The Housing Boom and Bust by Thomas Sowell ISBN 978-0-465-01880-2
Economist and columnist Thomas Sowell contends that the housing boom and bust were the result of government intervention in the economy. He examines both the politics and economics of the housing bust. "When it comes to the home mortgage boom and bust, who was to blame? the borrowers? The lenders? The government? The financial markets? The answer is yes? All were responsible and many were irresponsible. Economics cannot explain such things. For that, we must turn to the politics of housing."
Sowell asserts that Federal interference addressed a problem that did not exist, namely, that there was a nationwide shortage of "affordable housing." In some local markets, there were very high prices.
Sowell ascribes the housing boom and bust to the
1) Subsidization of home ownership by Fannie Mae and similar institutions
2) The promotion of home ownership to poorer Americans
3) Regulation of financial institutions forcing them to grant mortgages to buyers who were poor credit risks
4) Demands for lower interest rates and mortgage loans to poor credit risks by regulators, Congress and the White House
5) Land use restrictions (such as "open space" programs) which drove up prices in particular markets.
Sowell quotes a 2002 column from Newsweek magazine’s economic columnist Robert J. Samuelson "To anyone with a sense of history, the home boom must be a source of wonder. Housing usually leads the economy into recession. Mortgage rates rise, then housing construction and home sales fall."
The bailouts, the stimulus plans and the like come under criticism from Sowell. An interesting observation is that
"Despite the rhetoric of urgency and the great hast with which this legislation was rushed through Congress to spend unprecedented sums of money, the actual programs and policies created arve very slow-acting. In February 2009, the Congressional Budget Office estimated that it would be September 2010 before even three-quarters of the money would be spent." Just in time for the Congressional mid-term elections. Purely a coincidence of course.
Sowell takes a look at the Great Depression and New Deal, noting that FDR’s New Deal was a continuation of Hoover’s unprecedented interventionism. He contends that the Hoover and Roosevelt prolonged the Great Depression.
Impressive though this book is, there are some gaps. While interest rates are discussed at great length, the Federal Reserve’s discount rate policy and other monetary interventions receive short shrift. The Austrian school’s theory of the business cycle receive no discussion. See the works of Ludwig von Mises, Friedrich von Hayek, and Murray Rothbard. Congressman Ron Paul’s proposals to Audit the Fed and End the Fed are not mentioned at all.
Thomas Sowell has written another fine contribution to our knowledge of the reign of error in American political economy that will illuminate a path to a better future.
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About the author: Richard Cooper is an international trade executive with a manufacturing firm on Long Island, New York, USA. He is active in the Libertarian Party www.lp.org on eminent domain and other issues. He was chair of the Libertarian Party of New York www.ny.lp.org. He was a delegate candidate for Ron Paul in the 2008 New York Republican presidential primary.
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