am 8. Januar 2010
Sowell has written another delightful book, small, succinct, to the point and an easy read.
He starts with a persuasive explanation of high and rising housing prices resulting from restricting land use and open space laws so that lot prices rose tremendously but not so much actual home prices. In other words zoning laws, politically caused, were the culprits. Fair enough, one must say, but Sowell does not touch upon real estate taxes which are in many states somewhere between 8 to 30 times higher (not percent but times, you read correctly) than in some major EU economies and this, too, deforms homes prices.
Bush and Congress passed in '02 the "American Dream Downpayment Act" to subsidize down payments for low income home buyers. Thereafter, Bush wanted the FHA to make zero down payments and low interest rate mortgages available. Among other factors, this fueled the housing boom.
Sowell praises the AEI for warning of the housing bubble and says that Greenspan also issued a warning in '05. This is misleading since both, from '01 to '05, supported low interest rates and seemingly vigorously approved of the emerging subprime market. In fact, Greenspan kept interest rates irresponsibly low ( damaging the savers tremendously in the process) while supporting his friend Roland Arnall's expanding profiteering from his subprime mortgage corp. Ameriquest. He bragged endlessly about the new ways of risk transfer and risk dispersion while the mess was being brewed.
Meanwhile, Barney Frank and Dodd et al. pushed for massive expansion of Fanny Mae and Freddie Mac, fueling the subprime bubble enormously, while Leach (who is not listed in the index) pushed for more regulations. Again, fair enough.
While Sowell focuses primarily on politically derived policies causing the housing bubble and bust, he avoids nearly completely corruption and market imperfections as causes, though he is right in pointing out that markets already were correcting the bubble before the politicians applied their "cures," which, as was the case with the New Deal, actually may cause more harm.
Near the end, Sowell briefly deals with the Great Depression, somewhat sophomorically and with explanations that are well known. When he, on page 139, states that World War II ended the New Deal and this ended the Great Depression, he intends to say that gov't no longer interfering with the economy cured the Great Depression in a manner like all depressions have historically cured themselves. This clashes with the overwhelming historical reality that the Second World War was all in all a massive government program that totally controlled the economy. Hence Sowell's quandary that retreat from government interference cured the depression while in reality war is the most intense government program. In other words, Sowell left us with the unanswered question how then did the depression get "cured," and the answer resides in the fact that it wasn't cured by the war. He has an inkling of this when he says that drafting 12 million men and taking them out of the workforce reduced the unemployment rate. But to have a job is a necessary but insufficient way of solving depressions. One has to produce consumer goods, too, and they were not produced during the war time. Moreover, borrowing from the future and dumping the war cost onto future generations does not solve a depression. It merely disperses the cost way into the present since we are still paying for WWII. Ultimately, to make a long story short, the people cured the depression and not WWII as most still believe and as Sowell seems to believe, too.
Nevertheless, Sowell's book teases and often, though at times too repetitively, debunks wrong notions, false use of statistics and demythologizes plenty of economic myths. In this he is good and seems to take delight in it. He is practicing his talents. Unfortunately, like ALL economists, he neglects to grasp the fact that socialism/collectivism can also and is also massively practiced in fact in the form of coercive cost shifting and in other ways in THE PRIVATE SECTOR of the U.S. economy far, far more than in the private sector of some of the presumed socialistic EU economies.
Finally, what is strange are the endnotes which, for example, for chapter 2 with its 24 pages has 7 pages of endnotes in small print without any paragraphs and no numbers! That's taxing for anyone who wants to sort them out.