There is a tendency for Washington to try to “fix” economic problems. Not since the Great Depression have we seen such a growth in government. However, the unintended consequences of government intervention risk causing long-term harm. Though the cause(s) of any given recession are unique, they all share one common trait: they are periods in which our free market corrects itself to resume growth.
I believe that tax cuts are the most effective measure government can take to stimulate growth. Freeing up capital for families and businesses allows market forces to determine the best allocation of scarce resources. That’s not to say I am opposed to some government borrowing during recession to fund targeted infrastructure projects and temporary expansions of programs like unemployment benefits to ensure citizens’ basic needs are met.
With this, though, we must keep in mind that to finance deficit spending, the government has to borrow from the private market. Each dollar borrowed means there’s one less dollar available for the private sector.
I opposed the stimulus bill because I believe it borrows too much money for massive spending on programs that will not achieve the goal of providing a quick jolt to the economy. The stimulus should have combined tax cuts for families and businesses, expansion of programs to assist jobless workers trying to make ends meet, and funding for infrastructure projects that will provide long-term benefit.
The most disappointing aspect of the stimulus bill was the House and Senate negotiators’ decision to strip the Senate-passed $15,000 homebuyer tax credit from the final bill. Instead, the final package included a smaller, $8,000 credit limited to first time buyers. We’re all aware that a primary factor of the economic downturn is the collapse of the housing bubble and the implosion of the securities market largely responsible for its inflation. My office fielded numerous calls from prospective homebuyers interested in the credit’s status, and I believe it would have provided a market-driven solution to an important sector of our economy.
The need to put a floor under the sinking real estate market is paramount to recovery, and I applaud President Obama’s willingness to address the crisis. However, while the specifics of the Obama housing rescue plan are not yet finalized, based on the outline, I am incredibly disappointed by his approach.
I realize there are a number of people facing foreclosure because they’re out of work or didn’t understand the specifics of a mortgage into which they entered. But there are a number of people who knowingly entered into mortgages they couldn’t afford. Furthermore, despite the fact that these borrowers often put little money down, there were plenty of lenders who were more than happy to set up these mortgages without going through the hassle of taking time to verify income or other underwriting measures. Often, the lenders and/or borrowers flat out lied on their applications.
Of course, nobody really cared since the mortgages would eventually be packaged and sold as securities.
What’s most frustrating is the Obama plan will help many of these irresponsible lenders and borrowers. While the plan will benefit some people who played by the rules but found themselves in a tough spot, there will be countless individuals who will be subsidized by taxpayers to remain in homes they couldn’t afford in the first place. I’m concerned this is a temporary fix – these same people will still not be able to manage, and we are just propping up a situation instead of dealing with the structural issues to correct it.
The biggest losers in all of this are those who were prudent and decided not to buy a home they couldn’t afford or chose to save for a down payment instead of entering into interest only or adjustable rate mortgages. Because they made a wise decision, it will be harder for them to get a mortgage, even if they have a down payment and excellent credit.
After a decade of unprecedented growth, our economy has declined in a shocking manner. The problem is no longer keeping up with the Joneses, but instead keeping up with the mortgage.
