This is Chandler Waits’ first post on The Austrian. Chandler is working on his undergraduate degree in Economics and Spanish from Auburn University.
Waking Up To Smell The Roses
This morning I had the good fortune of reading an op-ed by New York Times columnist Bob Herbert. The title reads “Safety Nets for the Rich.” The author, Bob Herbert, seemed intent on revealing his political prejudices from the beginning just in case we did not realize what newspaper he was working for. I decided to read the article to look for economic fallacies, and it did not take me long to realize Bob knows little to nothing about economics.
He starts his article with a critique of the bailouts of Wall Street and big banks, and he correctly recognizes that “Money given to the rich won’t trickle down to the poor.” Wow, this guy’s Austrian! Not so fast. He then goes on to imply that he predicted the economic collapse in December of 2007 that, of course, was caused by the greedy bastards on Wall Street.
“The gamblers and con artists of the financial sector, the very same clowns who did so much to bring the economy down in the first place, are howling self-righteously over the prospect of regulations aimed at curbing the worst aspects of their excessively risky behavior and preventing them from causing yet another economic meltdown.”
He continues later with the second big point of the article: “We cannot continue transferring the nation’s wealth to those at the apex of the economic pyramid — which is what we have been doing for the past three decades or so — while hoping that someday, maybe, the benefits of that transfer will trickle down in the form of steady employment and improved living standards for the many millions of families struggling to make it from day to day.”
Why It Wasn’t Wall Street
To be clear, Herbert understands that the principle of privatizing gains and socializing losses is not a desirable policy because it rewards bad business decisions and creates moral hazard. His rationale to support this claim is damaging, however, because to accept his claims would inevitably lead to more recessions and more bailouts.
Two points: First, it is economically ignorant to claim that Wall Street greed caused this crisis. Just like one should not criticize the bailouts without ignoring Washington’s role, one cannot look at the housing bubble without seeing a direct relationship to failed government policies. Herbert does both. He calls it the risky behavior of the “gamblers and con artists of the financial sector.” But why was their behavior risky?
Those trained in Austrian economics know that problems arose when Greenspan lowered interest rates in 2001 under market equilibrium levels causing massive overinvestment, particularly in the housing sector. Many other factors contributed to this “risky behavior” from the financial sector including: The Community Reinvestment Act, Equal Credit Opportunity Act, Fannie Mae and Freddie Mac. But Herbert does not point a finger at our friends in Washington who sat back creating laws that forced lenders to relax lending practices so we could have our “homeowner society.”
Friedman Fights Back
My second point comes in reaction to his comments regarding transferring wealth from the deserving poor to the greedy rich. Many mistakenly believe that those who advocate for the free market are not at all concerned with the distribution of wealth. On the contrary, it is precisely because of our concern for the poor that we call for economic liberty and capitalism. I think Milton Friedman said it best when he responded to a question from Phil Donahue about greed:
“In the only cases where the masses have escaped from the grinding poverty you’re talking about, the only cases in recorded history, are where they have had capitalism and largely free trade.”
Here is the video:
Clearly, Herbert seeks to explain economic phenomena through a prejudiced lens that tells him someone can only get rich at the expense of someone else. He would do well to listen to Adam Smith who taught us that individuals pursuing their own self-interest can make a mutually beneficial transaction that, if free from political influence and taxation, will benefit society as a whole.