Monday, May 11, 2009

Do not feed the mouth that bites you

From Thomas Sowell's new book, The Housing Boom and Bust. The lesson, government got us into our current economic mess, and we must not allow government to bully us into thinking they can get us out of this mess.
locally extreme housing prices have been a result of local political crusades in the name of locally attractive slogans about the environment, open space, “smart growth,” or whatever other phrases had political resonance at the particular time and place. . .

Few things blind human beings to the actual consequences of what they are doing like a heady feeling of self-righteousness during a crusade to smite the wicked and rescue the downtrodden. . .
As far as blaming U.S. capitalism for our social woes, and looking to government to save us from ourselves, Sowell goes on to reminds us,
It has been almost axiomatic, for at least a century, that the American economy produces more output than any other economy in the world. All this is so much taken for granted that no one considers it worth commenting on the fact that 300 million Americans today produce more output than more than a billion people in India or an even larger population in China — indeed, more than these two countries which, put together, have more than eight times the population of the United States. We also produce more than Japan, Germany, Britain, and France combined.


  1. Economic booms, the recent one included, are the result of artificially low interest rates. As interest rates decrease, consumers increase their spending and (conversely) decrease their savings. This spurs investments in capital goods (houses, etc.) to support the increased spending. This causes an imbalance between saving and investing, which sets up (due to the time structure of the economy) an unsustainable growth phase, which must end in bust. See Ludwig von Mises on the Austrian Theory of the Trade Cycle (

  2. You are correct sir. Although interest rates are set by supply and demand. Unless, of course, you have a monetary policy that believes it is the role of the FED to micro-manage the economy to eliminate and booms and busts. Sadly, this type of Greenspan thinking created the booms and busts. Economic cycles are a part of life, huge swings are the result of poor policy.

  3. How can you talk politics on the day of the "House" finalie; which by the way was awesome to quite possible the tenth degree.

  4. Who was talking politics? This is economics. ;-) Interest rates SHOULD be set by supply and demand. The only way this happens is with market-selected commodity money (eg gold). In this case saving = investing since the only money there is to invest has already been saved. The boom and bust is created by the FED who invent interest rates out of thin air. Somehow I left that out my original post!