More Random Economic Bashing

God, its like people are just out to troll me these days. No sooner does Sadly, No! take a swipe at globalization than someone comes around and suggests that Socialism will fix all of our problems.

Look, that cartoon isn't particularly insightful; implicating Capitalism (especially the drive for short-term profits) as the root cause of the underlying issue is crude at best. I've been thinking about the sub-prime mortgage problem for awhile and now seems to be as good a time as any to address it. At the core you have a tension between two ideas:

• Poor people are credit worthy.
• Poor people are credit risks.

I say "credit worthy" both in a moral sense (they deserve fair access to credit) and in an economic sense (they can support credit lines). At the same time, however, the poor represent a comparative risk to lenders because they are less able to absorb adverse economic events. How, then, to resolve this dilemma? Capitalism provides a resolution in the form of risk-adjusted return. Borrowers pay interest to lenders in proportion to the risk that they represent, thus inducing lenders to extend them credit.

Now add to this mix several complicating factors. First, it appears that some lenders misrepresented the terms of sub-prime mortgages; the problem was not that "credit companies tempt[ed] people with mortgages that they can't afford", but rather than they just flat out lied to them. Consider also the social pressure on lending institutions to make risky loans; with class and race so intricately tied together it may very well be better for the institution to make some unwise loans rather than expose themselves to the charge of racism.

So my first gripe with the cartoon is that its far from clear that Capitalism is at all to blame. Some of the factors contributing to the "rash of foreclosures" are non-economic; racism and exploitation are not confined to Capitalist economies. More importantly, the cartoon seems to lay the blame not on any particular aspect of Capitalism itself, but rather seems to fault Capitalism for providing people with the opportunity to make dumb decisions ("when credit companies tempt poor people with mortgages they can't afford...").

My second complaint, following from the first, is that its not clear how Socialism would make things better. Is the author advocating "pure" socialism i.e. the abolition of private property etc.? That would certainly resolve the initial tension by eliminating the market for home loans. But ey goes on to say that liberals should not be "afraid of looking at Socialism when it makes sense", which indicates to me that ey may be aiming for some Capitalist/Socialist hybrid. But that leaves the door wide open to an almost infinite number of approaches to solving the problem without bothering to show that any of them are in any way preferable to risk/return solution.

Really, there doesn't appear to have been a lot of thought put into the analysis of the problem. Failing to hint at why Capitalism is at fault or why Socialism provides a better alternative makes me believe that the entire strip is just a reflexive reaction. It's just "Capitalism bad, Socialism good" in pictorial format.

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