Does this sound familiar:
The case against government-guaranteed loans and mortgages to private businesses and persons is almost as strong as, though less obvious than, the case against direct government loans and mortgages. The advocates of government-guaranteed mortgages also forget that what is being lent is ultimately real capital, which is in limited supply…Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody…and may mislead the building industry into an eventually costly overexpansion. In brief, in the long run they do not increase overall national production but encourage malinvestment.
Surely, the above statement must have been written following the government-generated housing bubble. Furthermore, one of the revered sages of the mainstream must have said it, right? Did Paul Krugman, New York Times economic “genius” and Princeton professor, write this? He must, in hindsight, understand what caused the crisis?
This was originally published in 1946 (with new editions in 1962 and 1979) by Henry Hazlitt in Economics in One Lesson. Hazlitt was an economist/journalist, one of the very best of his era. Hazlitt understood the ramifications of government interventions into the marketplace and was a master at explaining it in simple terms.
So if the New York Times’ own archives are replete with Hazlitt’s work, why does the mainstream still not get it, at least for the most part?
There are two ways to look at the issue. The first is that the mainstream economists are, by and large, idiots. They go on tv, and write in newspapers showing off their fancy mathematical models that supposedly explain the market and we are all supposed to go ooh and aah at their near-supernatural abilities. At least that is what occurred before the crisis to a large extent. Now that we are in the midst of possibly the worst (with possibly the worst yet to come) depression since the other “Great” depression, these economists have lost a lot of luster (if luster was ever the right word). To anyone paying attention, these economic models are clearly nonsense. If they were truly accurate, then by their calculations the depression is over and happy days are here again. All of the macroeconomic indicators point to solid recovery. Oh sure, they say, people are still unemployed and underemployed in record numbers, but look at the models! They show recovery, ergo, recovery.
The second way to understand mainstream economists offers a more sinister evaluation. Perhaps, just perhaps, since most of them are paid through government grants, or enjoy privileged access to high-ranking officials, they are being disingenuous, or worse.
Personally, I don’t believe the Paul Krugmans of the world are evil (at least not outwardly). They simply adhere to an economic philosophy that is inconsistent with how the market truly works. They are helpless to explain why their models fail, time and time again. They cannot explain the crisis, let alone how to recover. Yet, they are still given the keys to government policy. The same failed government policies that have never worked are being rolled out as if they are new!
Hazlitt, on the other hand, was no prophet. He didn’t use a crystal ball to predict the future. He simply adheres to a consistent, principled economic philosophy that best explains how the world actually works.