The credit crisis has led to numerous calls for bigger
government. Yet the truth is that big government not only let
the crisis happen, it caused it. This truth is obscured by most
accounts of the crisis. “I have a four-step view of the
financial crisis,” says Paul Krugman. “1. The bursting of the
housing bubble.” William Kristol agrees. His account of the
crisis begins, “A huge speculative housing bubble has
collapsed.” “The root of the problem lies in this housing
correction,” said Secretary of the Treasury Henry Paulson. So it
all started with the bubble. But what caused the bubble? The
answer is clear: excessive land-use regulation. Yet while many
talk about re-regulating banks and other financial firms, hardly
anyone is talking about deregulating land. The housing bubble
was not universal. It almost exclusively struck states and
regions that were heavily regulating land and housing. In fast-
growing places with no such regulation, such as Dallas, Houston,
and Raleigh, housing prices did not bubble and the