Housing Bubbles As Cultural Pathology

By Author: Lawrence Roberts
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What is a Cultural Pathology? There are certain beliefs if widely held and acted upon by a group of people leads inevitably to collective suffering and personal destruction. The housing bubble was a form of cultural pathology. It spawned a number of beliefs and actions that caused people to lose their houses in foreclosure.

One example of a cultural pathology is demonstrated by the American auto industry. Before the age of imported cars, the American auto industry believed the quality of their product did not matter; people bought their product irrespective of quality. For many years, the industry was successful despite this pathology. This belief allowed offshore competitors to enter the market, build market share, and finally take over the industry. The American auto industry’s belief system had had a pathologic effect on their business which caused much suffering in Detroit. This commitment to quality in the industry is still suspect, and it may lead to the bankruptcy and destruction of our major automakers.

The best treatise on the pathology of cultural beliefs was George Orwell’s ...
... novel, 1984. In Orwell’s vision, a totalitarian State had convinced the populace of the following:

* WAR IS PEACE
* FREEDOM IS SLAVERY
* IGNORANCE IS STRENGTH

Although these statements are clearly contradictory, in the story the slogans do make sense to the State. For example, through constant “war”, the State can keep domestic peace; when the people obtain freedom, they become enslaved to it, and the ignorance of the populace is the strength of the State. Just as Orwell’s Big Brother convinced the populace the above contradictions were true, Californians and other bubble participants have convinced themselves of the following:

* APPRECIATION IS INCOME
* CREDIT IS SAVINGS
* DEBT IS WEALTH

Just as these statements are contradictory and ridiculous, the proof that these statements are believed is that they are reflected in the actions of many homeowners during the Great Housing Bubble. For example, through borrowing against increasing home values, appreciation is turned to income; when people obtain more credit, they spend it like available savings, and a large amount of debt used to finance a large, opulent home makes one wealthy. To many buyers and homeowners during the Great Housing Bubble this made perfect sense.

The problem is rooted in a basic misunderstanding of what separates the rich from the poor: the habit of saving. There is an old expression, “the rich get richer and the poor get poorer.” It is more accurate to say the rich save money and the poor spend it: in the end, the rich will have money, and the poor will have none. This is not one of life’s inequities, but rather one of life’s simple truths. When the average Joe says he wants to be rich, what he is really saying is he wants unlimited spending power. He wants the ability to spend like the rich people he sees wearing Rolexes and driving BMWs to their mansions. This is why, when given the chance, poor people will emulate the rich by spending beyond their means in order to be rich. Of course, in the process, they spend themselves poor.

The Great Housing Bubble witnessed the widespread acceptance of pathologic beliefs by the populace. The huge numbers of foreclosures that occurred as the bubble deflated are testament to just how pathological these beliefs were.
About Author:
Lawrence Roberts is the author of The Great Housing Bubble: Why Did House Prices Fall?
Learn more and get FREE eBooks at: http://www.thegreathousingbubble.com/
Read the author's daily dispatches at The Irvine Housing Blog: http://www.irvinehousingblog.com/ Visit Housing Bubbles as Cultural Pathology.