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If Milton Friedman Lived Long Enough to Witness The Financial Crisis, do You Think he Would've Changed Philosophies?
The financial crisis proved the value of Friedman's world view.
1. Our society subsidized homeowners and homebuilding with tax breaks on mortgage interest and deductibility of property taxes. Friedman knew that when you subsidize something, you get too much of it--and the proximate cause of the financial crisis was too many houses, which glutted the market and caused prices to collapse, which damaged borrowers and their lenders. The glut persists and is responsible in part for the slow economic recovery.
2. We also subsidized borrowing costs with an implicit government guarantee on home mortgages. Again, when you subsidize something, you get too much of it--and no one doubts that we had too much borrowing.
Left to our own devices, without government interference, there would have been much less investment in real estate and much less lending against real estate--and no crash after the party ended. The "good intentions" of a long bipartisan string of politicians (ending with Dodd and Frank) put us on the path to hell.
This would have reinforced his view that government is the problem.
This meltdown was government caused.
government removed regulation (glass stegal) that worked for regulation that didnt work (Graham Leech). government added regulation (CRA) that was stupid requiring banks to loan money to people who couldnt pay it back.
The financial crisis proved the value of Friedman's world view.
1. Our society subsidized homeowners and homebuilding with tax breaks on mortgage interest and deductibility of property taxes. Friedman knew that when you subsidize something, you get too much of it--and the proximate cause of the financial crisis was too many houses, which glutted the market and caused prices to collapse, which damaged borrowers and their lenders. The glut persists and is responsible in part for the slow economic recovery.
2. We also subsidized borrowing costs with an implicit government guarantee on home mortgages. Again, when you subsidize something, you get too much of it--and no one doubts that we had too much borrowing.
Left to our own devices, without government interference, there would have been much less investment in real estate and much less lending against real estate--and no crash after the party ended. The "good intentions" of a long bipartisan string of politicians (ending with Dodd and Frank) put us on the path to hell.
Might be the Post of the Year.
Friedman was a genius. Loved his interviews and panel discussions. Everybody revered him and for good reason.
My economics professor used to say, "Even when Milton Friedman is wrong, rare thought it is, he is still right."
Nope. He would have allowed to big banks to fail instead of bailing them out.
Didn't bailing them out make them more regulated?
I mean, like, as with an enema?
Or, anathema?
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If Milton Friedman Lived Long Enough to Witness The Financial Crisis, do You Think he Would've Changed Philosophies?
