Tipoeing to the Truth

The NY Times makes another tiptoe step toward truth today. The published an op-ed piece by Herbert Gans, who is semi-famous. What remains unanswered is the question: what has caused the imbalance? In order to fix the problem, the problem must be correctly surmised. Gans, and others, continue to ignore the elephant sitting on the coffee table. He floats a few band-aid tactics, but ignores the cause.

The problem is two fold (as I have written in the past, so this is just today's musing). The first is that recovery from recession presupposes that the workforce can be re-employed doing what it did before the Crash, if only the economy's demand could be restored. That doesn't work this time, since the stability of the Bush years was based on two non-productive uses of capital: housing and finance. As unpleasant as it may be to hear, but putting capital into housing requires diverting capital from productive uses. The only way for the banksters to make money on housing is for the mortgage holders (that vanishing Middle Class) to see increasing income. Houses, per se, don't generate output the way a Brown and Sharpe milling machine does (or any physical capital). Therein lies the root cause of the Crash. Without growing incomes, housing becomes unsupportable as investment.

Finance is a zero sum game: all of the cash involved is fixed by the scope of the savers. Profit to the finance wizards is extracted from the flow of cash between the savers and the borrowers; the finance wizards don't create wealth, they purloin it. More than a few, formerly just from the left fringe and latterly from more staid venues, have suggested that our economies were better off (and would be again) when finance was reduced to the boring trade it was before the failed math fiddlers got involved. They don't appear to have brought anything positive to the situation. Off with their heads.

The elephant is distribution, as it always has been. Those who are lucky enough (and Krugman's piece today says so again) to score big did so out of luck, but continue to assert that it was personal brilliance. They still insist that none of the mess was their fault. It was mortgage companies, then banks, that created sub-prime and liars' loans in order to sell overpriced houses and pocket excess cash in the process. The liars didn't walk in pointing a gun demanding a sub-prime mortgage; there's been sufficient reporting of cases where folks (often of darker hue) were given only sub-prime mortgages when they qualified for conventional. The mess was created by the Gatekeepers to housing, for their benefit, not for the home buyer or society writ large. Off with their heads, too.