Random Thoughts
Posted on 10/12/2009 8:18:39 PM PDT by jazusamo
Back in the days of the Soviet Union, two Russian economists who had never lived in a country with a free market economy understood something about market economies that many others who have lived in such economies all their lives have never understood. Nikolai Shmelev and Vladimir Popov said: "Everything is interconnected in the world of prices, so that the smallest change in one element is passed along the chain to millions of others."
What does that mean? It means that a huge increase in the demand for ice cream can mean higher prices for catchers' mitts, among other things.
When more cows are needed to produce more milk to make ice cream, then fewer cows will be slaughtered and that means less cowhide available to make baseball gloves. Supply and demand mean that catchers' mitts are going to cost more.
While this may be easy enough to understand, its implications are completely lost on many people in politics and in the media. If everything is connected to everything else in a market economy, then it makes no sense to have laws and policies that declare some given goal to be a "good thing," without regard to the repercussions, which spread out in all directions, like waves that spread across a pond when you drop a rock in the water.
Our current economic meltdown results from the federal government, under both Democrats and Republicans, declaring home ownership to be a "good thing" and treating the percentage of families who own their own home as if it was some sort of magic number that had to be kept growing-- without regard to the repercussions on other things.
We are now living with those repercussions, which include the worst unemployment in decades. That is the price we are paying for increasing home ownership from 64 percent to 69 percent.
How did we get from home ownership to 15 million unemployed Americans? By ignoring the fact that there was a reason why only 64 percent of families owned their own home. More people would have liked to be home owners but did not qualify under mortgage lending standards that had been in place for decades.
Politicians to the rescue: Federal regulatory agencies leaned on banks to lend to people they were not lending to before-- or else. The "or else" included not having their business decisions approved by the regulators, which could cost them more money than making risky loans.
Mortgage lending standards were lowered, in order to raise the magic number of home ownership. But, with lower lending standards, there were-- surprise!-- more mortgage payment delinquencies, defaults and foreclosures.
This was a problem not only for banks and other lenders but also for those in the business of buying mortgages from the original lenders. These included semi-government enterprises like Fannie Mae and Freddie Mac, as well as Wall Street firms that bought mortgages, bundled them together and issued securities based on the anticipated income from those mortgages.
In other words, all these economic transactions were "interconnected," as the Russian economists would say. And when the people who owed money on their mortgages stopped paying, the whole house of cards began to fall.
Politicians may not know much-- or care much-- about economics, but they know politics and they care a lot about keeping their jobs. So a great distracting hue and cry has gone up that all this was due to the market not being regulated enough by the government. In reality, it was precisely the government regulators who forced the banks to lower their lending standards.
The other big lie is that this was a failure of economists and others to foresee that the housing boom would turn to bust and set off financial repercussions across the economy.
In reality, everybody and his brother saw it coming and said so-- including yours truly in the Wall Street Journal of May 26, 2005. As far away as London, The Economist magazine warned about the danger. So did many American publications and individuals. The problem was that politicians refused to listen. They were fixated on the magic number of home ownership and oblivious to the economic interconnections that Russian economists saw long ago and from far away.
Dr. Thomas Sowell telling the truth that Barney Frank and others in Washington involved in this scandal don’t want to hear!
Exactly, and Dr. Sowell has been saying this right along.
Though the RATS ignore him they know he’s right.
Another truth: ethanol subsidies in the U.S. lead to a worsening of worldwide starvation.
I couldn't agree more, had he been a liberal he'd have had one years ago. :)
Nicely said. This is a familiar idea, but seldom so well and concisely stated.
"In reality, everybody and his brother saw it coming and said so-- including yours truly in the Wall Street Journal of May 26, 2005. As far away as London, The Economist magazine warned about the danger. So did many American publications and individuals. The problem was that politicians refused to listen. They were fixated on the magic number of home ownership and votes they could gain, or lose, therefore they feigned being oblivious to the economic interconnections that Russian economists saw long ago and from far away."
At least that's the way I see it. He's right regardless.
That’s good, RQSR! :-)
Or.....
Perhaps Omoslem and the Democrats understand this perfectly, but are just using the Cloward-Piven strategy (overload the welfare state) wherever it can be applied, to sink the USA.
Handing out free houses to borrowers with no chance of repayment, and doing this for 3 decades, seems like a delightful way to start.
Way to go, Barney Fwank. Congratulations, Omoslem. And child-brothel cheers to ACORN.
The politicians were most likely making money under the table too.
Wow!
Is that ever a true depiction of those two turkeys.
“Nobel Economics prize”
Question: Why do we have to honor and laud the Nobel Prize? Why not make our own price and give it to people who really deserve it. Cater, Obama, Gore for “peace”? Come on.
The left always begins its utopian schemes with the assumption that economic production is a given and constant, and no matter what they do to redistribute the bounty, productivity will remain unchanged. There is no consideration for the preservation of incentive; the goose that lays the golden egg. When free people no longer choose to take the risk or invest the capital, the coveted bounty disappears and there is nothing left but an all powerful centralized government with no device at its disposal to motivate productivity other than force and fear. Then it’s 1984.
Don’t knock the other Nobel Prizes. They are picked by scholars in their field. It’s the Peace Prize which is chosen by politicians and has become politicized.
****The left always begins its utopian schemes****
The left does its best to package and sell Utopian dreams, but it is a classic bait and switch. They know that what they are doing will bring middle class America to its collective knees. That is what they want, to bring an end to American Manifest Destiny.
We are the leading nation in bringing about freedom to the rest of the world, “A shining light on a hill” as President Reagan called us. The middle class when unfettered by many layers of stifling governmental regulations and disincentives thrives with so much wealth as to give us power to overcome the enemies of freedom.
The left only sees control as victory. They have exchanged a glass ceiling for a class ceiling. As you allude to it becomes total control or total chaos. The one thing that binds so many leftist organizations is love of the creature rather than the creator. This is why they abandon human achievement and replace it with control of humans.
This love of creature is founded in fear of failure to preserve that which is, because that which is is familiar and comfortable. There is no allowing of any sacrifice in any way of the earth and her creatures, to the extent that the development of human endeavors automatically takes a back seat, whether or not they have potential to move us further along a path that preserves human longevity and greater numbers which gives us the greater potential to eventually colonize beyond our current potential and therefore ensuring the continued survival and growth of humans.
We must thrive to survive even if a few landmarks and species must be sacrificed. Why should a person who’s whole philosophy is based on the expectation of change object to stirring the pot a little.
Does BO hate honest Americans?
Read all about it.
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