The Affairs Organizer Blog

Today’s Wall Street Journal article “Builders Make Plea for Federal Aid” by Nick Timiraos reports:

“The builders’ lobby is ramping up its sales pitch for a $250 billion stimulus package called “Fix Housing First,” arguing that financial markets won’t recover until home prices stop falling. They are calling for a generous tax credit for home purchases and a federal subsidy that would lower a homeowner’s mortgage rate … Housing economist Thomas Lawler … and others argue that effectively setting a floor for home prices will prolong the pain because it will keep supply and demand out of sync. “The government does not have the tools to rewrite the laws of supply and demand,” said Harvard University economist Edward Glaeser. “By artificially increasing prices, we are encouraging more building.”

I’m certainly not a Harvard economist, but the proposal by the Homebuilders is a terrible idea.

Will the “leaders” of all these firms ever tire of trying to keep profits private and untaxed, while having the public bear their risks and losses?

Endless borrowing by the US Government to bail out every losing bet or struggling industry is not capitalism and is not sustainable.

No one likes to see companies go bankrupt and employees lose their jobs, but bankruptcy plays an important role by helping our economy evolve and allocate resources efficiently.

A strong social safety net for those who lose their jobs is important and I’m happy to pay my share of taxes to support this system, but artificially propping-up industries that overbuild and/or make products consumers don’t want to buy weakens our system in the long-run and warps the risk/return equation.

I do make exception to this philosophy, to a very limited extent, to allow for the financial system being temporarily preserved because the consequences of this entire industry failing are too great for the economy to bear.

Also, at some point – perhaps not so far in the future at the rate we’re going – US Treasury securities will lose their “zero risk” assumption, and then we’re really in for some difficulty.