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A Housing Crisis Not Wasted
The Housing Boom
and Bust
By Thomas Sowell
(Basic Books, 184 pages, $24.95)
Sowell's latest book, The Housing Boom and Bust, is an economic primer on the housing bubble, but more importantly, it is an examination of the ruling class's inability to leave well enough alone. In showing the ways in which the Washington elite managed both to inflate the housing bubble and hinder recovery after its burst, Sowell buttresses his overarching career thesis on political power.
In his 1996 book The Vision of the Anointed, Sowell developed the argument that one of society's pitfalls is that elites in power pursue government solutions to societal problems despite such measures' poor track record. The Housing Boom and Bust addresses these elites' involvement in the crash of the housing market, when the government reacted to a perceived problem that may not have been a problem at all. "Politicians in Washington set out to solve a national problem that did not exist -- a nationwide shortage of 'affordable housing,'" Sowell claims "-- and have now left us with a problem whose existence is undeniable as it is painful."
As evidence, Sowell notes that many of the areas that policymakers identified as most in need of affordable housing policies had strict land-use restrictions. In Coastal California, Florida, and other hard-hit housing markets, regulators set aside large chunks of land or zoned them for sparse housing. They did so mostly to protect swanky neighborhoods from overcrowding. Sowell presents studies that confirm that it was the inflated cost of land that was driving high prices, not a shortage of housing. Furthermore, Sowell argues that minorities' lack of home ownership -- one of the prime motivations for affordable housing policies -- was a statistical illusion.
In response to these non-problems, the government implemented "affordable housing" policies that cost us dearly. Sowell fully subscribes to the argument that the Community Reinvestment Act, intended to extend mortgage lending to underserved minorities, encouraged banks to lend to high risk home buyers, many of whom later defaulted. Fannie Mae and Freddie Mac, fulfilling a federal mandate, purchased and repackaged billions and billions dollars' worth of subprime mortgages that later dragged the two giants under, and the rest of the financial industry with them.
Sowell does not blame the crash on Washington alone -- he mentions many of the mistakes made in the private sector, such as the widespread use of complicated home loans that lured borrowers into unmanageable debt, and the banks' belief that they could earn a profit buying and selling mortgage-back financial instruments that no one fully understood. But whereas the follies of people acting independently cannot be avoided, Sowell argues, there is no reason to countenance the destructive tendencies of busybodies in D.C., who now want to enact all kinds of activist policies to try to fix the economy they helped ruin.
The problem is not, according to Sowell, that elites don't learn from their mistakes. Instead, the reason politicians always engage in counterproductive crusades against imaginary problems is that they are working on larger project. Sowell quotes the famous journalist Walter Lippmann, who claimed that the goal of FDR's New Deal interventions was not recovery -- the New Dealers would "rather not have recovery if the revival of private initiative means a resumption of private control in the management of corporate business."
Sowell has the same attitude toward Washington's latest big ideas -- the bailouts, stimulus, cap-and-trade, and so on. Noting Rahm Emanuel's now infamous statement that "you never want a serious crisis to go to waste," Sowell argues "both this statement and the deeds of the new administration point toward their using the current crisis to forward their long-run agenda of a politically guided economy."
In other words, elite politicians accept the failure of activist policies because of a fundamentalist belief in increased control of experts and politically connected activists over the economy.
Sowell is famous for his quote, "there are no solutions, only trade-offs." He doesn't expect the government to find legitimate regulatory solutions for real problems anytime soon. Economic recovery, then, depends on the government scaling back its involvement. Sowell wishfully recommends that policymakers get a taste of their own medicine -- he suggests expanding the use of Section 8 housing vouchers to elite enclaves like Hollywood and Cape Cod.
During the Obama administration, Sowell's writing has become more apocalyptic. He created a stir when he wrote recently that "perhaps people who are busy gushing over the Obama cult today might do well to stop and think about what it would mean for their granddaughters to live under sharia law."
The Housing Boom and Bust is no less critical of the efforts of Obama & Co. Perhaps it is just Sowell's growing age, though. When you have lived through failed elite-led government crusade after failed elite-led government crusade, perhaps you start to wonder why they never learn.
Comments
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Robert Rosencrans| 7.21.09 @ 9:13AM
Thomas Sowell. A national treasure who is often ignored.
Brooksanne| 7.21.09 @ 9:30AM
Good review! Sowell is smart -- and has the big picture -- and you made me want to read his latest book, although I mostly have the feeling that our side is hopelessly lost.
Stan Redmond| 7.21.09 @ 10:05AM
I've always been amazed at certain aspects of the political class and how stupid voters are that elect people like Obama.
It is the ONLY career you can manufacture a problem, create real problems trying to fix the manufactured problem, and THEN get re-elected to fix a problem that never existed that you caused in the first place. In ANY private sector business you would have been fired in shame.
Old Texican| 7.21.09 @ 10:37AM
Mr. Lawler, thank you
I shall get the book.
I was fascinated by your paragraph quoted below:
>"During the Obama administration, Sowell's writing has become more apocalyptic. He created a stir when he wrote recently that "perhaps people who are busy gushing over the Obama cult today might do well to stop and think about what it would mean for their granddaughters to live under sharia law." <<br />
Hmmmmm! Apocalyptic indeed. Has it occurred to you that Mr. Sowell is simply not limited by "correcto speech" regarding a fellow man of color?
I personally look forward to anything Mr. Sowell has to say.
I am getting pretty apocalyptic myself these days.
Like me, Mr. Sowell has been around long enough, and is observant enough, to see a basic tipping point occurring in history under Obama and crew.
Yeah......the smarty pantses in DC and NY have always tried by various methods to rule over us.
In past days, it was through slick advertising, "we know it all" investing and high finance...and of course, political pandering to our lowest common denominator.
BUT
Under Obama's crew, it seems to be a toss up as to whether we are destroyed by the jihadists and the Chavez/Putin types first...
Or destroyed from within by a carefully orchestrated stripping away of our basic financial and even physical security in a country under laws.
I read snippets about "personal identity chips" perhaps to be embedded in our bodies...with perhaps a "locator beacon" included at no extra charge.
Why don't we just make it simple...EMBED THE DAMNED THING IN OUR FOREHEAD UNDER A TATTOO> 6 6 6
(uh...that is the "sign of the Beast" in the book of Revelations for you biblicly challenged readers.)
At least then some Americans might catch on to where this road goes.
Apocalyptic indeed.
Marc Jeric| 7.21.09 @ 11:54AM
Mr. Sowell is a genius - not only by his intelligence and education but also by his ability to distill complex problems to their easily understandable essence. How do our marxists and eco-nazis must hate him!
brutus6| 7.21.09 @ 12:00PM
I'd vote for a presidential candidate who would name Thomas Sowell as his/her chief economic advisor.
Oldefarte| 7.21.09 @ 12:46PM
Great and accurate thoughts! 'Affordable Housing' is what caused the current financial/housing/real estate/credit crisis; when governmental politicians began [30 years ago] threatening bankers over REDLINING. Everyone's most important [and most expensive] asset cannot be GIVEN AWAY to FINANCIAL INCOMPETITENTS, and that is exactly what Barney Frank, Chris Dodd,etc accompolished!!!!
Grzmlyk| 7.21.09 @ 3:02PM
I echo the sentiments here - Thomas Sowell is a national treasure. May he live to be 150.
And his credibility is all the more poignant because he used to be a liberal idealist.
He definitely deserves to be more famous than he is.
JerseyJ| 7.21.09 @ 3:32PM
Mr. Lawler quoting Mr. Sowell ... "Politicians in Washington set out to solve a national problem that did not exist"
I dare say this pretty much sums up liberal modus operandi. This can be extended far beyond the cause of the housing bubble. Healthcare, Cap & Tax, Consumer Product Safety Improvement Act, you name it. They were all power grabs. Invented crises for the purpose of expanding government.
The recipe is simple ... dream up some "issue", work the media into a fine froth screaming for action of any kind. Present a solution that wrestles liberty from the masses and expands government power in the form of increased regulation and taxation with absolutely no chance of solving any issue, much less the invented one. Rinse, repeat.
Mr. Lawler ... "When you have lived through failed elite-led government crusade after failed elite-led government crusade, perhaps you start to wonder why they never learn. "
A fine article but I must take issue with this final statement. None of these crusades failed ... After all, you must know the true intention ... the actual goal of the crusade ... in order to determine failure or success. All of these crusades succeded in ripping liberty and freedom and tax dollars from We the People. I think most of us will agree, that was the true intent all along.
DB| 7.21.09 @ 4:00PM
Right on. Sowell is brilliant. I read every column he writes and am beginning to read his books now, too (I just discovered him recently). He is wise and an excellent example to my generation ("GenX"), many of whom are finally seeing the power grab in DC for what it really is. Honeymoon's over! Let's oust these jerks in the mid-terms and take back the White House in 2012!
Kent A Rebman| 7.21.09 @ 9:26PM
My Chinese is a little rusty ... is that a recipe for potato salad or potato vodka? :-)
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