March 10, 2009
Subsidizing bad decisions
Now that the federal government has decided to bail out homeowners in trouble, with mortgage loans up to $729,000, that raises some questions that ought to be asked, but are seldom being asked.
Since the average American never took out a mortgage loan as big as seven hundred grand — for the very good reason that he could not afford it — why should he be forced as a taxpayer to subsidize someone else who apparently couldn't afford it either, but who got in over his head anyway?
Why should taxpayers who live in apartments, perhaps because they did not feel that they could afford to buy a house, be forced to subsidize other people who could not afford to buy a house, but who went ahead and bought one anyway?
We hear a lot of talk in some quarters about how any one of us could be in the same financial trouble that many homeowners are in if we lost our job or had some other misfortune. The pat phrase is that we are all just a few paydays away from being in the same predicament.
Another way of saying the same thing is that some people live high enough on the hog that any of the common misfortunes of life can ruin them.
Who hasn't been out of work at some time or other, or had an illness or accident that created unexpected expenses? The old and trite notion of "saving for a rainy day" is old and trite precisely because this has been a common experience for a very long time.
What is new is the current notion of indulging people who refused to save for a rainy day or to live within their means. In politics, it is called "compassion" — which comes in both the standard liberal version and "compassionate conservatism."
The one person toward whom there is no compassion is the taxpayer.
The current political stampede to stop mortgage foreclosures proceeds as if foreclosures are just something that strikes people like a bolt of lightning from the blue — and as if the people facing foreclosures are the only people that matter.
What if the foreclosures are not stopped?
Will millions of homes just sit empty? Or will new people move into those homes, now selling for lower prices — prices perhaps more within the means of the new occupants?
The same politicians who have been talking about a need for "affordable housing" for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?
The political meaning of "affordable housing" is housing that is made more affordable by politicians intervening to create government subsidies, rent control or other gimmicks for which politicians can take credit.
Affordable housing produced by market forces provides no benefit to politicians and has no attraction for them.
Study after study, not only here but in other countries, show that the most affordable housing is where there has been the least government interference with the market — contrary to rhetoric.
When new occupants of foreclosed housing find it more affordable, will the previous occupants all become homeless? Or are they more likely to move into homes or apartments that they can afford? They will of course be sadder — but perhaps wiser as well.
The old and trite phrase "sadder but wiser" is old and trite for the same reason that "saving for a rainy day" is old and trite. It reflects an all too common human experience.
Even in an era of much-ballyhooed "change," the government cannot eliminate sadness. What it can do is transfer that sadness from those who made risky and unwise decisions to the taxpayers who had nothing to do with their decisions.
Worse, the subsidizing of bad decisions destroys one of the most effective sources of better decisions — namely, paying the consequences of bad decisions.
In the wake of the housing debacle in California, more people are buying less expensive homes, making bigger down payments, and staying away from "creative" and risky financing. It is amazing how fast people learn when they are not insulated from the consequences of their decisions.
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