Tuesday, August 02, 2011
Nicole Gelinas, appearing in the Los Angeles Times, advocates a free market fix for California's ridiculous housing prices. I agree with her that the free market needs to be allowed to work, but dislike her formulation of this solution as "forcing lenders to accept responsibility for their bad lending practice," for two reasons: First, it lets the government off the hook for its role, blatant from the rest of the piece, in encouraging these very bad practices. Second, the whole problem with our economy is the wide acceptance of the idea that the government should be issuing economic marching orders to private citizens. If you flush your own money down the toilet, and the government doesn't offer you relief, it isn't forcing you to do anything.
While I'm offering criticisms of a still-worthwhile piece, I think its scope necessarily creates an incomplete picture. Another major source of California's affordable housing woes is government meddling with the use of private property, as Thomas Sowell, among others, has indicated. So, while Gelinas's recommendation is in the right direction, it needs to include more than just the banking sector.
With that out of the way, Gelinas presents some sobering numbers about the poor fiscal shape California is in. Notably, just as taxation and inflation fail to account for all the costs of the government, so do deficit numbers fail to adequately capture just how badly in debt the citizens of that state are, due to government interference in the economy. Measuring debt alone, we could say that things are actually at least three times as bad as the figure for the state government's debt would have us believe.
To put the numbers in perspective: $200 billion [of dead-weight housing debt] is more than twice the $79 billion in general obligation bond debt that Californians owe. State bonds, though, generally pay for something useful, like road repairs. Dead mortgage debt doesn't pay for anything but a forehead-slapping "what were we thinking?"Think about this for a moment: Just as the social "safety" net is unraveling, people already unaccustomed to planning for things like retirement are hamstrung due to the consequences of other government actions! (And we haven't even considered what inflation can do to compound these difficulties.)
It would cost California's underwater homeowners more than $12 billion annually over 30 years to pay off this debt, even at today's super-low interest rates. That's money that people can't save for retirement or their kids' education, or can't put into businesses to create jobs.
The rest of the article goes on to discuss the futility of the various government mitigation measures so far, and the folly of continuing them.