Obama’s and McCain’s Soft Thinking

On the underlying causes of the current crisis, Obama says in the New York Times

“The problem that we have in part has to do with wages and incomes that have been flat. And so homeowners and ordinary families out there have been working very hard, but it’s tough for them to pay the bills and stay afloat with rising gas prices and health care.”

The moronic argument he is offering could be summarized in this way: because the government didn’t redistribute wealth over the last twenty years, subprime mortgages failed. A more progressive tax scheme would have prevented this. Now I can’t find one economist who has proposed this argument or finds it convincing. 

Meanwhile, McCain’s perspicacity shines in all things economic. He intends to reward Attorney Generalissimo Cuomo with Cox’s job at the SEC. According to the same Times article: 

Mr. McCain, who has been trying to distance himself from the Bush administration while proposing to continue many of its economic policies, tried Sunday to strike several bipartisan notes. In a separate interview on “60 Minutes” on CBS, he mentioned that he would like to seeAndrew M. Cuomo, a Democrat who is the attorney general of New York, take over as chairman of the Securities and Exchange Commission from Christopher Cox, whose ouster he has called for.

How wonderfully delicious! Only in American politics does a man who helped orchestrate a crisis get rewarded with a position to regulate it. Consider this graph from Russ Roberts. The Case-Shiller Home Price Indices measure the nominal value of the residential real-estate market in the US. 

Roberts notes that during both the Clinton and Bush presidencies, the government intervened in the housing market to increase home ownership among low-income buyers and raise the overall rate of home ownership. And as he points out, the run-up in housing prices coincides with the government’s interventions led by the work of our man in Albany, Attorney Generalissimo Cuomo. (He served as Clinton’s Secretary of Housing and Urban Development.)  Sez Roberts of the irrationally exuberant housing bubble: 

“It may have begun in earnest in 1997 with Andrew Cuomo, at the time the head of HUD, encouraging the GSEs to become more active in the subprime market. Is that causation or just correlation for the graph? I am looking forward to reading and learning more this week.”

Fun game: without assaulting reason, try to find a way for Obama’s theory to fit the data on the graph. As a bonus, try to rationalize hiring Cuomo to head the SEC.

1 Comment

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One response to “Obama’s and McCain’s Soft Thinking

  1. thrinald

    Obama is not saying wealth distribution could have solved prevented this crisis. The core problem in this country, is a lack of real income growth for the vast majority of Americans for many many years. Somewhat relatedly, if we had a better education system, people could have done the math to realize they shouldn’t buy the houses they were buying. Further, few dispute at this point that lending practices were predatory.

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