Notes From Babel

Posts Tagged ‘housing bubble

The Harm That Vain and Silly Fellows Do

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Donald Kochan, my property law professor at Chapman, has this op-ed today in the LA Times.  It raises a question I have been mulling over for some time.

The luxurist may be destructive to himself, but in the process he is constructive in the lives of many who are employed in the enterprise of creating those “unnecessary” things: “A vain silly Fellow builds a fine House, furnishes it richly, lives in it expensively, and in a few Years ruins himself, but the Masons, Carpenters, Smiths and other honest Tradesmen have been by his Employ assisted in maintaining and raising their Families, the Farmer has been paid for his Labour and encouraged, and the Estate is now in better Hands.”  [Quoting Benjamin Franklin.] Of course, this ancillary impact occurs in varying degrees whenever one spends (rich or poor) and however (wisely or unwisely) they do so.

Assume the endeavor truly was vain and foolish in a very profound way—the economy takes such a turn that few if any can afford to take up stewardship over the fine and richly furnished house.  The value of this property plummets, and it goes either unused, or sold off in pieces for fractions of their original value.  In such an instance, the masons, carpenters, smiths, and tradesmen may have found that the value of their experience in building fine and rich houses and furnishings is less than originally thought, since there are no other “silly fellows” left with the means to build such things.  For all their skill, they are left without work.  The economy, once the supply of fools has dried up, can no longer afford to remunerate the fools’ employ.

Of course, I am talking about the housing bubble, and the harm created when efforts are improvidently directed at endeavors with over-inflated and artificial value, only to later find those efforts were wasted.  This period of wasted, vain economic activity requires laborers to retrain themselves as the economy reorients itself around endeavors with actual value.

So misspent money, I think, can indeed be a serious problem.  But the reason for the misspending is more often misguided government incentives, subsidies, and policies—i.e., the policies responsible for the housing bubble—rather than the hapless “vain and silly Fellows” that Benjamin Franklin talked about.

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Written by Tim Kowal

July 26, 2010 at 8:36 pm