Dolan Media Newswires
Long Island, NY — Did you ever notice how some politicians proclaim they don’t play the blame game or point fingers? Of course, others relish blaming so-called greedy, evil business for all our ills.
But such politicians usually want to divert attention from their own culpability in whatever mess needs cleaning up. After all, when the economy goes seriously awry, it’s almost always due to government doing something dumb.
As an economist who appreciates history, I like the blame game and trying to figure out how we got to wherever we happen to be. To get public policy right, we need to understand past successes and failures.
Regarding our poor economy, Thomas Sowell has written an important book titled “The Housing Boom and Bust.” Sowell is an economist, historian and columnist.
Our current economic woes, as Sowell notes, started in local housing markets, then spread to national and international financial markets. But how and why did this happen?
Sowell makes clear that misguided political actions were central. He explains how local land and building restrictions drove up housing costs. Politicians at the federal level nationalized cost problems from certain localities in a crusade for affordable housing.
Sowell also reviews the decline in lending standards and the dramatic growth in risky means for financing home purchases, including interest-only and adjustable rate mortgages, along with the inability of rating agencies to assess “new and exotic mortgages.”
But, again, why the big shift away from sound lending? Sowell reports: “Members of Congress from both political parties have urged federal regulatory agencies to press banks and other lenders to lower mortgage loan requirements, and have passed legislation to that end and to subsidize or guarantee loans made under lower standards.”
Bottom line: Politicians pressed lenders to give mortgages to people who should not have gotten those mortgages.
Given all the problems created by government, Sowell raises serious questions about the current agenda of still more government “stimulating” our economy. His methodical dismantling of the New Deal myth is important given that so much of federal policy today seems based on that frenzied period of government activism.
What should be learned from the New Deal? Sowell writes: “The lesson that seems more consistent with the evidence is that massive and unpredictable government interventions in the economy create uncertainties as to what government is going to do next — as well as uncertainties as to what the actual economic consequences of government policies will turn out to be.” Uncertainty scares business and investment.
Government got us into this mess, and no evidence exists that more government will improve matters. Let’s hope some of our elected officials read “The Housing Boom and Bust” and figure that out.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.