A Stitch in Haste

More 20/20 hindsight, from the blawger who inspired this recent post, regarding the subprime sutuation —

Now that the recent housing bubble has burst, it seems obvious that too many people who shouldn’t have tried to buy houses were approved to take out mortgage loans. One take on the problem, therefore, is that these people were simply not yet ready for the ultimate prize of owning their own home. The current problem is thus just another one of those crazy interludes that occasionally infects financial markets (and that will take years to clean up). Although the bubble years were indeed crazy, however, the problem goes deeper than that. In fact, it is fairly clear that widespread home ownership really doesn’t make sense even when there is no crisis.
…
If all of this is true, why do people view home ownership as part of the American Dream? … A big part of the story is direct government policy. The mortgage interest deduction, the deduction for state and local taxes, support for Fannie Mae and Freddie Mac, direct subsidies for loans and first-home purchases, etc., are all based on the idea that home ownership is the ultimate goal of adulthood.

But as fans of House know — and as I commented at that blog — what good is listing all the symptoms if you still can’t diagnose the disease?

—

A big part of the story is direct government policy.

Yes indeed, but “direct government policy” is not an exogenous variable. Any meaningful discussion of the topic must also ask: Where did this “direct government policy” come from?

Or is it that we might be embarrassed by the answer?

—

Incidentally:

The housing market has generally incorporated the tax advantages into prices[.]

That’s also true in college finance: the more subsidies and tax breaks families get, the more colleges simply raise tuition. Colleges are the ultimate price discriminators.

And this “aid-price spiral” is occurring at the same time that we are seeing increasing evidence (e.g., dropout rates) that efforts to get ever more unqualified students into college are simply not working. It’s exactly the same phenomenon as subprime lending, for exactly the same reasons.

I therefore eagerly await your next post calling for the abolition of all government-based student aid.

—

“Home ownership” is only half of The American Dream™; the other half is of course “seeing your children graduate from college.” And we are now almost at the point where any commentary on subprime mortgages is a mere find-and-replace away from being a commentary on college enrollments, graduations and dropouts.

—

Previously:
–Why Subsidize Student Loans?
–Why Subsidize Law School, Especially Bad Law School?
–The Looming College Under-Enrollment Crisis

Filed under: Activist Legislators & Nanny Statists, Capitalism, Freedom of Contract, Property Rights, Taxation & Fiscal Policy