[Part 1 is here.]
Some might answer any defense of the free economy by pointing to the housing and financial crisis that came to a head in 2008, holding it up as proof positive the free economy is a wrecking ball swinging through communities and leaving all manner of economic and cultural destruction in its wake. The financial crisis did enormous damage, but the major drivers of the crisis were a series of public policies that manipulated the market in pursuit of certain desired ends.
It all began modestly enough. The federal government built incentives into the tax code in favor of taking out a home mortgage. Many local governments also provide property tax breaks to home owners unavailable to renters. While people who are forced by circumstances to rent might question the fairness of such tax breaks, these measures are seen by most as relatively benign. Eventually, however, other top-down manipulations of the housing market were piled on top of these tax breaks.
The U.S. government offered implicit backing to mortgage giants Fannie Mae and Freddie Mac so that the companies understood that if they got into financial trouble, Washington would bail them out. This allowed Fannie and Freddie to offer low interest home loans to high risks borrowers, since the companies knew the government would come to their rescue if too many of these borrowers started defaulting on their loans.
The government also passed regulations that actually pushed mortgage companies, including Fannie and Freddie, to provide home loans to people with bad credit—subprime loans.