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White Hats, Dim Bulbs

November 19, 2010

Today Federal Trade Commission Chairman Jon Leibowitz appeared at a White House political event to explain how agency is “fighting for the middle class.” He opened with a dubious history lesson:

Sixty-six years ago, Franklin Delano Roosevelt signed the GI bill into law, and the American middle class was born – born of a government program that put millions of returning World War II veterans through school and into their first homes.

Sixty-six years later, unemployment, foreclosures, and financial scams threaten to shake that middle class apart; sadly a solider returning home from Afghanistan today is more likely to find a notice throwing his family out of their house than he is a program putting them into one.

And though there are many in public service – many of us in this room today – who strive to continue FDR’s commitment to justice for the middle class, too many families feel abandoned by Washington, left to drown in a sea of bad guys and black hats.

At the FTC, we want to reclaim the white hat for the U.S. government.

Our own Thomas DiLorenzo took issue with the myth of the G.I. Bill as enabler of the middle class in a 1997 op-ed:

he public purpose of the G.I. Bill was to smooth the transition from military to civilian life after the war. But ulterior motives were also present. Washington Keynesians wrongly feared the economic consequences of putting this many people in the private sector at once; better to let them flounder around in schools for a few years.

Left-liberals wanted universities to be “democratized” and purged of traditional notions of merit and class. These ideologues saw veterans as a helpful tool (90 percent were eligible to receive funds) in this egalitarian effort. Moreover, colleges and universities across the country wanted government subsidies, just as they do today.

There’s a myth that most veterans would not have attended college without federal government help. In fact, myriad programs existed at all levels of society. Virtually every major church, civic organization, and large corporation raised money to provide them, and most states established loan programs as well. These could have worked without negative effects on schools. But they were preempted by the feds and history’s largest infusion of public dollars to education.

In 1946, the program’s first year, the government dumped $1.3 billion on higher education. This may not seem like much today, but it was then the largest program giving direct payments to individuals, exceeding unemployment benefits, Social Security (by four times), military retirement (by one third), and even agricultural subsidies during the heyday of rural central planning. Two years later, it had exploded in cost by 250 percent.

Curiously, the topic of Leibowitz’s remarks today was not higher education, but mortgages, specifically new FTC mandates regarding so-called mortgage rescue companies. Leibowitz said “[h]undreds of thousands of consumers have lost hundreds of millions” because of scammers who promise to help homeowners modify their loans in exchange for upfront fees.

I don’t doubt that such scams exist. But for Leibowitz to put on his “white hat” and claim the government is here to protect the middle class is really ignoring the forest for the trees. It was the feds who precipitated the mortgage crisis in the first place by encouraging the “middle class” to live beyond their means and take out extravagant mortgages — while simultaneously subsidizing (and regulating) the lenders through Freddie Mac and Fannie Mae, disabling the market’s mechanism for weeding out bad loans. Any “mortgage rescue” scams currently in operation owe their existence to decades of federal policy that over-inflated the housing market. Chairman Leibowitz doesn’t appear to offer any relief for the underlying causes, only a minor symptom.

Leibowitz’s invocation of the G.I. Bill demonstrates his inability to grasp the problem. Just as that federal intervention inflated the higher education market by falsely associating economic wealth with college degrees, the housing boom preached a false message that rising home prices equated easy money. It’s a scam so obvious that you’d think the FTC chairman would have recognized it. Of course, Chairman Leibowitz has spent the bulk of his professional life inside the Washington suburbs — where wealth and the middle class are synonymous with government expansion — so it’s perhaps unreasonable for him to see that which should be obvious.

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