The View From 1776

Friday night’s Bill Moyers’ Journal on PBS placed the blame for Cleveland’s very real foreclosure problem on financial institutions’ greed, along with the Bush administration’s indifference to human suffering.

Applying the same analysis to the spread of AIDS, Parson Moyers might conclude that AIDS became a scourge because manufacturers of condoms were greedy.  He would demand new Federal regulations to prevent AIDS, when, in fact, the root cause is immoral individuals’ rampant sexual promiscuity.  If everyone had practiced sexual abstinence outside marriage, AIDS would be a minor footnote in medical journals.

Similarly, the underlying cause for the subprime mortgage meltdown and for the follow-on distress of foreclosures in places like Cleveland is the liberal-progressive-socialist welfare state and its array of entitlements financed by deficit spending, coupled with the infantile belief of borrowers, fostered by the liberal welfare state, that they are entitled to whatever they want, without first working and saving for it.

Ignoring the culpability of his own liberal-progressive-socialist cohort, Mr. Moyers blames all economic and social ills on private enterprise.  Implicitly, in his world view, non-government action by individuals and businesses is motivated by anti-social greed, if not malice.

For this, the antidote always is additional Federal spending and more regulation.  The repeated lesson of history – that government intervention always has unanticipated and usually negative consequences – is ignored.

To present his case, Mr. Moyers interviews the director of a Cleveland homeless shelter, whose job presumably qualifies him to pontificate on the workings of finance and the economy.  He also interviews William Greider, a writer for The Nation, one of our oldest socialist publications, a man whose journalistic career has been devoted to bashing private enterprise and to extolling the nascent forces of socialism.  While Parson Moyers clucks in horror, these gentlemen tell us that the foreclosure problem was caused by capitalist greed and the indifference of Federal regulators.  Imprudence of borrowers, in a good socialist society of welfare entitlements, of course, had nothing to do with it.

Looking at the history of Cleveland demonstrates, however, that the spate of foreclosures is just the current manifestation of decades-old economic ills arising from the metastasis of socialism at the Federal, state, and city levels.

In the 1950s, Cleveland was a thriving industrial city, the 7th largest in the United States, with a population of approximately one million.  Today, it is less than half that size.  John D. Rockefeller’s Standard Oil Company was originally headquartered there.  Cleveland was one of the largest ports on the Great Lakes, and it was the largest iron ore trading and shipping port in the world.  Major automobile and steel production was centered there, along with one of the largest concentrations of railroad transportation in the nation.

By 1966 all of that was collapsing.  The straws on the camel’s back were the Hough riots from July 18 to 23 in 1966, which resulted in more than 240 fires, four deaths, and hundreds of serious injuries.  This span of rioting was one of many that afflicted major cities in the northeast, the midwest, and California in the years after passage of the 1964 Civil Rights Acts and the Johnson administration’s enactment of the Great Society welfare entitlements.  In what the New York Times called the revolution of rising expectations, inner city blacks decided that the best way to improve their lives was to loot and to burn down businesses and housing.

With Cleveland police and firefighters unable to maintain control in large sections of the city, businesses began relocating, usually to the Sunbelt states, where taxes, regulations, and labor unionization were less costly and burdensome.

Higher taxes and more regulation are the hallmark of liberal-progressivism, the first, to redistribute income in accord with socialism’s conception of social justice, the second, to socialize business via indirect government control, as Henrie de Saint-Simon had proposed in the first decades of the 19th century, when he systematized the concept of socialism.

Among the counter-productive regulations, Thomas Sowell writes, was the 1977 Community Reinvestment Act, which set the stage for foreclosures in Cleveland and elsewhere by forcing lenders to make loans in high risk areas, to people with poor credit records.

Labor unions’ ability to push up labor costs to heights that drove major employers to new locations in the non-union Sunbelt states was a product of the New Deal’s legislation conferring monopoly powers upon unions and making most business resistance to unions unlawful.

The hypocrisy of Parson Moyers’s sanctimonious inquisition is particularly galling, because he was present at the creation of a major element of the mess, working as special assistant to President Lyndon Johnson at the time of the Hough riots. 

Socialism and its inevitable inflation got their greatest push from the enactment of President Johnson’s Great Society, a set of programs that made a host of welfare handouts entitlements, regardless of merit or effort by the recipient.  Without means testing, being permanently on welfare became a new career choice. 

When, as in Cleveland, fewer people work for a living, taxes soar while government strives to keep up with demands for ever-rising welfare spending.  Illegitimate births increase, education deteriorates, and violent crime increases rapidly.

Had there been no massive expansion of the socialist welfare state in President Johnson’s Great Society, along with the judicial activism of the Supreme Court under Chief Justice Earl Warren that created a panoply of criminals’ rights, there would have been no Hough riots. 

Since the imposition of socialism under Franklin Roosevelt’s New Deal in 1933, deficit spending by the Federal government, chiefly now on mandated welfare entitlements, has been funded with over-expansion of the money supply by the Federal Reserve.  By definition, this is inflation, which artificially puffed up housing prices and fueled demand for houses on the assumption that prices could only go up.

When the economy is awash in inflationary currency, bankers will find a way to lend the funds, and businesses will find ways to use borrowed money on ever more risky projects.  Inflation produced by the excessive money supply impels lenders to seek higher rates of return to compensate for the declining value of money repaid against their lending, just as businesses must seek ever higher rates of return for their investments.  Unfortunately, higher rates of return are associated with greater risk, such as subprime mortgage lending.

Banks and mortgage originators have paid for their folly with massive losses.  Meanwhile the real culprits - liberal-progressive legislators - are now playing the hero’s role, posturing with legislative hearings to impose yet more ineffective and counterproductive regulations.

None of this excuses unethical lending methods.  But neither does it absolve the imprudence of welfare-state citizens who have come to believe that they are entitled to whatever they desire, without the need first to work and save to pay for it.