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Frederic Bastiat has been referenced before on this site. His understanding of political economy was unsurpassed. Here is an excerpt from his essay “Property and Plunder” that is almost a perfect description of the conditions in the US. I suppose any of us could have written such a description, but Bastiat wrote this in July 1848. Emphasis below, mine.
“Next comes taxation. It has become a much sought-after means of livelihood. We know that the number of government jobs has been increasing steadily, and that the number of applicants is increasing still more rapidly than the number of jobs. Now, does any one of these applicants ever ask himself whether he will render to the public services equivalent to those which he expects to receive? Is this scourge about to come to an end? How can we believe it, when we see that public opinion itself wants to have everything done by that fictitious being, the state, which signifies a collection of salaried bureaucrats? After having judged all men without exception as capable of governing the country, we declare them incapable of governing themselves. Very soon there will be two or three of these bureaucrats around every Frenchman, one to prevent him from working too much, another to give him an education, a third to furnish him credit, a fourth to interfere with his business transactions, etc., etc. Where will we be led by the illusion that impels us to believe that the state is a person who has an inexhaustible fortune independent of ours?”
“People are beginning to realize that the apparatus of government is costly. But what they do not know is that the burden falls inevitably on them. They have been led to believe that if their share has been heavy until now, the Republic has a means, while increasing the general burden, of shifting at least the larger part of it onto the shoulders of the rich. Fatal illusion! No doubt the tax collector may happen to solicit one person rather than another and may receive the actual cash from the hands of the rich. But once the tax has been paid, all is not over. It has a further action on society. There are reactions on the respective values of services, and it is impossible to prevent the burden from being borne ultimately by everyone, including the poor. Their true interest, then, is not that one class be hard hit, but that all classes be treated with respect, because of the community of interest that binds them all together.”
Milton Friedman was one of the strongest defenders of liberty and free-market capitalism. His insights, retrospectively, seem more important in light of what has happened and our current situation. This interview is was done in 1975, almost 35 years ago. Viewed today, it is especially relevant for its prescience and cautions. It presents an excellent case for limited government.
This post is older, but classical in its approach to the housing crisis. It sheds light on how the crisis started and grew, and why government intervention will hurt rather than help. It is a good, elementary exercise in understanding economics.
By Steven Horwitz • May 2008
In his March 18, 2008, column in the New York Times, David Brooks addresses the ongoing problems in the housing industry and concludes that “In normal times, the free market works well. But in a crisis like this one, few are willing to sit back and let the market find its own equilibrium.”
Instead, Brooks calls for a variety of government interventions to address the problems he sees, even as he recognizes that government contributed to those problems. Consistently throughout the column he fails to be as skeptical about regulators as he is about market participants, although the regulators are the cause of the problem and the key to his proposed solution. It simply “just ain’t so” that additional regulations are necessary to deal with these problems; in fact, they are likely to exacerbate them.
Brooks begins with a typical litany of potential problems arising from the fall in housing prices. Millions of people are expected to default on mortgages in the next few years, with millions of others owing more than their houses are worth. Furthermore, he worries that uncertainties about mortgage-backed securities will create ongoing problems for the banking system for the foreseeable future. And as for who’s to blame for the situation, Brooks points to “out of control” mortgage brokers, regulators who were “asleep,” and homebuyers who thought themselves entitled to huge houses as well as ever-rising property values.
Brooks then asks, rhetorically, “Shouldn’t people be held responsible for their stupidity and greed?” His answer, unfortunately, is “not really.”