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Is ‘all politics is local’ true for America?

Written on Monday, October 3, 2011 by

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thomas_sowell

They say “all politics is local.” But economic decisions impact the whole economy and reverberate internationally. That is why politicians’ meddling with the economy creates so many disasters.

The time horizon of politics seldom reaches beyond the next election. But, in economics, when an oil company invests in oil explorations today, the oil they eventually find and process may not make its way to market and earn a profit until it is sold as gasoline a decade from now.

In short, the focus of politicians is extremely limited in both space and time — and all the repercussions that lie beyond those limits carry little, if any, weight in political decisions.

At one time, many state banking laws forbad a bank from having multiple branches. The goal was limited and local — namely, to prevent big, nationally known banks from setting up branches that many locally owned banks could not successfully compete against.

But, limited and local as such state banking laws were, their impact was both national and catastrophic, when thousands of American banks failed during the Great Depression of the 1930s. The vast majority of the banks that failed were in states that had laws against branch banking.

Why? Because, when there is a single bank in a single place, the fate of both its depositors and its borrowers depends on what happens there. If it is a wheat-growing region, a drop in the price of wheat means people deposit less money in the bank at the same time when more borrowers are unable to repay their loans.

Banks caught in that kind of crossfire went under on a scale that shrank the total amount of credit in the country and helped plunge the national economy into depression. In Canada, where banks were free to have branches all across the country, not one bank failed during the same years when thousands of American banks failed — and Canada did not yet have deposit insurance until 1967.

A Canadian bank with branches in all sorts of places across the country — with all sorts of different industry, commerce and agriculture — had their risks spread, instead of being concentrated, as in the United States. Problems in a place where one branch was located would not collapse the whole bank.

Our own more recent housing boom and bust began when local politicians in various places began severely restricting the building of houses, in the name of “open space,” “smart growth” or whatever other political slogans were in vogue.

As housing prices skyrocketed in such places as coastal California, both renters and home buyers in these particular places often had to pay half their monthly income just to put a roof over their heads. This in turn led to Washington politicians declaring a need for nationwide laws and policies to create “affordable housing,” even though people in most of the country were paying a lower share of their income for housing than in previous years.

This political crusade for “affordable housing” was at the heart of laws, regulations and even threats from the Department of Justice, against mortgage lenders who failed to lend to as many low-income and minority borrowers as the politicians wanted them to.

Regardless of the additional problems that occurred as these mortgages were bought by Fannie Mae and Freddie Mac, or were later bundled into securities sold by Wall Street, the fundamental problem was that many people simply stopped making their mortgage payments — as was perfectly predictable when lending standards were forced down by the government.

The politicians and bureaucrats who forced lenders to lower their standards had limited goals in mind — namely affordable housing and more minority home ownership. But the repercussions when the housing markets collapsed spread all across the American economy and led to financial crises overseas, where financial securities based on American mortgages were widely sold.

All politics may be local but the repercussions reach around the world, and even extend to generations yet unborn, who will be left to cope with the national debts resulting from this debacle.

Quick fixes for the economy now are unlikely to get investors to make job-creating investments, which depend on long-term factors ignored by politicians who are focused on the 2012 elections.

To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate Web page at www.creators.com. Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His website is www.tsowell.com.

COPYRIGHT 2011 CREATORS.COM

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  • Dntmkmecmoverther

    Before we the people accepted/allowed a strong central government (Federal level government) we had local politics which pretty much kept things local.

    Then the grand idealists said we had to be ‘global’ and compete with 3rd world squaller systems. And then Washington grew so large and intrusive that they now force the local politics…so we have now lost local control of much of our economies.

    Our founders warned of this…we should have read our history books much better and then believed what the authors of the Constitution intended and wrote.

    As it is, we have trashed our Constitution…and our government schools fail to teach about the Constitution and its authors. So much for good history…and hope…and freedoms.

    • http://currmudgeon-patriot.blogspot.com PeKayEs

      Hope you are wrong -that we can recover -which is why, in my geezerhood, I am active in the Tea Party.
      Gotta; kep on keeping on!
      (love your nom-de-plume)

  • tweety

    Here in Democratic-heavy Illinois, it’s a pretty sad situation, but I was encouraged by the 2010 election of several new young GOP congressmen. They defeated heavily favorite union candidates.They HAVE made a difference in Washington. I especially single out Joe Walsh who did not attend the President’s big hoo-hah speech a few weeks ago. These votes against the administration policies add up. The Dems have now tried to redistrict these newcomers out of their districts by having them run against stronger names such as Jesse Jackson Jr. But,you know,I’m feeling good about their chances — even against the Democratic heavies.

  • http://rightwingamerica.com ACEMAN

    Good point, tweety! Also I believe the only way to get this country back on it’s feet, is to start at the local level and work our way up. Pay attention to your local Represenatives and vote accordingly. These are the ones that the Congress critters come to for advice. Click on my name to visit Right Wing America! 100% Free, 100% Uncensored. No PC police! Join today!

  • Don

    You know I keep reading about our government and just realized that each statement goes like this; “When housing prices skyrocketed”, politicians decided to…..
    “When Banks began to fail”, politicians decided to…..
    “When more people became out of work, politicians decided to…..

    Do you think that most of all that has made America stumble, lose their credit rating, and begin to protest in the streets might be because politicians are to blame for the problems we face today???

    • Andrea B

      The answer lies in personal responsibility, but they don’t teach THAT in school anymore, which is why we have a nation of entitled brats expecting taxpayers to fill their hands.

      “Government is not the solution to our problems. Government IS the problem.” Ronald Reagan

      Ron Paul 2012

  • John C. Stewart

    Most of the politicians are lawyers, and most lawyers could not balance there own books. Amazingly, they run for office and suddenly they are Laureate economists; I don’t think so. It is still the same legal eagle who can make money only by overcharging, this time he is using our money.

    • Andrea B

      Amen to that!

      The problem is that citizens need a law degree just to be able to READ legislation, and they’ve made it damn near impossible to UNDERSTAND it.

      How is that government OF, BY, and FOR the people?

      Ron Paul 2012

  • Rocky

    Simple third grade economics. The more people that handle your money the less money you are going to have. Why do you think the Lord ran the money changers out of the temple?

    • Andrea B

      Because He was greedy?

      LOL…just kidding!!!!

  • http://patriotupdate.com Raymond

    Song by Christina Houston about Obama
    http://www.youtube.com/watch_popup?v=aiGg8D4hFLc&vq=medium

    • http://x Washington22

      Raymond, thank you so much for the referral to the video. It’s one of the best! Keep posting so that others too, may enjoy……….I’s extra special when something like that is spot on, besides entertaining………………….

    • http://x Washington22

      OK, Raymond, my “white pablum” comment is being moderated!I defy anyone to find ANYTHING negative or insulting or untrue with it. So what is their criteria?

  • am2sweet

    Politics starts locally but it’s everywhere and is nationally as well as internationally. It’s mostly who you konw and how much money you have as to how high on the chain you get. They don’t count intelligence or morals as anything worth having. That’s why our country is like it is and our kids are like they are.

    • http://facebook ADRoberts

      But the times, they are a changing. Palin is not in the politics food chain. And because of her honesty, those Americans who want to stop the destructive march of politics are ready to get behind her. If we can keep them from stealing the election, like Murkowski and Reid did, our nation has a chance.

    • Bree

      Absolutely AD, my thoughts exactly. Your positive words will bring good results. SARAH 2012

  • tweety

    Obama started locally, right? Didn’t accomplish anything here on the streets of Chicago, in the statehouse of Illinois, or in the White House.

    • http://facebook ADRoberts

      Yes but Soros and the Bilderbergs control Obama and they control the Media. In 2008, many Americans still believed the media. 22% still do. But the rest have seen the light. Now, the more they attack Sarah Palin WHEN she announces, the more support Palin will get.

    • Bree

      Agree completely with you AD,and Sarah will arrive prepared and ready to take this country. Count on it.

  • http://yahoo.com tod

    Dr.Ron Paul 2012 !!!

  • Bob M

    This article nailed it. Career politicians, all politicians, only care about the next sound byte, photo op, the next elextion, the party. If there were such a thing as a pol that spoke the truth and cared about the future of the country and the American people, he/she would be unelectable because the sheeple don’t want to hear the truth. There is nothing in it for them to tackle the thankless job of solving problems that will not show results in the short term, nothing that is, beyond knowing they were doing the right thing.

    • http://facebook ADRoberts

      Well, let’s just hope you are wrong. I still believe that Palin is just that honest, patriotic person that will do what is good for the nation. And amazingly, she seems to have a lot of people who know that she will be doing things that will hurt, but that are good for the nation. You might say that people are having that “AHHHAAAAAA” moment and have found someone that they can believe in.

    • Bree

      Oh yes AD, Sarah is just what America needs and never needed more. She is a Champion for the Constitution and Conservatism, and she can not be bought, sold or bargained for. She will give the Dems a first rate heart attack ….after she cleans house! Betcha!

  • http://adrianvance.blogspot.com Adrian Vance

    That concept is less true now than ever thanks to the Internet. Now all politics is world-wide.

    The Two Minute Conservative at http://adrianvance.blogspot.com has political analysis, science and humor. Now in the top 3% on Kindle.

    • http://facebook ADRoberts

      Okay, if you are so hot, why don’t you stop advertising on other sites for your own site.

  • Idylewylde

    Not after Saudi Arabia bought the presidency.

    Not after Obama bowed to the king of Saudi Arabia.

    • http://facebook ADRoberts

      He did not have any choice. As a Muslim, he had to bow to the head of state of the home of Islam. That is required of all muslims.

  • http://facebook ADRoberts

    Sure there are some good reasons for increasing the range and power of a bank to give it stability. But it still remains that the bigger an institution becomes, the less it responses to the individual. AARP and NRA are perfect examples. The individuals who head those organizations are NOT taking care of their members. But they do have a PR campaign to keep their members in the dark as to what contrary actions they are really taking.

    The first priority when institutions become BIG is to enable accountability.

    Oh, the same thing is true of the Fed. gov. They are basically unaccoutable right now and so we have Reid refusing to act on bills, Obamacare that none of us want, funding of ACORN, Planned Parenthood, FEMA, EPA, and the Dept of Education,(whose record indicates that education continues to go downhill the longer they have control)

    • Stan Lee

      AD: You have that right! In my area, huge banks have absorbed the smaller banks.
      I know it’s happening everywhere.
      The first thing that’s noticed is that the small bank which did notice you, the customer, is no more.
      The big “take-over” bank no longer notices Mr. or Mrs. Customer. There is no personal touch anymore.
      Little you are too damned small for big bank!
      We have to keep those local banks and credit unions in business! It’s not realized how valuable they are until there’s nothing but giant banking operators in your neighborhood or town.
      There are no creative bankers who will sit with a customer and try solving a financial situation. If it doesn’t fit in the big bank’s check list, it doesn’t exist!
      You want to renegotiate your 5+% mortgage to a lower, existing, rate? That big bank won’t help you, you’re only a number to them.
      The small bank would have helped but they’re no more and your mortgage was taken over by the big bank!
      Let’s save those csmall, personal, operations! It will pay dividends in the long run.

  • Stan Lee

    I believe the nation would be healthier with politics being local. The will of the people is better interpreted by local politics. We need a bottom up system, not a top down system. And, government doesn’t create jobs.
    Does anyone really think that Obama making a trip to a solar panel factory, looking for a handout, means Obama knew a damned thing about that industry or the local demographics?
    He was there for a campaign kickback if he would get their money for them. And, they outfoxed Obama, he was the “sucker” in that deal, and that sucker passed the bill on to us suckers.
    Obama and his Democrat cronies are trying their damndest to centralize gov’t, to stifle local gov’t, they like it when they can keep everything under their thumbs while they sit on their derrieres near the Beltway.
    If the public prefers to be lazy, it passes control solely to Washington. If you want to be part of your government, it starts with local government. That takes individual time and effort. Are we “up” for that? The Founding Fathers were!