I was delighted to get an opportunity to do a phone interview with one of my favorite columnists and economists, Walter Williams, about his new book, Liberty versus the Tyranny of Socialism. What follows is a slightly edited transcript of our conversation.
A lot of Americans have been confused about the mortgage crisis. Conservatives tend to blame government interference in the housing market while Democrats tend to blame the free market. Can you give a basic explanation of why we had this housing crisis?
Well, first of all, it’s surely not the free market. That is, there was the Community Reinvestment Act in 1977, which was written during the Carter Administration and was given teeth during the Bill Clinton and Bush Administrations.
The Community Reinvestment Act required banks to make high risk loans that they otherwise would not have made and if they did not, the bank examiners would examine their portfolios when they came around to open another branch or a merger and if they were not making these high risk loans — some people call them “No Doc loans,” or “Liar Loans,” — they would not get permission.
In the free market, these bankers would not have given these Subprime mortgages. But, with the coercion by government and also the implicit guarantees of these loans by Fannie Mae and Freddie Mac, government sponsored enterprises, they would not have done so.
So, the Subprime crisis lies at the feet of Congress and what I find remarkable about my fellow Americans is that Congress caused the problem and they’re looking for Congress to get us out of the problem. That’s very much like seeing a building on fire and asking the arsonist who set it on fire to come help you put it out.
Is it a good idea for the government to bail out failing companies? Why or why not?
No, in a market economy, failure is just as important to the smooth operating of the market as is success. That is, success is a message to business in a free market that you are doing the right thing, you are pleasing your customers, and you are doing it in the most efficient manner. Failure is a message that you are not pleasing your customers and/or you are not doing it in the most efficient manner.
What a bailout does is it tells a company: continue not pleasing your customers and continue not using resources effectively and we will make up the difference. It’s very much like raising a child. If the kid messes up, makes mistakes, and you bail him out every single time, what’s he going to do? He’s going to continue to mess up.
Do stimulus packages work? Why or why not?
(Laughs) I think one of great episodes of their failure was the Great Depression of the 1930s. Both Hoover and Roosevelt, they saw the economic downturn, …they tried to fix it, and they created a 10 year affair out of what would have probably been a 2 year downturn.
In fact, in 1937, President Roosevelt’s treasurer, Morgenthau, he said, “We are spending more money than we have ever spent before and it does not work.” Well, they just did not call the New Deal, “stimulus packages.” The same thing is going to happen with this one.
…Where does Congress get the resources for the spending? Well, there is no Tooth Fairy and there is no Santa Claus. So, the only way Congress can get one dollar to spend is to take that one dollar from Americans, borrow that one dollar from Americans, or inflate that one dollar from Americans.
So, it’s very much like the visual image of a swimming pool. A person notes there is a shallow end, so he takes the water out of the deep end and pours it in the shallow end, hoping to raise the height of the water in the pool — and you would call that person stupid.
What are the dangers that the country faces if it gets too far into debt, which is a very realistic possibility given that Obama says we’re going to be running trillion dollar deficits for the foreseeable future?
The big problem for our country is the misallocation of resources, but even worse than that, this stimulus package and the debt it is going to create gives government a greater hand in our lives. That is, whenever there is a crisis, government responds to it like it did during the thirties. It creates all kinds of agencies, all kinds of programs, that we still live with today. …My colleague Roger Higgs calls it the ratchet effect. When all these agencies and programs are instituted to deal with a crisis, they never go away.
One dramatic example of that is during the Spanish-American War, the government imposed a tax on telephone usage to help pay for that war. It was, I think, just 5 or 6 years ago that telephone tax was repealed.
A more dramatic example: the withholding tax was started during WW2. That is, before WW2, Americans paid their taxes on April 15th — or whatever the date was. They said well, we need to get the money faster to fight WW2, so we’re going to start withholding. They called it the “Victory tax” and we are still living with that today. Now, my colleague Milton Friedman, he is since deceased, he always said, “There is nothing as permanent as a temporary government program.”
One of the most brilliant things I’ve heard in a long time is your explanation of why, “It’s government people, not rich people, who have the power to coerce and make our lives miserable.” Can you talk a little bit about that?
…There is so much demagoguery against the rich and in that column I was asking the reader: Bill Gates, the richest person on the face of the earth — what can Bill Gates make you do? That is, during the 70s and 80s, the era of busing, could he have made you send your kid to a school that you did not want him to go to? Can Bill Gates deny you the right to dig holes on your property or put up a little shed on your property? He cannot do any of those things, but a lowly town clerk can…destroy your life just by denying you a permit to add an addition to your house. Bill Gates can’t stop you from doing that. I think that politicians and those that want to control our lives get us to focus away from the power that government has over our lives and cast our attention to rich people.
I also point out that in terms of private enterprise, if we ask ourselves what areas of life do Americans complain the most about…How many Americans do you hear complain about their supermarket, their video rental store, or their clothing store? Where are the complaints? It’s public schools. The Motor Vehicle Department. The Post Office. Contrast those two areas. In the areas where there is profit motive and private enterprise, we are being reasonably satisfied. In the areas where there is government control and no profit motive, that’s where our complaints are.
What do you say to people who claim that they have a RIGHT to health care or a RIGHT to a “living wage?”
Well, there’s no such thing as those kind of rights. As a matter of fact, I think they should call them wishes. If they said, “I wish everybody had health care” or “I wish everybody had a living wage,” I would agree because I, too, wish that they had more.
But, when a person says that he has a right to something that he did not produce, that means that some other person does not have a right to what he did produce because there is no Santa Claus or the Tooth Fairy. That is, if the government is going to spend money so you have a right to medical treatment, …then it has to take that money from somebody else. That means some other American, whom the government is going to take money from for your right to medical care — he does not have a right to what he earned.
What would you say to someone who says that we need to put heavy tariffs on foreign goods to protect the jobs of American workers?
(Laughs) I’d ask him to look back to the Smoot-Hawley Tariff Act that was enacted under the Hoover administration that put oppressive tariffs on goods coming into the United States. In effect, it exported the economic downturn to the rest of the world — because look, if people can’t sell us goods, it means they don’t have any resources to buy our goods. I think that all the evidence shows that free trade promotes the wealth of a country.
Moreover, there is a moral question involved. That is, if I, Walter Williams want to buy tomatoes from Carlos in Mexico, what is the moral case for somebody interfering with that exchange? There is none whatsoever. But see, a lot of the demagoguery around free trade is because people say things like, “Well, the United States trades with Japan” or “The United States trades with England.” Well, it might be convenient if you say it that way, but it’s nonsense if you think it’s the United States Congress trading with the Japanese Diet or the English Parliament. When I bought a Lexus, I didn’t trade with the Japanese Diet or the US Congress. I traded with a manufacturer in Japan through an intermediary, a car dealer in the United States.
Is there anything else you’d like to say or promote before we finish the interview up?
A lot of these ideas are in my newly released book. It’s a collection of my syndicated columns and some other articles. It’s Liberty versus the Tyranny of Socialism. …You can click on my website and get a lead to it….
…Thank you for your time!