bubbles.

If I were trying to create a deflationary bust, I would do exactly what the world’s central bankers have been doing the past six years. I shudder to think of the malinvestment that has occurred. Corporate debt has soared, but most was used for financial engineering. Bankruptcies have been minimal, but who knows how many corporate zombies free money is keeping alive?

Individuals have plowed ever-increasing sums into assets at ever-increasing prices.

Of all the interventions by the not-so-invisible hand of government, not allowing the market to set the hurdle rate for investment is the one I see with the highest costs. Competition is better than central planning at protecting consumers. That applies to Amazon and the bond market. The government should get out of the business of controlling long-term interest rates and canceling market signals.

During President Obama’s tenure, I was disheartened by the lack of criticism from the left. It would have carried a lot more weight than criticism from the right. I see a similar pattern today.

I am discouraged by the timidity of many conservatives’ criticism of our current direction. If you have the power of the pen or the purse, use it to articulate a better course for our country – a course of which Hamilton would be proud, and which would assure America’s best days are still ahead of us.