The false assumption that regulators can be safely counted upon to steer economies — local, national, or global — to full employment with minimal inflation while avoiding booms and busts was exposed in the latest yelp from the deputy managing director of the International Monetary Fund (IMF), Zhu Min. In Chinese, his name means “people rule” or “democracy,” but his ideology is firmly rooted in the Keynesian fallacy that economies can be successfully managed by experts without assistance or input from the common folk.
In announcing that the IMF has launched a new website, Global Housing Watch, Zhu delights in thinking that the world’s economy can be driven by looking through the rear view mirror. He said,
Housing prices are inching up....
In fact, our research indicates that boom-bust patterns preceded more than two-thirds of the recent 50 systemic banking crises [experienced around the world]....
We need to guard against another unsustainable boom.
Through a series of charts and graphs — one the tools of hubris-infected Keynesians — Zhu concludes that another bubble is brewing: “33 out of 52 countries in our Global House Price Index showed increases in house prices,” some of them unnerving. For example, Zhu’s own China has seen housing prices gain nearly 10 percent in just the last year, placing it fourth behind New Zealand, Hong Kong, and the Philippines. The United States, Israel, Australia, Switzerland, and Germany aren’t far behind, either, registering gains in the high single digits.
And when other ratios are calculated, such as affordability compared to rents and incomes, the numbers are equally concerning. In explaining why he’s nervous, he sounds sensible:
Theory asserts that house prices, rents and incomes should move in tandem over the long run. If house prices and rents get way out of line, people would switch between buying and renting, eventually bringing the two in adjustment. Similarly, in the long run, the price of houses cannot stray too far from people’s ability to afford them.
In a free, unfettered, unregulated housing market, of course, Zhu is exactly right. But as Ronald Reagan famously said, “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
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Photo of IMF Deputy Managing Director Zhu Min: AP Images