When government sets out to make x, y, or z "more affordable," free market capitalism gets less free and x, y, and z become more expensive. Less freedom in the market place invariably leads to higher costs.
Need examples? Think of x as college tuition, y health care, and z housing.
After the predictable results of government meddling crop up in the form of higher prices, politicians like to blame businesses that operate in the skewed market they created with bad policies, then pile on new regulations that are intended to hold down the very effects of bad government policy.
This actual cause of economic problems usually goes unaddressed and culpable government schemes go on unabated.
Need a good example? The vast, 2,000+ page finance bill passed in the Senate does not reform or regulate Fannie Mae and Freddie Mac out .
Proponents of the finance "reform" bill argue its new regulations on Wall Street firms will reduce risky investment behavior in the financial markets, thus reducing risk to Americans' retirement accounts and, we are led to believe, saving taxpayers from the burden of future multi-billion dollar bailouts.
If only it were true.
Politicians are prone to covering up the symptoms of their efforts to control the free market; they loathe to treat the real causes of unhealthy markets. They make great fare out of treating the symptoms of their own bad policy; they ignore or downplay the fact their policies are the cause of high prices and needlessly volatile markets. It is just not good press to admit the dragon you are slaying on behalf of the taxpayer is a monster you had a hand in creating.
As Henry Hazlitt puts it in his indispensable book Economics In One Lesson, "By implication they (the government) put the blame for higher prices on the greed and rapacity of businessmen, instead of on the inflationary monetary policies of the officeholders themselves." (p. 118)
Taxpayers twice pick up the bill for such economic malfeasance, once as consumers paying artificially high prices for products and services and a second time under the burden of taxpayer funded subsidies and bailouts. Think again of college tuition, health care, and, of course, housing.
Leaving aside the hundreds of provisions included in the finance bill that have nothing to do with financial reform, the glaring omission is the lack of regulations on the lending giants Fannie Mae and Freddie Mac. By leaving these banks out of the bill, the Senate has ignored the major contributors to bad business practices they are purportedly trying to reign in.
Initiated as GSEs (government-sponsored entities), Fannie and Freddie have from the start infected the housing and financial market with a poisonous artificial influence. Being the bizarre hybrids of tax-funded entities (created by Congress) operating in the private market (paying dividends to shareholders), Fannie and Freddie have never operated under the normal pressures of the market. With an implied and open-ended source of taxpayer funding, what “company” would not make unnecessary risks?
It is no surprise, then, that Fannie and Freddie endorsed low underwriting standards and conjured the infamous sub-prime mortgage practice, allowing credit-challenged borrowers to purchase homes on a vast scale.
Operators of businesses that have no guaranteed backing of tax dollars do not engage in such risky, irresponsible, and unsound practices. Operators of government entities do, as the “risk” of doing business is not their own, but that of the taxpayers. (The actual cost, to tax payers, of the Fed takeover of Fannie and Freddie is difficult to nail down.)
Such is the result when decisions are based on political considerations and not business considerations. In a truly free market, politicians would not affect the price of your home or the conditions of your mortgage.
Now that Fannie and Freddie are total government agencies and unaffected by the regulations of the new finance bill, we can expect more of the same: higher than needs be housing prices, an unnecessarily volatile market, and more taxpayer burden via a federal guarantee of $8.1 trillion of liabilities.
In Capitalism and Freedom Milton Friedman noted that one of the reasons free market capitalism is important is power among many different hands. It is one more check on the power of the government, thus one more guard of freedom: “The kind of economic organization that provided economic freedom directly, namely, competitive capitalism, also promotes political freedom because it separates economic power from political power and in that way enables the one to offset the other.” (p.9) Via Fannie and Freddie, the government that collects taxes on your income is the same government that is probably underwriting your home mortgage.
With the proxy takeover of college loans and the groundwork for a single-payer health care system laid vaguely but firmly in the 2,500+ page health care bill of 2010, the next logical step, it seems, is the outright nationalization of the housing market. The current finance bill will do nothing to stop that.
In terms of real tax dollars and the condition of freedom, government really has made x, y, and z quite expensive, their stated purposes to the contrary. A return to freedom in the marketplace looks like our only viable option at reducing these costs.
"I can't legislate integrity. I can't legislate wisdom. I can't legislate passion or competency." Please add "affordability" to the list, senator.
