What the housing bubble teaches us about political events

Within political journalism and perhaps the public at large, analysis often proceeds on the assumption that political events have the capacity to swing public opinion. So when things like the death of Osama Bin Laden, the debt-ceiling deal, or the housing crisis happen, reporters contemplate how the public’s reaction will affect voter sentiment. But this way of understanding the effect of political events is misguided as the fallout from the housing crisis shows quite clearly.

From 2005 to 2008, an enormous number of sub-prime mortgages were issued, and highly-rated financial instruments built on top of those mortgages proliferated. This process caused an enormous, albeit artificial, spike in housing prices. When prices eventually readjusted, millions of homeowners were underwater, and the financial instruments built on top of the mortgage debt became worthless. This created a dangerous financial meltdown that government bailouts successfully prevented. The bursting bubble also caused trillions of dollars of imagined housing wealth to disappear, the fallout from which continues to drag down the economy.

Who is responsible for all of this? The almost unanimous consensus among economists and policy analysts is the one Mark Zandi provided earlier this week:

The biggest culprits in the housing fiasco came from the private sector, and more specifically from a mortgage industry that was out of control. These included lenders who originated home loans, investment bankers who packaged them into securities, rating agencies that misjudged these securities, and global investors who bought them without much, if any, study.

Despite this near consensus, two agenda-driven hacks from the right-wing American Enterprise Institute — Peter Wallison and Edward Pinto — have been floating out an alternative analysis that blames the government-secured enterprises Fannie Mae and Freddie Mac. Their counter-theory has been panned and dismissed by so many experts in so many places that I could fill an entire blog post just linking to them. The Mark Zandi piece linked above critiques their position, and Edward Nocera detailed some of the problems with what he calls The Big Lie in the New York Times a short time ago.

Mark Zandi also provides one of the clearest graphs so far debunking this idea. The graph shows that Fannie and Freddie’s market share dramatically declined as the private sector massively expanded its sub-prime lending:

Under a style of political analysis that assumes political events can really swing sentiment to one side or another, one would predict that this political event swung sentiment to the left. After all, it was bankers and reckless financial capitalism that caused millions of people to lose their homes, their jobs, and their savings. Although there may have been some individuals who swung in that direction, the swing does not appear to be that pronounced.

That is because people do not respond to political events; they respond to what trusted sources tell them about political events. This seems especially true when dealing with somewhat complicated subjects like the housing bubble. Conservatives who listen to conservative media heard the frankly absurd story that the government was to blame, that Fannie and Freddie was to blame, and that too much regulation was to blame. These assertions were bolstered within conservative media by the dodgy claims being made by the long-discredited analysis of Wallison and Pinto. Of course, the exact opposite of all of these claims is true.

Especially in an increasingly stratified media environment where one can easily only get information from sources that share one’s ideological convictions, political events seem to have very little impact on public sentiment. The simplistic analysis that assumes that people will, for instance, be upset at deregulated, out-of-control financiers because of the economic havoc they caused forgets that conservatives will never be exposed to the true story of what happened. This is probably not a distinctly conservative phenomenon either: many on the left subject themselves to similar levels of media insularity.

Thus, the power of the political event to galvanize change or swing public opinion seems vastly overstated. If something as massive as the housing bubble cannot majorly swing public opinion, I have little hope that other political events can do so either.

What the hell is a job creator?

The right-wing rhetorical machine has been spinning out the word “job creator” for some time now. Recently, that rhetoric has been ratcheted up as Occupy Wall Street managed to break through and bring attention to the massive economic inequality in the country. It is obvious that the title is just used to replace more descriptive terms like “high-income individuals” or “the rich.” But, it may be less obvious exactly how the logic behind calling these individuals job creators actually works.

The first question we have to answer is what exactly job creation means. A job is not really something that is created; it is something that you do. In essence, a job is just a stable stream of labor. When people talk about a job being created, what they mean is that some set of production is being embarked upon that creates a stable stream of labor for some worker.

So how exactly do rich people create production? The answer to this question is where things start to get slippery. Rich people are said to “create jobs” through investment. But what exactly is investment? Investment involves the allocation of capital towards production. But what is capital? Capital refers to productive resources like land, buildings, and so on.

The right-wing takes these building block ideas and then remarks vacuously that you can’t have production without productive resources. Therefore, it is clear apparently that rich people — the people who own and allocate productive resources — create jobs. But this relationship exists for all sorts of things. You can’t have production without labor. Allocating all the productive resources in the world wont lead to production unless someone actually does the real work. You also wont have production for long without consumer demand. Capital and labor employed at a loss wont be sustained for very long.

So does labor and consumption create jobs? Without them, there would be no production and therefore no jobs. While I guess you could say labor and consumption creates jobs, it is probably more accurate to say that this whole discussion is totally senseless. Of course you need productive resources to produce things. Of course you need labor to produce things. Of course you need demand to sustain a productive enterprise.

None of this type of reasoning gets us anywhere. If it does get us anywhere, it is to say that the rich have the most tenuous connection to “job creation” and production. The only thing the rich do in this particular way of thinking is make available the productive resources (e.g. land) of the world. But of course, we could just take those resources and make them available for production ourselves instead of renting them from the rich as we currently do. The same can’t quite be said for labor and consumption.

The weird machismo of exploited conservatives

In response to the “we are the 99%” slogan of Occupy Wall Street, some conservatives have launched a “we are the 53%” web presence. The 53% is an allusion to the number of people whose tax deductions and tax credits do not eliminate their income tax liability. The figure of course leaves out payroll taxes, state taxes, local taxes, and sales taxes, all of which are regressive (i.e. the rich pay less of them than the poor). Combining all of those taxes together, the US has a mildly sloping progressive tax system (I hate that this has to continually be pointed out, but it does).

The tax digression aside, a few of these pictures from the 53% are really interesting. The above pictures reads:

I am a former Marine.
I work two jobs.
I don’t have health insurance.
I worked 60-70 hours a week for 8 years to pay my way through college.
I haven’t had 4 consecutive days off in over 4 years.
But I don’t blame Wall Street.
Suck it up you whiners.
I am the 53%.
God bless the USA!

Before the last few lines, it looks as if this former Marine is going to be sympathetic with the OWS movement. After all, working 70 hours a week at multiple jobs without health insurance or vacations just to get an education is amazingly burdensome in a country of such massive wealth and productivity. It seems especially exploitative — at least given the pro-military slant of American culture — because the poster is a Marine. Although I am not inclined this way, many Americans regard present and former military enlistees as being entitled to more because of their military service.

The burning question then is why his ultimate spin on these living conditions is that those protesting should “suck it up.” This case is a weird one because the entire premise of his post is that his life is especially hard. The OWS protesters want his life to be less hard, and point out that the corruption, incompetence, and massive inequality driven by the country’s financial sector is what is contributing to this Marine’s unnecessarily burdensome and unstable existence (and the similar existence of millions of other Americans).

What I think you are seeing here is an effort to project an identity through declaring political views. This of course is not groundbreaking analysis, but it tends to slip through most of the analysis about political discourse. The Marine here desperately wants to establish a particular identity. In this case, I think that identity is one of a macho man. He has determined that this leftist stuff is mainly driven by empathy and compassion for others (that is after all how it tends to be depicted). Empathy and compassion are tagged as feminine and emotional which of course is unsuitable for a macho manly Marine. So, he wants to establish himself as especially non-compassionate and non-empathetic (“suck it up!”).

This of course is a standard conservative line, most often typified with the hatred of “bleeding heart liberals.” But, at its base it’s quite flawed. Although leftist representations have evolved over the last century such that empathy and compassion do now appear to be at the forefront, it was not always so.

Strikes, revolutions, boss kidnappings, and so on were hardly compassionate events. The IWW slogan of “fire the boss” is miles away from the hippie lovefest that plagues significant subgroups of the modern left. The left used to be an incredibly macho institution (to its detriment I must add). The left fought bosses and financiers because bosses and financiers were exploiting and stealing from them. What kind of macho man sits there and lets someone steal from them? The macho behavior is to fight back when attacked. Occupy Wall Street resembles the old school fighting left much more than it does the last few decades of the hyper-compassionate left wing.

Against that backdrop, the Marine’s post is just exceedingly strange. It makes some sense in that the goal of the website it is posted on is just to show how totally unmoved many are by hundreds of extremely moving stories of totally unnecessary deprivation and hardship. But when your own story is one of unnecessary deprivation and hardship, your lack of empathy for those in your condition just comes off as capitulation to those who have screwed you over. That of course is submission, something not generally regarded as macho and manly.