Book Review: Architects of Ruin
Schweizer, Peter. Architects of ruin : how big government liberals wrecked the global economy–and how they’ll do it again if no one stops them. HarperCollins, 2009.
We experienced the dot-com bubble when the market crashed in 2000 due to overconfidence in technology. Investors took money out of the stock market and purchased real estate. It was a better investment opportunity thanks to low interest rates, risky mortgages, and relaxed lending standards.
But, economists have different perspectives on the basic questions of what caused the recent housing bubble, and also what to do about it. Peter Schweizer argues the cause was liberal social policy, not a market failure.
He points the finger at a long list of liberal activists. The short list includes Bill Clinton, Rahm Emanuel, Barney Frank, Barack Obama, Robert Rubin, Nancy Pelosi, Jesse Jackson, Ted Kennedy, and Timothy Geithner. These so-called Robin Hoods created a number of social programs including ACORN, PUSH, Fannie Mae, and Freddie Mac that pushed the right to own a home, and for the redistribution of wealth.
In the short term, these programs led to increased home ownership, and huge real estate and Wall Street profits. When the sub-prime mortgage market collapsed in 2007, it led to a number of foreclosures, bankruptcies, and bailouts, and hundreds of millions of dollars of fines to Fannie Mae and Freddie Mac. The longer tem effects include massive taxpayer debt, trillions of dollars of real estate value lost with many homeowners having negative equity.
Schweizer notes that many of the “Architects of Ruin” that lobbied for social engineering policies during the Clinton Administration are now recognizable Washington, DC power players dealing with the current meltdown of the housing bubble, financial crisis, and recession.
Schweizer warns that with these same players are poised to do it again. Similar policies subsidizing health care and alternative energy could also lead to bubbles. A health care bubble will occur because when matching payers and services, the math in the business plan does not work, and the insolvent program will require taxpayers to absorb the massive debt.
By subsidizing alternative energy, it may not be able to compete in the market when subsides are withdrawn. If the bubble bursts on what Schweizer estimates could be as high as a $20 trillion green economy, a catastrophic meltdown could occur. If and when cutting edge technologies provide a financially workable green energy source, the paradigm shift could lead to fuels so inexpensive that at some point it would make the energy industry much less profitable.
Guest reviewer Randall Mayes is a Duke alumnus, author, science writer and science policy analyst, and a Fellow at the Institute for Ethics and Emerging Technologies.
© Reviewer: Randall Mayes & Ford Library – Fuqua School of Business.
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