But enough about me.On his blog page Tedd Benson (founder of Bensonwood, Inc.) takes his own industry to task for their complicity in the current housing collapse.
According to Tedd, the National Association of Homebuilders (NAHB) ignored the public good and continued to lobby for loose or non-existant credit standards in order to keep the housing bubble inflated. But for how long? The current bust, which may have broader implications far beyond our wildest nightmares, was both inevitable and predictable.
Tedd ends his blog entry with the following statement:
"Economist Adam Smith didn’t contemplate conscious, rationalized idiocy on such a large scale; his “invisible hand” was no match for such a massive, wanton snow job."
I enjoy Tedd's blog and often agree with his observations and conclusions. However, in this case I respectfully disagree.
Actually, Adam Smith anticipated exactly what has happened in this particular boom/bust cycle. He made it very clear that considerable structure was needed before the invisible hand of the market could work efficiently.
For example, property rights must be strong, and there must be widespread adherence to moral norms, such as prohibitions against theft and misrepresentation.
In his time, property rights were only recognized among the aristocracy.
Adam Smith developed his theories in a centralized, heavily planned and dictatorial society where some individuals were above the law and others were effectively without any rights.
He saw the system of his time as corrupt and inefficient--a massive and wanton snowjob that enriched the few at the expense of the many.
He even anticipated the influence of special interests, writing that:
"People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public or some contrivance to raise prices."
The two greatest misrepresentations (uhh... outright lies) of the modern liberal/progressive movement are:
- Those who favor an Adam Smith approach to economics seek a law of the jungle society where the strong devour the weak without constraint, and…
- Adherence to Keynesian macroeconomic theory can eliminate the normal ups and downs of the business cycle.
Rather than leveling the cycles the present economic crisis is the result of the massive doses of Keynesianism our government has given us for decades. John Maynard Keynes did not trust the market economy therefore he called for central management of the economy by governments and central banks. According to Keynes, since spending and consumption drive an economy the more that is spent the better. Smith, on the other hand, recognized the distinction between productive and nonproductive consumption.
It seems axiomatic that productive consumption is an agent of economic growth while nonproductive consumption--paid for with money fabricated out of thin air--leads to economic impoverishment, but this fact is lost on today’s generation of economic experts, including Nobel laureates.
In my opinion the strongest reason for leaving the allocation of effort and reward to the invisible hand is that when it misappropriates goods it is usually on a small scale. Centralized methods of allocating goods are more prone to corruption and waste. More importantly, when centralized planning succeeds it succeeds modestly and when it fails, it fails on a massive scale.
Smith wrote about the spending of other people's money this way:
"It is the highest impertinence and presumption, therefore, in kings and ministers to pretend to watch over the economy of private people, and to restrain their expense...They are themselves always, and without exception, the greatest spendthrifts in the society."
In place of kings and ministers substitute presidents, committee chairs, university professors and columnists… most especially columnists who are also university professors.
I don't blame the NAHB. They were advocating for their constituents. Where were our elected officials? Where was the adversarial press? Yes, there were some in 2004/2005 who wrote of the 18-year housing cycle and warned that the next bust could be deeper and longer than any in recent memory, but you really had to dig deep to find them.
