Tuesday, October 21, 2008

Newsweek - Libertarians to Blame for Crisis

Today when I received the new issue of Newsweek in the mail I was looking it over quickly like I always do when I first receive it. An article caught my eye called, "The Libertarians' Lament" by Jacob Weisberg. Basically to sum it up, Weisberg goes on and on about how libertarian ideology is to blame for the financial and economic crisis we are now going through.

My first reaction, as I think most people who understand the political landscape in Washington now and the past decade (or even further back), was puzzlement as to how libertarians could be to blame for the economic crisis when there are almost no libertarian-leaning elected officials in Washington. The policies that have been pursued can in no way be labeled libertarian. Dr. Paul would be the obvious exception to the norm. Dr. Paul has been predicting this collapse for years. He has not just plainly been saying that there will be a collapse, but often goes in detail in his speeches and writings as to why the collapse was inevitable. Anthony Gregory has a more
in-depth response than mine over at LewRockwell.com where he has a Ron Paul quote from five years ago:
If Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing. . . .

. . . Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market.
Weisberg believes that libertarians are 'scurrying' to explain the crisis and make it fit their ideology. This couldn't be further from the truth. The political climate in Washington has been far from libertarian and the policies pushed cannot be labeled libertarian no matter how you look at them. Libertarianism has not been given a chance, but we can be assured big government has had its fair share and we are now seeing the results.

In other news, the Ben Bernanke endorsed the idea of a new stimulus package. Go figure.

1 comment:

dane said...

David, I gotta hand it to you, not only do you have great insight on things, but you actually talk about the things that matter. Most people I know are for MORE government intervention because they don't want to lose anymore out of their stock portfolios and 401ks. They don't see the big picture. More intervention and artificial propping up of these institutions only ADDS to the problem and, in fact, prolongs it.

Free markets work, but they ONLY work when they ARE actually free markets. This whole banking problem was created by a false security created by our government. This eliminated the sense of risk that should and would have existed, which would have kept banks, investors and lendees from over-extending their necks.

The National Party Times