That Sound You Hear is Adam Smith Laughing Uncontrollably
There isn’t much to be said about Alex Conley’s latest opinion piece in the Emerald that hasn’t been summed-up here, but I figured that it’s my duty as a Commentator staffer to at least point out a few of his more cringe-worthy pronouncements.
Conley, you see, has decided that “that the capitalist ideals to which we hold so firmly, even in our time of hardship, are no longer suitable to a 21st-century United States.” To wit:
When our nation was young, it was known as “the land of opportunity,” a place where, if you worked hard, you would eventually be able to live a prosperous life and find happiness. However idealistic that may have been, today, even if you work your hardest, there’s no guarantee in the least that you will be able to get by, much less prosper.
Conley, evidently, has confused the definitions of the words “opportunity” and “entitlement” because at no time in the history of this country has anyone been guaranteed prosperity and happiness. I mean, it’s right there in the Declaration of Independence*: Life, Liberty, and the pursuit of Happiness.
But American history isn’t the only subject in which Conley comes up lacking. Take, for instance, this authoritative statement: “The key element in capitalism is the idea that ‘you get what you work for.'” Wait, wait! Don’t tell me! That’s Hayek, right? Von Mises?
The balance of the article consists a sentence or two blaming the current economic crisis on “our vaunted free market” (Do tell…), a rousing call to lock arms and march together toward a better future in which we all help one another, some cookie-cutter stereotypes about living in an “every man for himself” society, and a concluding paragraph prescribing the abandonment of capitalism because “the world has changed” since the beginning of the 20th Century. Or something. And stuff.
For what we are to leave behind capitalism is never quite mentioned; One can only presume that Mr. Conley hasn’t been paying attention to socialist Europe’s own financial problems. To be honest, I’m not sure Conley himself really understands what he’s talking about, beyond a few fuzzy ideas and shopworn stereotypes.
But hey, this is the Ol’ Dirty we’re talking about. Considered ideas on their opinion page aren’t exactly their stock in trade.
* Since I linked to the Declaration of Independence, I might as well link to the Constitution, too. We don’t link to the Constitution enough around here.
What, no “invisible handjob” jokes?
So, you’ve never heard of welfare?
Not to mention that it would be nice if there were such a thing as a safety net for the poor in this country – but I can’t imagine that flying with this crew 😉
Oh dear. Okay, so I don’t particularly agree with all of Conley’s argument, but I need to clarify some things about the cited article from The American Spectator. This is an article that largely seeks to prove that “deregulation” is not to blame for the housing crisis, and then proceeds to cite a whole series of cases of “relaxed regulatory standards” as the cause of the housing crisis. Moreover, the article reads as a desperate attempt to somehow shove off nearly all the blame onto the Clinton Administration, whose 1992 decision to make regulatory changes to the CRA apparently resulted in the government requiring banks to loosen their lending standards beyond what was really financially prudent.
Presumably, the Democrats can then be charged with precipitating the housing mess, as it was their eagerness to get poor people into homes no matter their affordability that led to all of these subprimes and Alt-A’s which eventually defaulted.
Besides the fact this argument has largely been carted out again and again to satisfy a political purpose of getting this problem pegged to do-gooder liberals as scapegoats rather than truly help to understand the mess, there are several problems with the argument. They are:
1. At its core, it is an argument for increased, not decreased, regulation. By suggesting that Democrats weakened lending standards in order to make more loans, thus precipitating the crisis, the logical response becomes to increase regulation of FNMA and FHLMC, as well as other lenders, such that they are more restrictive in who they lend to.
2. The argument is patently partisan. It focuses on the actions by Democrats that led to relaxed mortgage standards, in the pursuit of increased home ownership by the poor, while ignoring that the entire time this “relaxation” was taking place, the Republicans controlled Congress. Republicans could have easily increased regulation within their legislative capacity during the some 12 years from 1996-2004 they had control (even over a veto), but this is not mentioned. This makes me think the argument is intentionally trying to ignore that blame is shared both by Republicans and Democrats, which is the reality.
3. The argument doesn’t successfully propose a free-market solution. Instead, the focus is mainly on getting the poor people out of the mortgage-buying market through increased regulatory standards.
4. It ignores the causes of increased housing prices which forced FNMA and FHLMC to make larger and larger loans as housing prices increased. Housing began to increase in price well before 2004, when competition FNMA and FHLMC supposedly began to “scrape the bottom of the mortgage barrel.”
5. The money supply is completely ignored in this argument, as if it somehow doesn’t have any impact on mortgage lending. This bothers me. There were very aggressive inflationary policies pursued in 2001 through 2002, (well before the subprime boom “in 2004” supposed by Wallison) during the previous recession. These policies, without a doubt, must have had SOME impact on credit markets.
6. The article’s conclusion is that we do not increase regulation, but rather, end the “destructive housing policies” of the government, which by the author’s own admission, amount to allowing lenders to engage in irresponsible lending practices in order to encourage housing affordability. Fair enough, but doesn’t that admit that standards are too weak as is, by definition?
It comes down to “if the government didn’t interfere in the market, regulations would be tougher.” This makes little sense to me. I feel that what would happen under deregulation is the same thing that happened here, dumb companies could make bad loans to poor people, and the market would punish them by running them out of business. As the market corrects, there would be foreclosures, defaulting, and nasty securitization just as there is now. And when mortgage values are overspeculated, this problem too would possibly bubble, only to be corrected by the natural business cycle.
Anyway, just some thoughts on the housing mess and the two arguments I seem to hear all the time: “the free market is to blame,” vs. “Democrats and their do-goodery are to blame.” I personally believe the mess was brought about by housing oversupply that was responding to overdemand which was created by excessively cheap credit (as a result of Democrats’ encouraging more loans to poor people, Republicans relaxing oversight from a deregulatory rationale, and ultimately the expansionary policies of the Fed responding to recession). It was exacerbated by the securitization of these overvalued mortgages, which allowed the problem to essentially “infect” capital markets. But I’m not really an economist.
Okay… that’s quite enough for now. haha sorry.
That’s the Commentator e-mail address, obviously.
Too true. Vince, does the [email protected] address go to you or CJ?
You know it’s time to stop writing when even Kai Davis thinks you’re a chump.
I caught his article on my way to work and couldn’t stop laughing.