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.
