Unadulterated nonsense

“The stark contrast between greed-promoting markets and benevolence-motivated politics sets up a false dichotomy of reliance on either market or state as the arena of solution to social problems. The inadequacy of a binary framework that situates the human person between market and state is what motivates Catholic social teaching to emphasize the necessity of ‘a system with three subjects: the market, the State, and civil society’.” – Journal of Markets & Morality Volume 15, Number 2 (Fall 2012)

The now infamous global economic crisis was seen in some corners as the undoing of one of the dirtiest “C” words in their mind: capitalism.

Blame was quickly apportioned to “greedy” CEOs, bankers and businesspeople who were all chasing “obscene” profits. This is unadulterated nonsense.

The fact of the matter is, a big part of the financial crisis was brought to a boil when the US government “solution” to what it saw as scarcity in housing turned out not to be a solution at all. It is amazing how some facts can be re-defined as “problems” that must be “solved” in the minds of some politicians. One of these facts is scarcity.

It is the first lesson in economics. Unfortunately, the first lesson in politics is to ignore the first lesson in economics. Their “solution” to scarcity in the housing market was for the US Federal Reserve to keep interest rates artificially low so that housing could be made affordable through Freddie Mac and Fannie Mae which backed about half of all mortgages.

We all know how that turned out. The free market was not the problem, government meddling in the free market was.

In the immediate aftermath of the crisis, some people sneered as to why financial professionals and economists didn’t see this coming.

“Prophesy! Who hit you?” they jeered. Well, they did prophesy; but no one listened.

The Wall Street Journal was warning people for years and in 2002 told us: “The time for the political system to focus on Fannie and Fred isn’t when we have a housing crisis; by then it will be too late.”

President Bush’s Secretary of the Treasury warned us in 2003 and Alan Greenspan warned us a year later. If an economic alarm is sounded, and institutions are too busy being pressured by government to lend to unqualified borrowers; does it make a sound? Apparently not.

Whatever “ism” we decide on to allocate our scarce resources that have alternative uses, we will always have problems because every system depends on fallen, fallible human beings. Ignore this anthropological fact at your own peril.

Exploitation, greed, corruption or any of the other vices are not exclusive to or more prevalent in capitalism.

“If we wish to be compassionate with our fellow man,” writes Walter E. Williams, “we must learn to engage in dispassionate analysis. In other words, thinking with our hearts, rather than our brains, is a sure-fire method to hurt those whom we wish to help.”

The road to hell is paved with good intentions and we are in economic hell partly because of the “good intentions” to make housing “affordable”. This is why we should judge policies based on their actual outcomes and not on the warm fuzzy intentions of policy makers. The actual outcome here was thousands of people actually losing their homes and economic chaos.

Curse capitalism if you must but also recognise that the state is not saviour. As the editorial writer I quoted in the opening noted, “to move beyond the false paradigm of the individual greedy businessperson and the collective benevolent society, we need not merely economic education but also schooling in the humanities and particular in theology”.

You cannot get economics right, or anything else for that matter, if you get your anthropology wrong.

— Adrian Sobers

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