Dead economist predicts housing crisis 62 years in advance
I was recently reading an excellent account of the government-created incentives that helped cause the catastrophic housing boom and bust.
Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in they long run they do not increase overall national production but encourage malinvestment.
If this paragraph had been written yesterday, I would admire it as a remarkably precise explanation of recent events. But the truth is much more impressive: it is from a book first published in 1946, Henry Hazlitt’s Economics in One Lesson.
It is typical among today’s commentators to treat the theorists of laissez-faire capitalism–such as Hazlitt, Von Mises, and Ayn Rand–as somehow refuted by today’s disasters, which are billed as a “failure of the free market.” This would be laughable if the issues weren’t so serious. There has not been a remotely free market in housing and finance, especially over the last decade. And laissez-faire theorists, as Hazlitt illustrates above, have painstakingly explained exactly how government intervention in the economy leads to injustice and disaster.
Read Ludwig Von Mises’s Theory of Money and Credit, published nearly a century ago, and understand the essential mechanics of government-created asset bubbles like the recent housing bubble or the dot-com bubble.
Read Ayn Rand’s Atlas Shrugged (1957) and Capitalism: the Unknown Ideal (1966), and understand how our current system is not a free market but a “mixed economy“: “a mixture of freedom and controls–with no principles, rules, or theories to define either…no one’s interests are safe, everyone’s interests are on a public auction block, and anything goes for anyone who can get away with it.”
Laissez-faire capitalism remains, as Ayn Rand once called it, “the unknown ideal.” “The flood of misinformation, misrepresentation, distortion, and out-right falsehood about capitalism,” she wrote, “is such that the young people of today have no idea (and virtually no way of discovering any idea) of its actual nature.” If we are to escape this financial crisis with as little damage as possible, we must learn capitalism’s actual nature by studying the great laissez-faire theorists. There is no better place to start than Rand’s essay “What is Capitalism?”