Economic Meddling Disasters


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Our own more recent housing boom and bust began when local politicians in various places began severely restricting the building of houses, in the name of “open space,” “smart growth” or whatever other political slogans were in vogue.

As housing prices skyrocketed in such places as coastal California, both renters and home buyers in these particular places often had to pay half their monthly income just to put a roof over their heads. This in turn led to Washington politicians declaring a need for nationwide laws and policies to create “affordable housing,” even though people in most of the country were paying a lower share of their income for housing than in previous years.

This political crusade for “affordable housing” was at the heart of laws, regulations and even threats from the Department of Justice, against mortgage lenders who failed to lend to as many low-income and minority borrowers as the politicians wanted them to.

Regardless of the additional problems that occurred as these mortgages were bought by Fannie Mae and Freddie Mac, or were later bundled into securities sold by Wall Street, the fundamental problem was that many people simply stopped making their mortgage payments — as was perfectly predictable when lending standards were forced down by the government.

The politicians and bureaucrats who forced lenders to lower their standards had limited goals in mind — namely affordable housing and more minority home ownership. But the repercussions when the housing markets collapsed spread all across the American economy and led to financial crises overseas, where financial securities based on American mortgages were widely sold.

All politics may be local but the repercussions reach around the world, and even extend to generations yet unborn, who will be left to cope with the national debts resulting from this debacle.

Quick fixes for the economy now are unlikely to get investors to make job-creating investments, which depend on long-term factors ignored by politicians who are focused on the 2012 elections.

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  • Spider

    Great but infuriating article.

  • dbjudd

    Mr. Sowell thinks the attention span of politicians is bad. Try the attention span of a Capitalist: 3 months to the next quarterly statement, or even daily rises and falls of a stock price. There is no way any economic actor can ever act in the strategic interest of a nation since it's not in their interest or even their job description to do so. In the end we are all stuck with the government. Assuming we think a nation should have a strategic interest.

    • SaveUS

      You obviously have not read the article where Sowell explained that attention span of investors is often ten years or more. Even in consumer products, the whole development cycle is often 2 or 3 years, and in case of fuel cells for consumer electronics it is already about ten (with no results in the market place). You think that capitalists are just day traders or stock/security brokers. They are a small part of "capitalist class" and they are mostly red liberals like you (they really have a split personality). But even they are useful because they allow everybody to evaluate whether investments make sense, or not. When lefties select the business winners, we all end up short of billions (see Solyndra and other idiotic goverment waste).

    • SoCalMike

      A "Capitalist" sounds like someone who worships money.
      While I've seen money god shrines in homes throughout Asia I have yet to see one here.
      Free people investing their own money have to actually think about running out of money so they spend it much more carefully.
      Bureaucrats and politicians have no concept of this and are even actively hostile to the idea.

  • coyote3

    Although Thomas Sowell doesn't say it in so many words, his artricle illustrates one of the reasons why the United States Constitution limits the federal government's power to those enumerated and delegated, and further, why that language means what it say, and the founders were serious about. I mean they were really serious about it.

  • NotaBene

    And the wave of deregulations that started in the 80s haven't hurt us at all, have they?

    Government intervention is weighed, not counted. Some of it is absolutely necessary for a sound economy, and of course some of it can be harmful. Idiotic statements like 'economics and politics shouldn't mix' (when they are often one and the same) don't clarify the situation.

  • PETER GRUSH

    The dumbing down of loan qualifications is but one "dumbing down" variant in the last 50 years. In order to create more high school and college graduates, our education system makes "C" grades out of what were at one time "D" of "F" grades. Our businesses must hire people they dont need in order to meet racial quotas. Farmers must stop farming on good land because of a rare rat or lizard. All this while congress and thousands (yes thousands) of city councils and county boards of commissioners create the only non government payroll job they can, "lawyers".

    • NotaBene

      Got any stats to back that up, Grush?

  • http://www.rupe-fenster.de/ Fenster Berlin

    @Peter Grush and NotaBene: I looked that up and did not find ANY statistical data for backing that up. You sure about what you stated?