This is an excellent column by Thomas Sowell. He hits two prevalent conventional wisdom myths. First:

“No president of the United States can create either a budget deficit or a budget surplus. All spending bills originate in the House of Representatives and all taxes are voted into law by Congress.

It seems as though almost everyone is guilty of this misconception at one point or another – and I’d say even this article oversimplifies it a bit. Clinton gets credit for a surplus in the 90′s, Reagan gets credit for the 80′s boom, Bush gets the blame for the 08 crash, etc. These are all very oversimplified narratives pushed by various political forces. One thing to notice is Sowell’s statement regarding the president’s “only direct power” over budgets in a later paragraph. That’s because while presidents don’t have the power of the purse, they do have the power to recommend a budget to Congress. Congress and specifically the House have the most direct spending power but being a body of many fractious voices, the president’s power to recommend is significant. Sowell sort of glazes over this fact.

Nevertheless, slapping either total blame or total credit into the lap of a president for economic conditions is simplistic nonsense. Sowell points out Clinton working with a Republican Congress in the 90′s. Clinton usually gets credit for a surplus while a Republican Congress is too often overlooked. A bigger part of the story though is the massive technology boom thanks to the information revolution. Another Bill (Gates) should get more credit than either Clinton or Congress for this. The economy grew thanks to innovation and dynamic growth in the private sector that had very little to do with government policy. Clinton was smart enough to stay out of the way and take the credit – which almost defines the genius of his entire presidency.

“Another political fable is that the current economic downturn is due to not enough government regulation of the housing and financial markets. But it was precisely the government regulators, under pressure from politicians, who forced banks and other lending institutions to lower their standards for making mortgage loans.”

Another fact that is too often overlooked: Democrats seized massive control of Congress two years before Barack Obama took the oath of office. Obama (and almost every major media outlet) lay almost full blame for the most recent crash on Bush and Republicans even while W was a lame duck president battling insurmountable majorities in Congress, not to mention massive unpopularity with the voters. They also freely promulgate this myth of “deregulation” as the chief cause of the crisis which is also an oversimplified fraction of the full story. That myth is primarily fed by this law, which was sponsored by Republicans and signed by President Clinton. This law undoubtedly played a role but there were other seeds planted long before Bush or the 110th Congress were in power.

One of those seeds is currently running for governor of New York. As head of HUD under President Clinton, Cuomo was one of the chief proponents of what the left affectionately used to call “affordable housing.” By 2009, we saw that this benign and even admirable sounding goal turned out to be a bunch of unwise loans made by banks to people who would never be able to pay them back. This article dismisses Cumo’s culpability as a “well-intentioned” mistake, which is capital absurdity. Cuomo is many things but stupid is certainly not one of them.

The pressure put on banks by Clinton and Cuomo to ease lending restrictions was significant. To make matters worse, predatory brokers and lenders structured the loans to be more attractive than they were and looked the other way as the people they signed on grew riskier and riskier. Obviously the banks knew damn well the risk they were taking, which is why they packaged a lot of those loans up into securities and derivatives and siphoned those risks out into the general marketplace – which created the demand for even more risky loans.

Certainly the banks, Bush and Republicans are not free of blame here. It’s also reflexive – especially for vote hungry politicians – to characterize home buyers (voters) as the victims of evil capitalist forces. While the agencies, banks and brokers often did their worst, home buyers still signed on the dotted line. Most of them should have known better. Also, this little tidbit gets far too little airtime:

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Bush and some Republicans attempted to rein Fannie and Freddie in back in 2003, but Barney Frank was too busy raking in campaign contributions (not to mention sleeping with Herb Moses, a high ranking Fannie Mae executive) to stop the gravy train. Democrats in general chose to look the other way and cling to the myth that “affordable housing” meant helping less fortunate people get into their dream houses – a myth that certainly helped them at the ballot box so long as the bubble lasted.

It didn’t last and now they are desperately trying to pin the fallout on crimes “inherited” from a Republican president. Fortunately, voters aren’t buying it and Republicans are poised for big gains in November. The moral of all this is that government intervention beyond creating and enforcing the rules nearly always winds up with disastrous results. Personally, I’m for gridlock. Since passing legislation that mandates the entire law making portion of the federal government take a 4 year vacation is unrealistic, gridlock is the next best thing. Friedrich Hayek once wrote:

“Hitler did not have to destroy democracy; he merely took advantage of the decay of democracy and at the critical moment obtained the support of many to whom, though they detested Hitler, he yet seemed the only man strong enough to get things done.”

If we’ve learned anything from the latest administration, it’s that the two party system’s greatest virtue is its tendency to curb government action. The president and both houses of Congress are simply too much power for one party to handle. Any circumstance which causes either party to exclaim in frustration that that they just can’t get anything done because of politics should be sweet music to the ears of the electorate. Two more months and hopefully we’ll be there.