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
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
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
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
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.