Jun 30 2007
Notes on Economics and Liberty
The Index of Economic Freedoms for 2010 shows that America dropped another 2.7 points to put the country in 8th position among the countries of the world. We’re heading in the wrong direction, toward more and more governmental intrusions and control over the economy. Basically, economic freedom is “the fundamental right of every human to control his or her own labor and property.” Is our President, congress, and our thousands of bureaucrats respecting our freedoms? Your answer must be no.
“If all we want are jobs, we can create any number — for example, have people dig holes and then fill them up again, or perform other useless tasks. Work is sometimes its own reward. Mostly, however, it is the price we pay to get the things we want. Our real objective is not just jobs but productive jobs — jobs that will mean more goods and services to consume.” — Milton Friedman
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What I would like to see is someone with the guts to tell those students: Do you want to be of some use and service to your fellow human beings? Then let your fellow human beings tell you what they want — not with words, but by putting their money where their mouth is. Thomas Sowell 6/01/2010
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“And to preserve their independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude.” — Thomas Jefferson
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“They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.” — Benjamin Franklin, Historical Review of Pennsylvania (1759)
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The broken window concept easily illustrates the wide ranging ramifications of free-market economics. A Bakers window is broken by a hoodlum, and the cost to replace that window is $50. The baker must now choose to pay out the $50 bucks to the glazier, who then has an additional $50 bucks to spend,and he spreads that $50 bucks among several shops, whose pocketbooks just increased by those amounts and on it goes everyone benefiting from that one broken window. Except for the baker, who is now minus $50 bucks. The baker had plans to buy a new suit for that $50 which will now go unfulfilled, and the tailor will go without an additional $50. Some people would have stopped at the good news of the $50 bucks being spread to the glazier and to those the glazier spent his new monies, and thus calling for more people to break more windows for the good of the economy. But that then, is managing the economy in favor of the glaziers. Government does this all the time. The tailors go without while the glaziers get theirs. Governments do this continually with their tax codes choosing who the glaziers are and who are the tailors by taking it away from the baker.
Paraphrased from Henry Hazlit.
Read the classic: Economics in one lesson. by Henry Hazlit in 1946.
http://fee.org/wp-content/files/EconomicsInOneLesson.pdf
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Thomas Sowell dated 08/08/07 writes:
Amid all the hand-wringing and finger-pointing as housing markets collapse, mortgage foreclosures skyrocket, and financial markets panic, there is very little attention being paid to the fundamental economic and political decisions that led to this mess.
The growth in risky “sub-prime” mortgage loans by people buying homes they could not really afford has been a key factor in the collapse of housing markets, when the risks caught up with both borrowers and lenders.
But why were home buyers suddenly taking out so many risky loans and lenders suddenly arranging so much “creative” financing for these borrowers?
One clue is the concentration of such risky behavior in particular places and times.
Interest-only mortgages, where nothing is being paid on the principal for the first few years, enable many people to get started on buying a home with lower mortgage payments at the outset.
But of course it is only a matter of time before the mortgage payments go up and, unless their income has gone up enough in the meantime for them to be able to afford the new and higher payments, such borrowers can end up losing their homes.
Such risky mortgage loans were rare just a few years ago. As of 2002, fewer than 10 percent of the new mortgages in the United States were of this type. But, by 2006, 31 percent of all new mortgages were of this “creative” or risky type.
In the San Francisco Bay Area, 66 percent of the new mortgages were of this type.
Why this difference in times and places? Because housing prices were skyrocketing in some places and times, so that people of modest incomes had to go out on a limb to buy a house, if they expected to buy a house at all.
But why were housing prices going up so fast, in the first place? A number of studies of communities across the United States and in countries overseas turned up the same conclusion: Government restrictions on building.
While many other factors can be involved — rising incomes, population growth, construction costs — a scrutiny of the times and places where housing prices doubled, tripled, or quadrupled within a decade shows that restrictions on building have been the key.
Attractive and heady phrases like “open space,” “smart growth” and the like have accompanied land use restrictions that made the cost of land rise in many places to the point where it greatly exceeded the cost of the homes built on the land.
In places that resisted this political rhetoric, home prices remained reasonable, despite rising incomes and population growth.
Construction costs were seldom a major factor, for there was relatively little construction in places with severe building restrictions and skyrocketing home prices.
In short, government has been the principal factor preventing the “affordable housing” that politicians talk about so much.
Politicians have also been a key factor behind pushing lenders to lend to borrowers with lower prospects of being able to repay their loans.
The Community Reinvestment Act lets politicians pressure lenders to lend to people they might not lend to otherwise — and the same politicians are quick to cry “exploitation” when the interest charged to high-risk borrowers reflects that risk.
The huge losses of sub-prime lenders, some of whom have gone bankrupt, demonstrate again the consequences of letting politicians try to micro-manage the economy.
Yet with all the finger-pointing in the media and in government, seldom is a finger pointed at the politicians at local, state and national levels who have played a key role in setting up the conditions that led to financial disasters for individual home buyers and for those who lent to them.
While financial markets are painfully adjusting and both lenders and borrowers are becoming less likely to take on so much risky “creative” financing in the future, politicians show no sign of changing.
Why should they, when they have largely escaped blame for the disasters that their policies fostered?
Thomas Sowell is a senior fellow at the Hoover Institute and author of Basic Economics: A Citizen’s Guide to the Economy.
