This economic Yalta for free market advocates – much to the glee of the collectivists among us – is portrayed as the surrender of a free market Republican administration to irrefutable evidence that unfettered capitalism produces economic disaster.

The Wall Street turmoil, as stated in a New York Times article, is "a painful lesson" for evangelists of the free market.

True, there is indeed a painful lesson for free market advocates: Never ask a blind man what an elephant is like.

 "This is not a market failure as so many are now claiming," wrote Ed Crane of the Cato Institute.  "It is a government failure, pure and simple."

While I agree with Crane's conclusion that government intervention is the problem, the causes of our economic turmoil are not nearly so "pure" and certainly not as "simple" as Crane's disgust (and my own) with damage caused by collectivist philosophy would suggest. Like the six blind men who went to see the elephant, economists, pundits, politicians, war heroes, former community organizers and ex-small town mayors have been feeling up the situation, and not unexpectedly, their assessments of the crisis match the part they happen to be yanking on.

What we have here is a problem of knowledge, the inability to see the whole problem. And therein lies the fundamental flaw with the economic mulligan coming out of Washington. Those-who-must-be-obeyed may have a plan that fulfills the collective desire to "do something," but Reid's original assessment is still the most astute – no one knows what to do.

Any plan coming out of Washington is based on dubious assumptions that are taken for granted. It assumes that the gathered officials possess all the relevant information, that their desired objectives are achievable, and that they possess the available means to implement the plan. Given those assumptions, the economic crisis becomes simply a complex puzzle that a bunch of really bright people can solve, given enough money and the coercive power to implement their plan.

But as F.A. Hayek notes as the general case in his essay "The Use of Knowledge in Society," which I am applying to this specific case, the economic problem of society does not have a strictly logical solution. As Hayek explains, "The reason for this is that the 'data' from the which economic calculus starts are never for the whole society 'given' to a single mind which could work out the implications and can never be so given."

Paraphrasing Hayek's general argument, the financial crisis facing our elected and unelected cognoscenti is not simply a problem of how to "adjust" existing market factors to preserve the financial system – if "adjustment" assumes that all relevant information is available to those crafting the adjustment. Rather, it is a problem of how to facilitate the most effective adjustments to the financial system to the benefit of any member of society, "for ends whose relative importance only these individuals know."

The misconception we are dealing with is that government can somehow come up with a solution that will simultaneously punish the wicked, reward the righteous, leave the ignorant blissfully blameless and the rest of us financially intact. The reality is that objective is unobtainable; there is no solution, only trade-offs. And right now armies of lobbyists are clashing on Capitol Hill over just what those trade-offs are going to be.

When battle ends, bodies will be buried and poppies will be planted and victory declared for a "solution" that serves visible collective ends but has only serendipitous connection to the ends important to any individual, of which no bureaucratic planner can ever have complete and timely knowledge, empathy or concern.

We don't need better policy for management and oversight of the financial markets. We do need policy that better facilitates dispersing economic knowledge to those making economic decisions. From the creation of Fannie Mae to passage of the Community Reinvestment Act, government interventions have jammed the economic signals that the market needs to function effectively. They have created moral hazard that breaks the bonds of market discipline and unchains greed and recklessness. We may be blind to the whole cause of the current economic crisis, but government intervention is without a doubt the elephant in the room.

Craig Westover is a contributing columnist to the Opinion page of the St. Paul Pioneer Press and the online news source MinnPost. He is a senior policy fellow at the Minnesota Free Market Institute.