One of the most important differences between the political process and the market process is that they provide totally different feedback mechanisms. Had the politicians largely responsible for the housing crisis done their dirty deeds while working for private firms, they would have been fired, likely prosecuted, and memorialized in cautionary tales in business ethics casebooks from here until eternity. Instead, they’re busy crafting 2,319 page pieces of legislation aimed at increasing their power over the marketplace. Here’s a telling graph from Mark Perry, and here’s my review of Thomas Sowell’s excellent The Housing Boom and Bust. Here’s an excerpt:
Politicians are insulated from the consequences of their decisions and are indeed celebrated for the destructive policies they enact. Sowell is explicit about this on page 81: “What they learn is that there is much political mileage to be gained by promoting more home ownership and no political price to be paid for the foreclosures that eventually follow.”
