Sub­si­diz­ing bad de­ci­sions

The Washington Times Weekly - - Commentary - Thomas Sow­ell

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 should be asked but sel­dom are asked.

Since the av­er­age Amer­i­can never took out a mort­gage loan as big as 700 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 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 them.

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 tax­payer.

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 credit.

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 occu- pants 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 bad de­ci­sions.

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.

Thomas Sow­ell is a na­tion­ally syndicated colum­nist.

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