Housing, Future Growth, and the Free Market

The Administration has released details of its housing plan. Succinct commentaries on it may be found at Calculated Risk (CR having major expertise in housing) and Mish's Global Economic Analysis.

Both these bloggers criticize the bailing out of speculators who over-leveraged themselves to live in a house they could basically not afford, expecting to be able to flip the house or else refinance based on a higher future valuation.

There is general agreement here; but there is a deeper criticism: This country continues to make a horrible mistake, which is over-invest in housing. The U.S. became the economic engine of and banker to the world by being the low-cost producer of multiple exportable items. Scarce capital needs to go to strengthening areas that can benefit Americans at home and bring in revenue from exports.

What are these strengths? Biomedical and high-tech are two obvious choices. Go for it, America. Green, knowledge-based industries need much more support and will have marvelous social and financial paybacks. $8 Billion for high-speed rail, including building a high-speed train between L.A. and Las Vegas?

This is not emergency stimulus and is a parody: connecting two regions known for bubble-heads to each other when trains, planes and cars have no trouble doing so already. Scrap the $8 B and make Mr. Reid happy in Nevada by providing large research grants to UNLV.

In Roubini-land, RGEMonitor links to a Levy Institute Public Policy Brief, "After the Bust".

This paper argues for "the creation of a new, progressive Keynesian consensus, that will require placing economics at the center of the political stage."

DoctoRx here: Uh-oh. Isn't economics already a huge part of the political stage?

Even the in-house "conservative" of the op-ed page of the New York Times, David Brooks, wrote today that this "administration has taken its faith in government to such an extreme I'm turning into Ayn Rand."

Ouch! (Mr. Brooks is a mild-mannered moderate Canadian-American, for those unfamiliar to him. He does not get pushed easily towards Ayn Randianism.)

In contrast to the statist Roubini-favored approach to economic recovery, please consider Mish in his first post of the day, The Nationalization Train Has Left The Station, in which he criticizes Nouriel Roubini, Alan Greenspan and George W. Bush. (Quite a trio!) The key paragraph in his post is:

What Roubini, Greenspan or any other proponent of bail-outs, nationalization, etc. fails to explain, or even mention is this: Why can we not just let them fail? Let them go bankrupt! Why not?

He also has a marvelous picture courtesy of Michelle Malkin, inspired by the direct quote from Pres. Bush Dec. 16, 2008:




The statist tide is coming in. Crony socialism ("high-speed Reid") may be replacing crony capitalism. If matters proceed as they did in pre-Thatcher Britain, we may not be arguing about the unfairness of socializing the losses after having privatized the profits, because there may not be many profits. The markets keep pushing gold and silver up on that premise.

In the spirit of the times, I call for a Ronald Thatcher to lead us toward a more classical economics and toward a politics that is not dominated by economics but by the more important principle of freedom.