Reclaiming the franchise – part deux

If you are so minded, it isn’t hard to determine who should have their vote suspended until they join the world of wealth creation: those who take wealth contributed by others and give nothing in return (except their purchased vote). There are discrete borders.

The public sector is much harder. It is more diverse, for one thing. No one would argue that the emergency services or the military are not well entitled to their vote. We couldn’t do without them. I would also argue that the diplomatic service, by and large, not only performs an essential function it is the first port of call if a citizen gets into difficulties overseas but assists in the creation of wealth, in that part of its remit is to facilitate trade. Indeed, the foreign service is essential to any country’s wellbeing.

Most of the government agencies in Britain do perform a reasonable function, although, being socialists, not particularly well. (I don’t knows enough about the current workings within the US Government, but doubtless other Chicago Boyz do …)

But a whole new, utterly useless industry has crept in. Soft, amorphous, nebulous … the human rights, global warming, multiculti and associated industries. They perform no purpose. There is no hunger among the taxpayers for their existence. Yet they are paid out of the taxpayers’ pockets. The diversity industry is one such. It generates no wealth and performs no service other than placing the yoke of social engineering round the neck of the taxpayer. The human rights industry is another one. The social engineering industry is another. Far from being of service to the taxpayer, I would contend that they are destructive, and if they can’t be shut down, the people attending meetings and doing research and writing reports to no purpose should at least be removed from the electoral rolls because they are, essentially, not engaged in wealth creation or the facilitating of wealth creation, or the governance of wealth creation. In other words, they’re passengers.

In Britain, we also have the fascist Health & Safety departments in local governments which essentially seek to ban everything free people could normally engage in. For example, they want to outlaw swings in parks in case a child falls off. They want to ban parents from taking pictures of their children in public, in case they’re not really the parents, but paedophiles. Other examples are legion. But everything is always for a prim-lipped “moral” – therefore, inarguable – reason.

Also in Britain, and doubtless there will be a similar scam, differently named and presented actually, being American, probably better named and presented there is something called a quango. The initials stand for something, but who cares. These are “semi-government” think tanks and various advocacy groups. There are over 1100 quangoes in Britain now, like the liberty advocacy agency Liberty. What purpose it serves other than to provide employment for writers of press releases and spokesmen to go on TV talk shows, who knows? They enjoy favoured tax status, meaning, they are part of the government infrastructure.

Advertised jobs for local town and city councils now bristle with words like “Street football coordinator” (I have no idea) and “Real nappy (US: diaper) coordinator” (ditto) ; “Urdu translators”, “Bengali interpreters”, “Human rights managers” and so on. All of whose salaries, perks and pensions will be provided by the generosity of the taxpayer.

This, clearly, is wrong.

For one thing, the right wing taxpayer is being asked to fund a massive leftist Trojan horse. They contribute no wealth, nor the facilitation of creating wealth, and nor do they perform any essential public service. That they should have a vote on their own perpetuation dwells in the realm of lunacy.

Bailing Out Speculators

Obama plans to bail out people who took out mortgages they cannot repay [h/t Instapundit]. This sucks. Why? Why would I be so heartless as to oppose helping people whose home ownership stands at risk due to the banking crisis?

Simple, an  individual’s  ability to pay their mortgage has nothing to do with the solvency of the lender who issued the mortgage. Money flows from the borrower to the lender. The fact that the lender made too many dubious loans does not in any way affect any particular individual’s ability to pay their own mortgage. Only the individual’s income and budgeting controls whether they can pay.  

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Testing Economic Hypotheses

Source

Watching people blame the free market for the housing crisis is like watching the jocks that trip nerds in the hallway mock the nerds for their clumsiness. The commercial real-estate markets demonstrate what a nerd can do if left unmolested.  

Leftists have to answer a   question: if greedy, irresponsible, unregulated etc. capitalism caused the housing bubble, why didn’t we see a similar bubble in commercial real-estate markets which operate under even less regulation than the residential markets? Why does the politically neglected and unregulated commercial real-estate market exhibit much milder swings?  

 

I dislike economics as a science due to its lack of  empiricism. You usually can’t test any of the ideas in economics beyond looking at the historical record and squinting until your pet hypothesis snaps into clear focus. Then you argue with other people who don’t squint the same way you do.  I am a libertarian/classical-liberal due to my understanding of the limits of economic knowledge. I know that people who claim to  possess  predictive economic models delude themselves and that any attempt to forcibly alter people’s economic behavior based on such delusional models will end badly.  

Every once in a while, though, we get lucky. The differences between residential and commercial real estate provide the means to test the hypothesis that government intervention or the lack thereof caused the housing bubble and subsequent collapse of the financial system. We can compare the two markets because the same institutions ultimately make residential and commercial loans. They make loans in the same communities and regions. Changes in the economy affect both types of real estate at the same time and to the same rough degree. The only major difference between the two markets lies in the degree of government intervention.  

Some might argue that the differences in financial sophistication between residential and commercial borrowers explains the difference. They argue that predatory lenders exploit naive borrowers in the residential market whereas they can not do the same for more-sophisticated commercial borrowers. We can dismiss this idea because in the free market financially sophisticated people assume the risk of lending for both residential and commercial mortgages.  

Lenders make money on loans in two ways: (1) they either hold the mortgage itself for 20, 30, 40 years and take their profit long-term off the interest, or (2) they sell the mortgage in the secondary market. In both cases, financially sophisticated individuals judge whether the borrower can repay the loan. If the initial lender exploits unsophisticated borrowers, he suffers long-term if he holds the loan himself. If he tries to sell the mortgage the sophisticated secondary buyer will refuse to purchase it. In either case, no one in the system has an incentive to make predatory loans because anyone who does will directly bear the consequences of doing so.  

Clearly, the problem lies in the way government actions sever the relationship between issuing risky residential mortgages and suffering the consequences of doing so. This not only allows predatory lending but also makes it difficult for lenders of good faith to judge when they make too many risky loans.  

More than any other policy, the creation of Freddie Mac and Fanny May distorted the residential mortgage market in a way that the commercial market escaped. The FMs exist solely to induce lenders to make residential loans that the free market judged too risky. The FMs buy up residential mortgages from primary lenders and bundle them together in securities. They do so precisely in order to short-circuit the free-market feedback system that communicates to banks when the financial system as a whole has lent out as much money as it safely can. That feedback system worked like a governor on an engine. It kept the system from running away and lending more money than it could recoup, but also prevented people with poorer credit from getting loans.  

Politicians who wanted the engine to run faster created the FMs to bypass the governor in order to get higher performance in the short run. Since the FMs would buy up almost any mortgage, lenders could make riskier and riskier loans without suffering any negative consequence. The FMs replaced the self-interested secondary-market buyers with people playing with government money and a mandate to induce more and more lending. Special dodgy accounting rules allowed the FMs to hide the risk behind the securitized mortgages they sold.  

Tellingly, no such intervention occurred in commercial markets. The FMs’ charters expressly prevented them from buying commercial mortgages. As a result, the commercial mortgage market functioned with a free-market governor. When lenders made too many risky loans, free-market secondary buyers stopped buying their mortgages and the system cooled down. As a result, commercial markets saw no runaway boom and subsequent colossal bust.  

The differences in the two markets proves as much as any observation can that political interference in the residential mortgage market ultimately caused the financial collapse. Had we been content with levels of home ownership that the market supported, and had we not tried to get something for nothing by blinding the financial markets, we would not be facing a crisis of this degree now.  

Sadly, experience suggests that mere  empiricism  has no place in political economics.  

[update (2009-2-12-9:52am): Rent control provides another dramatic example of the effect that government intervention in the free-market has on the residential housing supply versus  commercial building supply. In places with rent control, residential housing is almost always in short supply while at the same time  commercial  space is  abundant.]  

My Thoughts on the Stimulus

Summarized very well by Milton Friedman.   Wish I had more to add, but I don’t.


Discovering Their Own Prejudice

So, a white, Catholic, leftist, college student dresses as a Muslim woman in small-town Alabama to examine predjuces against Muslims. [h/t Instapundit] Instead she finds:
 

“I expected people to say, ‘What is this terrorist doing here? We don’t want your kind here,’ ” said Woldt, a 22-year-old blue-eyed Catholic, recalling her anticipation before stepping into a local barbecue joint. “I thought I wouldn’t even be served.”
 
Instead, Woldt’s experiment in social anthropology opened her own eyes. Apart from the initial glances reserved for any outsider who might venture through a small-town restaurant’s doors, her experience was a pleasant one.

What Woldt discovered was not the prejudices of the small-town, southern, white American but instead the prejudices and  stereotypes  of  contemporary  leftist  academia. Woldt expected to find prejudice not because she had already seen it but because her education indoctrinated her to expect it in others. This little incident opens a window on the insular, elitist and bigoted world of leftists in  contemporary  academia.  

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