The March of Folly

A long time Belmont Club commenter sends this link to a report by the Independent Institute called the Anatomy of a Train Wreck: Causes of a Mortgage Meltdown. He writes: "It is one of the best pieces that I've seen on the mortgage meltdown. It is especially interesting in that it uses foreclosure data to show that the problem was not a subprime mortgage problem, but a mortgage problem full stop, resulting from relaxed underwriting driven by political agendas."

This report concludes that, in an attempt to increase home ownership, particularly by minorities and the less affluent, virtually every branch of the government undertook an attack on underwriting standards starting in the early 1990s. Regulators, academic specialists, GSEs, and housing activists universally praised the decline in mortgage-underwriting standards as an “innovation” in mortgage lending. This weakening of underwriting standards succeeded in increasing home ownership and also the price of housing, helping to lead to a housing price bubble. The price bubble, along with relaxed lending standards, allowed speculators to purchase homes without putting their own money at risk.

Another long-time reader of the Belmont Club offers thoughts about the other side of the family coin: not the housing bubble, but the deflation of family size. His suggestion is that just as housing speculators relied upon an endlessly rising market to keep the bubble rising, Western publics are relying on a never ending growth in transfer payments to keep the retirement benefits coming.

Why the long decline in population growth in Europe and other advanced economies? The conventional wisdom is that as economies advance, the opportunities for all increase, including those of women, who no longer worry as much about child-rearing since they can make money for a long time first (My wife is an example: she is an MD, and now 32, and only now is the biological clock ticking. Time to make a baby. But she only wants two).

There's an alternate explanation for the decrease in population growth: the nanny state makes it unnecessary. If you are unsure of your ability to care for yourself in the future, through retirement savings or whatever, your incentive to have a larger family who can support you is much greater. Farmers used to have more kids so they'd have more manual labor.

But if the state promises to care for you no matter what, this incentive is gone.

In the old days, it was understood clearly what manhood was: start a family, provide for it, defend it if necessary, yourself. With all of those things now outsourced to the state, what is the point of life? Does this not lead to a certain kind of slow creeping nihilism? And if there's no point, why make a large family?

This is the ultimate legacy of the baby boomers in Europe and to a lesser extent in the US. They overturned all known traditions in the 1960s, then started the accelerated the central power of the state in the decades since. And now we see the results. Just a thought.

But will the music stop playing one day? And will we be suprised if (when) it does?