I found something on Greg Mankiw‘s blog that seems to explain why so many Americans bought homes and signed mortgages they could not afford thereby causing the housing crisis:
In today’s NY Times, Robert Shiller reports:
Even after taking into account factors like income and education, the authors concluded that people with relatively high I.Q.’s typically diversify their investment portfolios more than those with lower scores and invest more heavily in the stock market. They also tend to favor small-capitalization stocks, which have historically beaten the broader market, as well as companies with high book values relative to their share prices.
Egalitarians will shudder at the suggestion, but the wealth gap in America is much more likely to be the result of disparities in innate intelligence, perseverance and good judgment than it is the result of a rigged system. But this conclusion feels like kicking someone when he is down and liberals, regardless of its truth, cannot abide it. Instead, they demagogue the issue by telling poor people that conservatives think they’re stupid and lazy.
Even if leftists did believe that wealth disparities were due to something other than the abuses of the rich, they could not afford to admit it. That’s because once they admitted it they would have to admit that they are powerless to do anything about it.¹ And liberals will never admit that there exists a social problem that they cannot fix merely through the sheer power and force of their superior intellecct.
Postscript: In anticipation of left wing charges of heartlessness and snobbery, let me say that not all poor people are unintelligent and irresponsible. Some poor people are poor through no fault of their own. These, however, I think are in the minority.
¹ If the causes of wealth inequality are due mostly to personal characteristics such as intelligence, ambition and judgment, the left cannot do anything about it other than nakedly confiscate the wealth of the rich and redistribute it to the non-rich. In other words, it must support the Marxist mission: “From each according to his ability, to each according to his needs.”