Wednesday, October 08, 2008

Be Afraid, Be Very Afraid

Every time Americans have a problem, it seems we want the government to fix it, to make everything right. Some things the government does need to do, such as the abolition of slavery, such as protecting the border, such as many different functions assigned to the government by the Constitution.

But each time the government is called upon to solve the problem, that very government increases its power and gets bigger; functions previously reserved to the states get transferred to the Federal; and individuals loose rights and responsibility. After the civil war, amendments to the Constitution resulted in a huge transfer of state responsibility to the Federal. At the Great Depression, we cried out to government to fix our woes, to the point where government became the guarantor of our retirement (a.k.a. Social Security). We cried out at 9/11 and have had the disaster of the war in Iraq and many other changes that have been so recently implemented that the long-term effects cannot yet be assessed.

Now we have the Republican Party, through their nominated candidate John McCain, proposing that the Federal government implement a huge program to stabilize housing prices. Does anyone else see that as a bad thing? Should the government do anything to stabilize housing prices? Can they do anything to stabilize housing prices? Housing prices have fallen due to falling demand. The only way to stabilize those prices is to increase demand or reduce supply. McCain’s proposal, as I understand it from the media (I did not watch the debate), is that the Federal government will buy up mortgages of non-payers and renegotiate (meaning either lower principal or lower interest, or both) them so that people who can’t afford those houses will be able to stay in them. Artificial demand will only result in a new bubble in real estate prices, which will be burst at some point in the future. Or, will it have the opposite effect? If the government buys up worthless mortgages and renegotiates to keep people in those houses, would that not reduce housing prices, since the renegotiated mortgage would certainly have a lower principal, some of the indebtedness being forgiven?

I don’t want to seem heartless when people are suffering either from economic setbacks or their own stupidity, but do we really want the Federal government to be guarantor of our mortgages and guarantor of our house prices? Ridiculous in the extreme. Our founding fathers were afraid of government, and sought to limit its power through the Constitution. It seems we have forgotten the hard-fought lessons of the 18th Century. I am afraid of how powerful the government is now, yet more afraid of how willing our people are to expect the government to bail them out of every crisis. The Federal government now guarantees our retirement (Social Security), guarantees our wages (through minimum wage laws and the Davis Bacon Act), guarantees our education (through forced attendance and ineffective pubic schools funded through confiscation), guarantees our mortgages (the Freddie and Fanny takeovers), will soon guarantee our house price, will soon guarantee fairness in labor-management wage differential (through executive compensation controls; you know they are coming), and will soon attempt to guarantee our lifespan (through socialized medicine). What’s next?

By proposing that the Federal government spend one cent of my tax dollars to stabilize housing prices, he may have just lost my vote.

I am very pessimistic about the future of America, as you can tell. I believe we have passed our zenith, and are on the slow downhill slide to residence in the neighborhood of the average nations.

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