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Steven Gjerstad and Vernon Smith suggest one unexplored aspect of
our financial crisis: the role of egalitarian policies. To see this,
note their distinction between the impacts of the $10 trillion loss in
the 2000 stock market collapse and the $3 trillion loss of the recent
A driving force behind all this has been radical egalitarianism --
the idea that something that can be afforded by some should be made
available to everyone. Our universal housing-ownership passion
transformed the housing market. Under the egalitarian promotional
housing policies of the last few decades (the Democrat's "affordable"
housing goals; the Republican's "ownership society" obsession), banks
became institutions that would loan you money even if you were unlikely
to be able repay it. The moral hazard problems created by our
bipartisan egalitarians (the Community Reinvestment Act, the mandates
on Fannie Mae and Freddie Mac) enticed far too many Americans into
purchasing homes priced beyond their means. There is a critical
distinction between the democratizing tendency of the market and the
coercive egalitarian policies of politics.
Many factors contributed to our financial crisis but as Messrs.
Gjerstad and Smith suggest, we should add radical egalitarian policies
to the list. As they note, these programs transformed the American
Dream into the American Nightmare.
Fred L. Smith Jr.
Competitive Enterprise Institute