In the 90s, the federal government of the United States tried to promote a “culture of ownership” by promoting banking and HUD policies that lower the bar for individuals and families to acquire credit to purchase residential real estate. By unnaturally inflating the number of dollars available to purchase homes, these policies produced an unnatural inflation of housing prices, and encouraged the development of a whole collection of financial innovations (securitized aggregated leveraged mortgage derivatives and the like) to manage the massive influx of both dollars and risk into what had previously been a relatively stable system. And, for a time, all was well.
Then, the proverbial bubble burst. Too much inflation had been absorbed into the housing market, and commodity sellers – particular petroleum – called the bluff and ran their own prices up. The sheer mass of risk aggregated in mortgage securities wasn’t properly quantified because it was never properly understood, and when the assumptions undergirding those securities proved not only to be false but to be delusionally optimistic, we saw a precipitous crash in worldwide credit markets from which we have not yet recovered.
So, follow me here and see if this makes sense.
It’s 1993. “Home ownership is good.” Agreed. “Home ownership is expensive.” Agreed. “There are well-meaning and hard-working people who would like to own homes but can’t afford to.” Agreed. “Let’s distort the market by making credit artificially inexpensive.”
It’s 2009. “Access to top-notch health care is good.” Agreed. “Top-notch health care is expensive.” Agreed. “There are well-meaning and hard-working people who would like access to top-notch health care but can’t afford it.” Agreed. “Let’s distort the market by making top-notch health care artificially inexpensive.”
The experts in the 90s assured us that greater home ownership will be good for banks, construction, commerce, employers, families, retirees, and everyone else. Here it is in 2009, and many of those same experts are assuring us that this new adventure in market tinkering can’t possibly have a serious down-side to quality or availability of care, to medical education or employment, to the insurance companies shareholders, to those who are insured through their employer, to employers, to the unemployed, and to everyone else. So forgive me if I’m skeptical about this cadre’s ability to project all of the economic side-effects of their little experiment.
As they say, “let’s be clear”: we haven’t even worked out the side-effects of the $1B that’s been dumped into the “cash for clunkers” program. We know that there’s been an uptick in new car purchases, but we also know that a significant chunk of that was people who deliberately deferred buying new cars in recent months in anticipation of this program. We know that the program has taken lots of late-model used cars off the road, and thereby out of the used car market, decreasing supply without doing anything to correspondingly decrease demand, which (if you learned anything in econ 101) tells us that the price of used cars will be on its way up, possibly leading to stifled demand (and, therefore, market stagnation). On top of that, it’s not yet entirely clear where all of those $1B went; there were cries for audits and accountability for last year’s bank bailouts (and rightly so), but we can’t shovel more money into this program quickly or indiscriminately enough. And nobody but nobody outside of the “fringe media” is bothering to even ask the question (publicly, anyway). So, again, count me as skeptical when the White House assures me that their proposals will somehow work out as “market neutral”, let alone “deficit neutral”.
Looking forward to my new life on the flag@whitehouse.gov blacklist.
