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August 14, 2009

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ms

Well, I guess you're never going to be elected president! Have you read Thomas Sowell's book about this issue? He places the blame on land use restrictions as well as manipulation of banks to force them to give loans to people who really didn't qualify. Those two were sufficient to cause the run-up in housing prices without bringing in the tax deduction.

Joyless Moralist

Another suggestion I've read, by David Goldman in First Things, is that part of the problem is demographic -- the younger generation is not as large as the older one, and they're starting families later anyway, so there aren't enough credible buyers for family homes. Of course, this is not mutually exclusive to other partial explanations for the problem, though it is worrisome if true, considering the long-term implications.

Tom

There is no aging demographic problem if border policies and undocumented worker rules are not enforced (see 1990s). Of course, then your grandkids will have to be multilingual as the English speaking population becomes a minority. I feel sorry for future white people as they become as marginalized as other US minorities have been in the past.

Joyless Moralist

Responding to Nathan's comment from the other thread (which I assume he meant to leave here): yes, they can stop building houses, but part of the point of Goldman's article was that a house, once built, tends to stand for quite some time, and people of the older generation often counted on being able to raise their kids in a house and then sell it and get a nice profit. Then they'd move into someplace smaller (which would be enough for the couple once the kids were all gone) and use the profit as retirement money. Problem is, the plan depends on a substantial rising generation of new, young families, and that generation wasn't big enough to bring all their elders' plans to fruition.

Of course if they stopped building houses, some would eventually fall apart and be condemned and the total number of livable houses would decrease. There's still no way to do that, though, that isn't going to lead to exactly what we're seeing -- certain neighborhoods sinking considerably, and the people who moved there and who were hoping that their houses would eventually be worth *more* than when they bought them (or at least as much), finding instead that they live in something of a slum now and their houses aren't really worth anything. Foreclosures and rotting, condemned houses do pretty terrible things to the value of any other properties in the area (even the well-maintained ones), so unless you plan simply to evacuate whole neighborhoods en masse, you're going to get some big losers as the number of families looking for homes diminishes.

Again, I don't think anyone supposes this is the *whole* story behind the crash, but it could be a serious contributing factor. I don't think talking Americans out of homeownership on a large scale is necessarily a good solution, though it's probably right that we need to accept that not *everyone* can own a house, and there need to be more affordable, but still livable and safe, housing alternatives for those families that really can't handle a mortgage.

Nathan Smith

Hmm. Joyless Moralist's story about rotting neighborhoods seems to make sense *if* the birth rate is below replacement rate, but America's isn't. America's population is growing substantially. So Goldman's story doesn't seem to hold, except in the sense that people had exaggerated expectations for how much appreciation would take place. But it *could* hold, somewhere, sometime. It might hold in Europe.

Nato

"Of course, then your grandkids will have to be multilingual as the English speaking population becomes a minority. I feel sorry for future white people as they become as marginalized as other US minorities have been in the past."

I assume this is a joke on the fears of nativists, since I think Tom would agree this is exceedingly unlikely. But, since a lot of people genuinely beleive this, it's probably worth debunking.

Even if all of Mexico moved to the US, there would still be far more English than Spanish speakers in the US. If lots of people moved to the US from many countries speaking many languages, it's pretty certain that English would continue to be the common language that any two foreign-born people would speak. And that's discounting the effect of English being the language of money, attacting the economically ambitious to the language, which in turn further cements English as the language of money.

'White' people do indeed lose out when we don't learn a second language, but it's unlikely that someone who speaks English as a first language will find themselves obliged to learn any given other language to get ahead. More likely, they continue to be most damaged by a poor grasp on the language to which they were born. (Learning another language is a prime way to improve ones understanding of ones first, of course)

Tom

Yes, I was joking. I was parodying a certain nativist mindset.

Val Larsen

It is odd that I (who have already benefitted from the mortgage deduction) should be the one to make the following point while several of you (who have not yet purchased a home and stand to benefit) are critical of the policy. I suppose this is a tribute to our dispassion. But I think there is merit in the idea that home ownership encourages certain bourgeoise virtues and that those virtues have positive externalities for a society. Classicist Victor Davis Hanson has pointed out that "in a democracy there is always a certain tendency for ochlocracy. Popular demagoguery ensures that the better off are pilloried, and the public votes itself largess that it simply does not have." Where the masses lack property and have little to lose, this malignant tendency in democracy is more likely to manifest itself. Property ownership undergirds an economically salubrious conservatism with respect to the public purse that can produce benefits that outweigh the cost of a public subsidy for home ownership. The question then becomes what the magnitude of the subsidy should be. It is likely that the cost/benefit equilibrium would be optomized by putting a maximum dollar value on the amount of interest that could be deducted. I don't know what that dollar amount would be, but I do think the deduction, at some dollar value, would produce a net social and economic gain.

Nathan Smith

If the goal of subsidizing homeownership was to promote "property ownership," it sure backfired mightily, eh? Thanks to our obsession with homeownership, we now have a society in which a third of the population or so has negative net worth (don't quote me on that statistic)! And plenty of popular demagoguery is ensuing.

In fact, a wide range of government policies, especially Social Security and Medicare, as well as subsidies to homeownership, tend to promote personal indebtedness and undermine the incentive to save. If we want to promote an "ownership society"-- a good idea, I think-- the way to do that would be some kind of privatization of Social Security and Medicare, and generally less handouts to the elderly, to increase the incentive to save and accumulate wealth.

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