New York Times Finally Gets It: “Let Housing Prices Fall!”
By Jonathan Bean • Tuesday September 7, 2010 5:48 PM PDT •
Housing subsidies, easy credit, bribing banks to refinance those “under water,” and–even worse–extending “first-time homeowner” programs to the nth degree just doesn’t work! Artificial stimulation of housing caused this bubble. “The hair of the dog that bit you” isn’t going to treat your disease. Keeping the addict “hooked” doesn’t work either.
This is all keeping with the Austrian interpretation of the business cycle: the government encouraged people to misallocate their resources, on a massive scale, by investing in housing. When banks failed, the government “rode to the rescue” of those “Too Big to Fail.” Don’t think that it was only Big Business: everyone, even those who can afford their mortgage, feels entitled to an increase in their asset value. If their house is “under water” (worth less than than what they owe), then screw banks, screw the government–I want a bailout too!
Policymakers in Washington, D.C. have learned NOTHING. “Moral hazard”? Regime uncertainty? We don’t know business, they say, but we can count votes and our policy makes perfect political sense:
First, promise current home owners they will not fail. They will not even lose money. Their assets must retain their value. That is the American Dream, right? All up, no down?
Second, we “keep on keeping on” by making housing affordable for first-time home buyers.
Even those who know current policies are self-destructive cannot say it. Politicians must always promise something for everyone–except savers, punished for their thrift as the Fed drives rates down near zero.
So far, the Republicans satisfy themselves with letting the Democratics implode this election cycle. But they cannot crow too loudly because they were part of the bipartisan circus that brought us Fannie Mae/Freddie Mac guarantees (and now taxpayers are on the hook for $15 trillion of mortgage debt). No one has gotten the free market gospel or the immorality of government subsidies: the GOP has yet to say “we must face the consequences of promising a ‘free lunch.’” “There ain’t no such thing as a free lunch”
Even the lobbying arm of home builders suggest that the best policy is “doing nothing”—and yet that is the hardest thing for politicians to do. The Times ends with this reflection:“Some members of the National Association of Home Builders say a new credit of $25,000 would raise demand but their chances of getting this through Congress are nonexistent.
“Our members are saying that if we can’t get a very large tax credit—one that really brings people off the bench—why use our political capital at all?” said David Crowe, the chief economist for the home builders.
That might give the Obama administration permission to take the risk of doing nothing.”
Democracy is on trial, not free markets. The question is:
Can elected officials act responsibly or do political incentives and special interests clash with economic reality? So far, democratic illusion is winning out over economic reality. Dear politicians: “doing nothing” sounds better all the time. The Times has given you cover–now do the right thing.
As if that is going to happen.