Housing Bubble: A Broader View

September 26, 2007

A great deal of the national discussion of the crumbling housing market has focused on blaming individual Americans, which often amounts to blaming the victim. This tone is more than a little disturbing. We should instead be looking at the overarching problems associated with our unprecedented levels of debt.

I’m not saying that individual Americans have not, collectively, made some really bad personal financial decisions. But the key word here is “collective,” not “individual.” When historians attempt to understand phenomena, rarely do they attribute it to individual causation. For example, “Why did so many individuals go along with the Nazis?” An explanation to such a historical question cannot be made by reference to the fact that “Germans made bad personal choices.” However factually correct such a statement might be, per se, it is not much of a historical explanation. When we attempt to understand phenomena, we should look for larger, structural causes.

In the case of the historical question I posed here about the Nazis, historians have looked at, among other things, how the punitive measures of the Versailles Treaty compounded by the global economic collapse helped make the Weimar Republic coalition insolvent, and the Nazis were able to fill this political vacuum. Their economic successes — built on military rearmament (military Keynesianism) — helped make them increasingly popular, especially to the rich and powerful, who feared the growing communist movement. That much of the world seemed against their national success from the start, despite the Munich agreement — that they had real enemies — helped in their successful attempts to scapegoat their perceived internal enemies, Jews.

So, in the case of the housing bubble question, or the phenomenon of collective American debt, future historians will likely look at larger, structural causes, rather than blaming financially illiterate individuals. Perhaps the answers are not clear cut, yet. It’s tough to see the forest for the trees. But are some questions they might attempt to answer.

Why were Americans compelled to maintain a standard of consumption above and beyond their means? In other words, why is American cultural worth — status — dependent upon goods purchased and displayed? These questions would lead scholars to look at the broad history of marketing and the culture of consumption. Americans have long marketed the suburban life as the ideal, as a sort of utopia, made evident when then-Vice President Richard Nixon debated Soviet Premier Nikita Kruschchev about the best kitchen designs, the so-called kitchen debate. Using our houses as ATM’s is not just a matter of individual stupidity. It is part of our broader culture. US real wages have been in a collective, broad-term decline since 1973. So Americans leverage their over-valued houses to continue the suburban dream, in the face of financial reality.

There are plenty of other structural questions future historians will likely pose, some of them similar to the type posed by Dean Baker in many excellent articles he’s written on the Fed’s role in this mess. What role did the Fed have in all of this? How has the role of the Fed shifted alongside the so-called “Reagan revolution” as personified by Alan Greenspan, who believed that his main purpose as Chairman was to keep wages low?

What role has the decline of unions had in all this? As the national economy has shifted from one that produced material goods to one that “produces” immaterial goods (information and service), why haven’t the new sectors unionized like the old ones?

One question that will undoubtedly be asked: How does military power compel the rest of the world to fund American debt, and what are the limits of such power?

We should be posing these types of broad questions to help us grasp the complex problems of our financial mess. Blaming individuals gets us nowhere. In fact, it seems cruel and misplaced to blame the unfortunate who are merely emulating the actions of the nation as a whole.

Andrew Hartman