Fighting Fire With Arson: A Response to Yale Professor Robert J. Schiller’s misguided but not unexpected piece on the housing bubble, titled “Infectious Exuberance” and appearing in the July/August 2008 Atlantic.
Shiller believes our two recent “epidemics of financial optimism” (the dot-com and real estate bubbles) could be followed by a more disastrous financial epidemic if “irrational pessimism and mistrust” manage to spread from the lips and fingertips of sourpuss chicken-little financial pundits to the wider population. According to the author this third epidemic is easily avoided, not by increasing government regulation or allowing banks to fail, but rather by subsidizing financial advice for low- and middle-income Americans, nurturing a real estate futures market, and (though he doesn’t mention it because it goes without saying) keeping your chin up.
Perhaps one can’t fault a guy arguing for the expansion of opportunities for those in his own line of work, since government-sponsored financial advice would certainly create a need for more financial advisors, analysts, and endowed economics professorships. In fact, pretty soon here I’ll be doing the same thing: arguing for expansion, with respect to my profession. But first, a question: instead of teaching low- and middle-income Americans the intricacies of ARMs and mortgage interest tax deductions so they can navigate those murky waters and avoid financial mistakes, why not teach them Jack London, Henry David Thoreau, and Henry Miller so they might tell the next realtor who tries to sell them stainless steel appliances to fuck off?
To clarify myself, I’d like to discuss two recent relevant experiences: one short and sad and the other meted out over the last few years. In order to qualify to purchase a townhouse via a city program for middle-income earners, I attended an 8-hour homebuyer’s course with fellow middle-income and some low-wage earners. We went over monthly budgets, credit reports, closing costs, and etc. Right in the middle of examining an amortization table, one of my classmates happened to raise his hand and mention something about the granite countertops in the condo he was renting. The classroom, which had been somber in the way only math classes tend to be, started to buzz. Hands shot up. We discussed the various virtues of granite countertops and enumerated the ways in which tile and Formica were wholly unacceptable. A sweet woman sitting next to me had been clueless the entire class because she didn’t speak English, but a knowing smile crept over her face during that conversation.
The other experience is teaching reading and writing courses to college students for the past few years. The broad goals include exposing them to the patterns, power, and beauty of written language and honing skills for use in participating in communities and attending to their experiences instead of standing beside them. For my students’ attention, I compete with cell phones, Facebook, and cable television. Instead of competing with those sorts of activities, I try to help put them in perspective.
My house-buying course experience has me believing courses on financial responsibility will never out-message an entire industry bent on fostering idol worship. My teaching convinces me we shouldn’t try.
Recall Shiller’s other recommendation: growing the real estate derivatives market. Add a layer of abstraction to a market already too far removed from what it’s really about—shelter and the arrangements of family life and communities. Just what the idols demand: more people on tv and the internet screaming about rising real estate futures—more noise that generates buzz and excitement that then must be combated by additional financial responsibility courses.
Shiller’s suggestions are akin to the firefighter’s union hiring arsonists to act as lobbyists for increased funding. The casualties that result: unfortunate, but the price one must pay for the growth of the union. And we all must cheer the mighty firemen who defend the charred neighborhoods.
The so-called housing bubble came about because the government and the private sector worked in concert—by making money cheap, encouraging debt and housing turnover, inventing and marketing unsound financial strategies, and fostering an infantile human relationship with natural resources—to create a landlust resulting ultimately in environmental and economic disaster. In the end, the poor have no homes, the rich bigger ones, and the landscape has been so definitively altered that the changes seem inevitable and just (keep your eyes on this website for a long-form piece on this last point).
Luckily for the ones with the big houses, nonsense beguiles and distracts the masses. Educating them about the nonsense further marginalizes real education and helps no one but those who generate the distractions. By “real” education, I mean that which offers access to those people and ideas that put diversions in their proper place.