The View From 1776

No question, the tribulations of borrowers who are defaulting on subprime mortgage loans are real.  Those borrowers deserve our sympathy and our prayers.

But that is very far from saying that the Federal government can and must regulate choice to prevent individual misjudgment. 

A more important underlying cause than lack of Federal regulation was described in Infantile America:

Collapse of the subprime mortgage market reflects the “don’t trust anybody over 30” mentality of the Baby Boomers.

That brand of social justice preaches that everyone is entitled, indeed has a Constitutional right, to an equal share of society’s goods and services, without having first to work and save to acquire the objects of his desires.

Expressing the classic liberal view, New York Times columnist Paul Krugman adamantly disagrees.

In an opinion piece dated October 26, he writes:

Increased subprime lending has been associated with higher levels of delinquency, foreclosure and, in some cases, abusive lending practices.” So declared Edward M. Gramlich, a Federal Reserve official.

But maybe the subprime catastrophe will be enough to remind us why financial regulation was introduced in the first place.

Let’s grant that many subprime borrowers were ill equipped to understand the structure of the debts they incurred.  But elementary common sense, in past decades at least, would have informed them that borrowing a large amount of money with little or no savings cushion is a prescription for financial disaster.

Mr. Krugman’s desire for more regulatory control is a reflection of liberal statist ideology and Keynesian economics.  As Hillary Clinton maintained in It Takes a Village, intervention by the political state is necessary if people are to get by in real life.  People can’t make it on their own.

Keynesian economics calls for endless expansion of government spending and control.  Adding a new Federal commission to supervise subprime lending would satisfy both those aims: more regulatory control of individual choice and more government spending.

Mr. Krugman’s views about subprime lending make sense within the context of the Hegelian German philosophical and political ideology in which individuals have no meaning outside the political state; individuals’ role is to carry out the wishes of the political state. 

Mr. Krugman’s views make sense within the materialistic philosophy of Karl Marx, another German philosopher, who said that human nature is a variable that is within the control of the political state.

Mr. Krugman’s views make sense in the perspective of Immanuel Kant, yet another German philosopher, who stated that the proper role of the political state is to regulate its citizens so that they cannot act in ways contrary to the wishes of the state.

Mr. Krugman’s views, in short, make sense only within the purview of a collectivized, socialistic political state.

Our Constitution, however, came from an entirely different philosophical perspective: one of individualism in economic, political, and religious matters.  As James Madison observed in Federalist No. 10:

As long as the reason of man continues fallible, and he is at liberty to exercise it, different opinions will be formed. As long as the connection subsists between his reason and his self-love, his opinions and his passions will have a reciprocal influence on each other; and the former will be objects to which the latter will attach themselves. The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government.

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