Much nonsense has been written about the great financial debacle of 2008, much of it deliberately crafted to confuse and mislead people into believing that it was caused by free-market capitalism. The truth is that this is the latest manifestation of our national curse — the curse of visionary politicians.
That curse stems from our proclivity for electing politicians who have grand ideas for improving the nation (or even the world) by trying to make things more equal, more righteous, more fair, more something. The trouble is that their plans always backfire, doing damage to taxpayers and other innocent bystanders.
In this case, the grand vision was that homeownership is good and that government should promote it. Bill Clinton initiated it, and George Bush was glad to take credit for the increasing percentage of Americans who own their homes. During Clinton’s first term, Congress beefed up the Community Reinvestment Act to put strong pressure on banks to lend in “underserved areas.” The government-sponsored enterprises Fannie Mae and Freddie Mac gobbled up vast numbers of these new loans, bundling them for resale and earning astounding windfalls for their executives. And the Federal Reserve did its part by keeping interest rates artificially low for years, driving a housing market boom that made people giddy.
Naturally, homeownership increased. Both Clinton and Bush treated that as a wonderful accomplishment. Americans cheered their political vision.
But you can’t blow up a bubble forever. The housing bubble was bound to collapse. Now that it has, the price tag for this vision is evident. Losses are staggering, and most politicians are looking for ways to spread them to the public. None of it could have happened without political meddling intended to “improve” the nation, but there are almost no mea culpas from politicians. On the contrary, the guilty parties are resorting to the Big Lie technique. They’re desperate to keep alive the myth that government only does good things that serve “the public interest.”
Surveying our history, this episode has the same roots as many other crises. Visionary politicians have given us needless wars, moralistic crusades such as Prohibition, and a host of programs meant to end poverty, inequality, and all kinds of social injustice. Examine any of them closely, and you see that they’ve been costly failures.
There is nothing wrong with having visions of a better world, but when they are pursued through government power, they always go astray. That is true for two main reasons.
First, politicians don’t bear the costs of mistakes directly because they’re always using other people’s money. When individuals want to accomplish something, they pay close attention to the costs and benefits; they quickly change what they’re doing if costs start to exceed benefits. Politicians rarely see, much less correct, their mistakes.
Second, special-interest groups almost always find ways to turn government projects into gains for themselves. Money and power attract the unscrupulous like dog doo-doo attracts flies. They skim off as much as they can and use their influence to keep the good times rolling.
Under the Constitution, the government was not supposed to have powers that visionaries could employ for their ideas. Unfortunately, those limitations were long ago shredded by Supreme Court justices sympathetic to the idea that the country needed a much more powerful government. Also, many voters are easily taken in by grandiose political rhetoric. Candidates know that speeches filled with sweeping plans will excite more voters than ones unadorned with lofty goals and promises.
Perhaps the current financial crisis is what educators call a “teachable moment.” The conditions for imparting a lesson are ideal. There are a number of small lessons here (get rid of government-sponsored enterprises and repeal meddlesome laws like the Community Reinvestment Act), but the big lesson is this: don’t elect any more visionary politicians.
George Leef is director of research for the John W. Pope Center for Higher Education Policy.