I Didn't Get the Memo

John Tamny in TCS Daily:

In a recent Los Angeles Times op-ed, "Overselling Capitalism,"
University of Maryland Professor Benjamin Barber wrote of the "crisis"
in the capitalist mindset, where the "'Protestant ethos' of hard work
and deferred gratification has been replaced by an infantilist ethos of
easy credit and impulsive consumption that puts democracy and the
market system at risk."

Wow, I must not have gotten the memo.  Here I have been plugging negative numbers into my 1040 for three or four years in an attempt to build a business and some future wealth, and it turns out that deferred gratification is out of style.   (TJIC also did not get the memo)

Here is a big reality check for professor Barber:  The fact that a few mortgage companies got overly generous in extending mortgage credit does not mean that the work ethic and entrepreneurship is dead.  In fact, they are virtually unrelated topics.  If the price of something is reduced, more is going to be consumed.  Suppliers of credit reduced the price of credit, too far as it turned out to make a profit, and more was consumed.  This does not represent so tragic change in the human makeup, it is just supply and demand at work, like normal, and some bad business judgement. 

In fact, I can't get over the class-based condescension that seems to fill every nook and cranny of the commentary on the mortgage bubble bursting.  When in the late 1990's, rich VC's provided too much money too cheaply to yuppies running Internet companies, I don't remember anyone lamenting a shift in human motivation or a failure of capitalism.  But when banks provided too much capital too cheaply to lower income people for home mortgages, suddenly all those lower-income people are representative of the failure of capitalism and the work ethic.

  • http://www.consumermortgagereports.com Consumer Mortgage Reports

    Want to start off and say that what you are doing with your business is right on and I agree with that.

    If we are understanding John Tamny correctly, I believe that he is referencing that fact that many CEO's, roughly 100 mortgage lenders both public and private have mortgaged our future for their short term, "I want to be the next Donald Trump" ideology.

    Where this becomes wrong and not metaphorically applicable to the dot com bust of the late 90's is that, like no other time in history the effects are hitting the consumer directly. This is what makes this scenario unique.

    They are not hurting investors, they leveraged the American consumer for their short term successes.
    If this is not what John Tamny meant, then he should have.

  • Craig
  • http://naturalsociety.blogspot.com Cam

    I agree that there should be no worry of the "culture" of capitalism. But I would've thought you'd mention the role of government money printing in the setting of below market interest rates.

  • Matt W

    How is the consumer actually being hurt here? By being able to buy what they want when they want it? By being able to borrow at low rates? By being able to afford a nicer house than you could normally expect (even if you did get foreclosed, you would have had this house for more years than 0, which is how many you would have had it otherwise)?

    The consumer will only be hurt by this if the government over reacts, makes some types of mortgages illegal or highly regulated, and thus cuts off options for the American consumer. I even heard one politician kicking around the idea of making credit card annual fees mandatory, since he claims that the current system has late-fee paying low income consumers subsidizing the rewards and cash back of the high end consumers. Obviously, something like this is not good for the consumer in the end.

  • Tim

    Someone has to explain to me why this is sub-prime thing is such a crisis. The way I see it, private individuals made bad choices and couldn't repay debts they never should have taken out in the first place. The two groups that get spanked are the borrower and the lender, which is to say both the now out of business brokers and the backers of Mortgage Backed securities. Those that got hurt were the people that lost sight of the risks involved.

    To which I say, tough luck for you.

    If the government stays out of it, the lesson to be learned is 1)make sure you don't borrow more than you can repay 2)make sure you don't lend to people that probably won't be able to pay 3)if you decide to lend to people that can't repay, make sure the interest spread reflects the risk that you are taking.

    If the government does get involved their nanny-esque over reaction is sure to crush access to capital to those of adverse credit that are capable of staging a comeback. It is going to remove all the demand to the housing market that was added when they found loans for the sub-prime group.

    Someone from econ 101, remind me what happens when you decrease demand in a market like housing while increasing supply.

  • Tim

    Someone has to explain to me why this is sub-prime thing is such a crisis. The way I see it, private individuals made bad choices and couldn't repay debts they never should have taken out in the first place. The two groups that get spanked are the borrower and the lender, which is to say both the now out of business brokers and the backers of Mortgage Backed securities. Those that got hurt were the people that lost sight of the risks involved.

    To which I say, tough luck for you.

    If the government stays out of it, the lesson to be learned is 1)make sure you don't borrow more than you can repay 2)make sure you don't lend to people that probably won't be able to pay 3)if you decide to lend to people that can't repay, make sure the interest spread reflects the risk that you are taking.

    If the government does get involved their nanny-esque over reaction is sure to crush access to capital to those of adverse credit that are capable of staging a comeback. It is going to remove all the demand to the housing market that was added when they found loans for the sub-prime group.

    Someone from econ 101, remind me what happens when you decrease demand in a market like housing while increasing supply.