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.