Wednesday, January 12, 2011

The Invisible Man and the Housing Market

Thomas Sowell came out with a new article entitled ‘Saving’ the Housing Market. In it, he describes the folly of trying to save the housing market. I happen to agree with him, and so would like to go through a couple of points that he makes and add my own input.

We hear all sorts of sad stories about people whose homes are "under water" or who are facing foreclosure. But why should our attention be arbitrarily focused on these particular people, rather than on the many other people who would benefit from being able to buy those same houses, if the prices came down?

This is an obvious point that he makes that it seems to many people fail to understand. It is due to a limited scope when viewing economic effects. When people look at an issue, they only look at who it directly affects, and not who is indirectly harmed. In the case of the housing market, by trying to keep prices high, we benefit current homeowners and whoever owns the loans for those homes. The people harmed are potential homebuyers who are kept out of the market because of high prices. But there is also another group of people who are harmed. That is, the rest of the economy. Because people must spend so much money on a home, it means that they have less money to spend on everything else they buy like clothes and toys and food, etc. So in this case, not only are those indirectly affected ignored (as usual), but even those directly affected are ignored.

But what of sympathy? Surely these people fully expected to pay back their loans before the market crashed. Sowell has a response to this.

If anyone is especially deserving, it is those who had the common sense to avoid taking on bigger financial obligations than they could handle, but who are now expected to pay as taxpayers for other people's irresponsibility.

No doubt some people who are facing foreclosures might have been able to continue making their mortgage payments if they had not lost their jobs. But since when were we all guaranteed never to lose our jobs? People used to put money aside "for a rainy day." But now people who have spent like there are no rainy days are supposed to have the taxpayers pay to give them an umbrella.

There is no such thing as a guarantee in a free market. Even the guarantee that you get from a company such as a lifetime warranty is not guaranteed because what happens if that company goes out of business?

We need to stop being sympathetic. It is detrimental to our entire economy and it does not allow a correction (a falling in prices of homes). The government cannot make life better and fairer without getting in the way of a growing economy. Besides, the government obviously cannot control the economy or else we would have gotten out of this mess already. We are still here, so what exactly are we sacrificing our full potential for? Let's stop trying to fix the economy; the economy can fix itself.

1 comment:

  1. "When people look at an issue, they only look at who it directly affects, and not who is indirectly harmed."

    It's just like in the news world, if it bleeds, it leads. When people are losing their homes, even through stupidity and being irresponsible, they are willing to appear in front of the media crying and wailing over it. If you can't afford a home because it's too expensive, you won't find many looking for a camera to whine into. Well unless you're a liberal with a strong sense of entitlement, they'll whine about anything.

    "Let's stop trying to fix the economy; the economy can fix itself."

    Exactly, it wasn't the gubbmint that created the economy, and it won't be the one to fix it. Well unless we're living in some sort of communist state, but even then we know how that worked out in the end.

    Thanks for stopping by my blog by the way.