Thursday, December 30, 2010

All the devils are in Washington

Here's an excellent editorial at condemning the steady stream of books that seek to distract attention from the real cause of the financial crisis: government.

By providing a blow-by-blow summary of the government's role in the financial meltdown, the authors of the editorial provide a more substantial example of actual journalism than all too many news stories about the situation.
EXCERPT: The historical record is clear that Washington laid the groundwork for the financial crisis by trying to expand U.S. homeownership through private lenders and government-sponsored Fannie and Freddie.

The government was the buyer of two-thirds of the subprime and other bad loans that triggered the financial collapse.

Through Fannie and Freddie, the Federal Housing Administration, CRA (Community Reinvestment Act) and other programs, the government subsidized and in some cases mandated the extension of credit to high-risk borrowers.

This in turn propagated risks for financial firms, the mortgage market, taxpayers and ultimately the entire financial system.

Through banking regulations — enforced by HUD and several other federal agencies — the government directed investments into "affordable" mortgages and pressured the financial community to lower credit standards. Why?

Because Washington wanted more people to buy homes.
Unfortunately this editorial does not answer the question of why Washington wanted more people to buy homes. What is the missing piece of the puzzle? Altruism. So long as people are motivated to be their brothers' keeper they will continue to elect a government that reflects that.

Wednesday, December 15, 2010

Cities and towns should not be in the development business

Doug Enevoldsen, city manager of Bixby, Oklahoma, has an editorial in today's The Oklahoman about plans to address the scope and financing of municipal governments in the next session of the Legislature.
Cities and towns are the backbone of Oklahoma's economy, and the state's health is critically dependent on their well-being. Virtually all commerce, education, health care and government happen inside a city or town. Those institutions cannot fully achieve their respective missions if their host cities aren't healthy, functioning entities. We are all in this together.
Who really creates the economy? It's certainly not the government, though Enevoldsen pretends not to know that. Economies are created by the those who create the actual values traded in that economy: the business owners. If Oklahoma's economy is to thrive, Oklahoma's governments at all levels need to get out of their way.
Because they are so reliant on sales taxes to pay their daily bills, most cities and towns focus the bulk of their efforts on attracting retail sales instead of industries that feature higher-paying jobs, or adding rooftops.
This is why governmenmt at the municipal or any other level should NOT be in the economic development business. If Oklahoma doeas not have a more diverse economy, surely the acceptance of the truism that government should be involved in economic development has to be one of the reasons. Governments will go after businesses that bring in more taxes, so the more short-sighted the government, the more that government will pursue retail businesses if the bulk of its revenue comes from sales tax. Of course a more rational government could decide to pursue businesses which bring in employees and suppliers which end up generating more retail activity & thus more sales taxes.

Or a government could get out of the way and allow individuals to choose for themselves what kind of businesses they will start and invest in. Such a government might even be smaller and require less revenue to operate.

A government that did not have to maintain an economic development bureaucracy would certainly be at least that much smaller.