Just as democracy is being blamed for the failures of majoritarianism, markets are being blamed for the failures of politics and regulatory confusion.

The collapse of Bear Stearns and Lehman Brothers, and the bailouts of Fannie Mae, Freddie Mac and AIG, have led to an inevitable call for more regulation. Obama promises "real" regulation. McCain will "reform Wall Street."

The consensus is that Something Must Be Done to rein in financial markets. This consensus is part of a general theme among some pundits and economists that it's time to give up the naïve faith that markets can solve every problem. We are told that markets have failed.

Yet much of the current chaos is the result of attempts to steer or control markets rather than let them be. Much of the chaos is the result of political failure.

The problem with financial markets has some things in common with the problems of agriculture. Various regulations and subsidies have changed the grower's task from farming the land to farming the government. This isn't just a US problem of course, the whole world is similarly warped. EU regulations and subsidies, for example, are even worse. Africa and S. America may be worse yet.

Growers seem to do dumb and destructive things but they do them because that's what is required to avoid collapse in the current regulatory system. This isn't new, it's been going on for decades, long enough that many growers no longer know how to really farm. There is no freedom to farm, just as there are no free markets.

Ethanol mandates and subsidies try to create less carbon in the atmosphere than the market would create on its own. The result has been a worldwide increase in the price of corn that has hurt poor people around the world. The environmental benefits are negligible.

The turmoil in the housing market and the resulting financial crisis is just the latest example of political failure. Politicians wanted more home ownership than the market produces on its own, especially among low-income families. To encourage this politically popular goal, Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) were allowed to privatize their profits and socialize their losses. At the same time, Housing and Urban Development (HUD) required them to expand their commitment to affordable housing. Freddie and Fannie achieved this goal by buying bundles of subprime mortgages.

Now taxpayers are on the hook for at least $200 billion, and the dominoes are still falling. The real cost of this failure is that the return to housing was artificially inflated, funneling billions of dollars of capital into housing instead of more productive assets.

Bread and circuses. Reality repeal. You can get away with it a little bit, for a little while, but in the end there is no free lunch. One way or another, at one time or another, you pays for your pleasure.

The idea of market failure is nonsense, at least as it is commonly used. When markets do not produce results that some crave then politicians are happy to promise that those results will be forced on society. There are always huge costs to do this since the craved result makes no real sense, and the cost of the political and regulatory machinery adds an additional burden. Worse, the system goes out of whack and can then fail spectacularly. If all of the costs and risks are known and agreed to then society can choose to buy the package. It's their money. But that is seldom the case since politicians are not straight with people about the costs, indeed, few of them have any idea what they are saying. They'll say anything to get and hold power, so they don't pay much attention to niggly details like truth or consequences.

Update:

Said another way. . .

A couple more of weeks of this and Alasdair Darling will announce that everybody now has a land grant on the Moon, and there'll be maybe five hours of lunatic speculation before shares dip again. The week after that, Henry Paulson will announce that from now on all currencies will be based on the Higgs boson and traded at the Large Hadron Collider, and all will go swimmingly until somebody thinks, 'Wait a minute, does that mean there's something weak about the quark?' and from then on it's just dark matter all the way down.

What about the turtles?