Sunday, April 13, 2008

Buckley's Protege

As you know, William F. Buckley, the father of conservatism in the U.S., passed away a few weeks ago. George Will, one of Buckley's proteges with the National Review, author of several popular books, weekly guest on "The Week" with George Stephanopolous, and the author of a twice-weekly column in the Washington Post, has a superbly written piece on "Entitlements" today in the Post. It deals with the housing crisis and the knee-jerk reaction for both politicians and the Fed to intervene ASAP. Some of you may not like what he has to say, but read the piece, it actually makes so much sense.

Here are some excerpts:

The proportion of people aged 55 to 64 who are working rose 1.5 percentage points from April 2007 to February 2008, during which the percentage of working Americans older than 65 rose two-tenths of one percentage point. The Journal grimly reports, "The prospect of millions of grandparents toiling away in their golden years doesn't square with the American dream."

Oh? The idea that protracted golden years of idleness is a universal right is a delusion of recent vintage. Deranged by the entitlement mentality fostered by a metastasizing welfare state, Americans now have such low pain thresholds that suffering is defined as a slight delay in beginning a subsidized retirement often lasting one-third of the retiree's adult lifetime.

He is right on here. With life expectancy longer in the 21st century, why is everyone trying to retire so much earlier? Won't people be bored with 30+ years of retirement? Isn't the mental stimulation good? (Numerous studies have now demonstrated that mental stimulation can prevent or delay the onset of Alzheimer's disease). To wit, Will goes on to say:

In 1935, when Congress enacted Social Security, protracted retirement was a luxury enjoyed by a tiny sliver of the population. Back then, Congress did its arithmetic ruthlessly: When it set the retirement age at 65, the life expectancy of an adult American male was 65. If in 1935 Congress had indexed the retirement age to life expectancy, today's retirement age would be 75.

Regarding the housing crisis, Will goes on to say:

By one measure, between the beginning of 2000 and the middle of 2006, as the consumer price index was rising 21 percent, average housing prices rose 93 percent -- and much more in some markets (Miami 180 percent, Los Angeles 175 percent, Washington, D.C., 150 percent).

Not long ago there was broad agreement that too much of Americans' wealth was tied up in the nation's housing stock, and that the principal impediment to homeownership was not a scarcity of cheap mortgages but the prevalence of high housing prices. Hence deflation of housing prices would be desirable.

So far during this "crisis," the homeownership rate has declined just three-tenths of 1 percent since it peaked in 2004. At 67.8 percent, it remains higher than it was when President Bill Clinton left office.

Subprime mortgages are a small minority of mortgages, and only a minority of subprime borrowers are not making their payments. Casting this minority of a minority as victims of "predatory" lending fits the liberal narrative that most Americans are victims of this or that sinister elite or impersonal force, and are not competent to cope with life's complexities without government supervision.

The politics of this may, however, be more complex than the compassion chorus supposes. The 96 percent of mortgage borrowers who are fulfilling their commitments, often by scrimping, may be grumpy bystanders if many of the other 4 percent -- those who found the phrase "variable rate" impenetrably mysterious -- are eligible for ameliorations of their obligations.

He is right again. We needed housing prices to come down. It was getting too expensive for younger people to get into houses. And the whole "subprime meltdown" really only involves a fraction of the population. Letting some people off the hook, as some of the presidential candidates are suggesting, would simply not be fair to the people who are working hard and making sure they do not default on their mortgages.

These types of bailouts (including policies that easily forgive declaration of bankruptcy), will only increase "moral hazard". I don't really understand why bankruptcy is allowed. Why should someone who makes many foolish financial decisions, and extends themselves far beyond their means, have all of their debt forgiven, or be bailed out by the government? Bail-outs only encourage more risky behavior in the future by the same and other individuals. The same can apply to the Bear Stearns bail-outs. Since when is the government supposed to prevent individual institutions and corporations from going under?

No comments: