The Roots of the Financial Crisis: Another View

We’re almost a year into the worst recession since the Great Depression. The housing market is in still in the dumper, banks are still failing and GM is still teetering.  Could it be the economists and so called “experts” have got it all wrong?  That’s David Goldman’s theory in Demographics and Depression an article in the May 2009 issue of First Things. Goldman says, the experts obsession with technical adjustments and financial complexities blinds them to the truth. 

At the heart of this issue is demographics. The demand for new capital derives from a focus on families with children. Since single parent families tend to be poor, most all of the demand is concentrated in two parent families with children. The problem: while the housing stock has increased, the number of families to invest in them has not. Goldman writes:

The number of two-parent families with children, the kind of household that requires and can afford a large home, has remained essentially stagnant since 1963, according to the Census Bureau. Between 1963 and 2005, to be sure, the total number of what the Census Bureau categorizes as families grew from 47 million to 77 million. But most of the increase is due to families without children, including what are sometimes rather strangely called “one-person families. . . . In place of traditional two-parent families with children, America has seen enormous growth in one-parent families and childless families. The number of one-parent families with children has tripled."

Goldman continues: 

America’s housing market collapsed because conservatives lost the culture wars even back while they were prevailing in electoral politics. During the past half century, America has changed from a nation in which most households had two parents with young children. We are now a mélange of alternative arrangements in which the nuclear family is merely a niche phenomenon. By 2025, single-person households may outnumber families with children. . . . .The adverse demographics arising from cultural decay, though, portend far graver consequences for the funding of health and retirement systems.

What’s the solution? Recognize Keynesian economics and the technical adjustments to monetary policy are doomed to fail. Instead, conservatives must not be afraid to state what we all know to be true: children are our true wealth and families – not governments – can best determine how wealth is to created and distributed.  Without codifying these ideas inworkable policy proposals – which Goldman discusses –  we’ll be relegated to the present policy of flailing as we watch our national wealth continue to shrink.