The Corner

The “Seduction” of David Brooks

Do we really have too few liberals in this country demagoguing Wall Street — so few that we need David Brooks to get in on the act? In “The Great Seduction,” Brooks writes:

Bill Gates built a socially useful product to make his fortune. But what message do the compensation packages that hedge fund managers get send across the country?

What does Brooks have against hedge fund managers? This animosity pops up over and over again in his columns. I suppose Brooks thinks they get paid out of proportion to the service they provide, i.e. creating wealth, steering investment capital into quality enterprises, blowing the whistle on fraudulent companies. I wonder how much the New York Times company — which is in the process of laying off about 100 newsroom staffers — pays Brooks to share such thoughts with us.

Wall Street is just one of several institutions Brooks scolds in today’s column. He also blames credit card companies, payday lenders, and state governments (for promoting the lottery), among others, for “the trampling of decent norms about how to use and harness money.”

Let’s put aside the lottery and just focus on “usury.” Predatory lending is a real phenomenon, but it is much rarer than people like Brooks think it is. There’s no evidence that the increase in the credit supply Brooks derides has been a welfare-reducing phenomenon, and plenty of evidence to the contrary.

Take sub-prime mortgage lending, for example.

The innovations that enabled sub-prime borrowing in the 1990s prompted homeownership rates to rise by about four percent after three decades of stagnation. And even though the bursting of the house-price bubble has made life difficult for borrowers who bought more house than they could afford, the majority of sub-prime borrowers — particularly those who borrowed at fixed rates — are still in their homes and still making payments, and homeownership rates remain above their historical average.

Brooks accuses credit card companies and other lenders of encouraging financial irresponsibility. But by telling reckless borrowers that it’s not their fault — that they are victims of America’s culture of profligacy — isn’t that exactly what he’s doing?

I should note, by the way, that the measures Brooks proposes at the end of his column are not entirely objectionable. Some of them, like removing tax penalties on savings, are indeed praiseworthy. I object to the tone. Overstating the problem of predatory lending leads to all kinds of bad policy recommendations from people who, unlike Brooks, are comfortable resorting to dirigisme to achieve their ends.* It is their seduction of Brooks to which the title of his column should refer.

* If you don’t believe me, take a closer look at the housing bailout making its way through Congress.

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