Arnold Kling, in a post complaining that regardless of the precise nature of the argument being made at the time the “consensus opinion” is always to subsidize Fannie Mae and Freddie Mac, explains the consequences of subsidizing house prices:
The effort to prop up home prices does the following:
1. Diverts capital from other uses.
2. Uses up taxpayer money that could be spent on other things.
3. Increases the wealth of people who find suckers to buy their houses at too-high prices.
4. Decreases the wealth of the suckers who buy now.
5. Decreases the liquidity and mobility of people who cannot find rational buyers for their houses because rational buyers do not buy into a rigged market.
6. Decreases the investment opportunities for rational buyers, who are unable to buy homes in an un-rigged market.
If you think that housing is just about to rebound and homes are a better investment than ever you probably think this is rank heresy and what possible better use of the money could there be. If you think, as I do and I presume Arnold does, that housing is unlikely to resume its preeminence as the driver of the national economy any time soon, propping up home prices is actually damaging to the economy.
If you think, as I presume the Administration does, that propping up home prices is likely to prove popular and while housing construction isn’t much, it’s the only game in town, then you think we’re in a real pickle.
Yeah, but Obama gets a B.
Obama is like the French during WWII…still fighting WWI. I’ll be nice and give him a C- for effort.
I’m a tougher grader, because bad policy has real bad outcomes for real people. D.
Not an F because the guy really has no clue, and is just relying on his advisors.