On Obama’s Mortgage Rescue Plan

I’m no expert.

But economics shouldn’t be (and really isn’t) about smoke-and-mirrors, or complicated terminology and formulae understandable only by the intellectual elite.

It’s about individuals acting freely, and efforts hampering their free actions.

In this case, one effect of the recently-discussed mortgage rescue plan effectively props up housing prices.

A market economy is all about using prices to send the right market signals.  When government price controls are in place, or prices or otherwise distorted, they send the wrong signal.

During a boom, prices are artificially inflated, especially in those areas where the boom was focused.  During a bust, they come down.  For the economy to get going again, the bubble must deflate.  Prices must adjust downwards.

Unfortunately, President Obama’s mortgage rescue plan, as well meaning as it may be, has the effect of trying to prop up prices, keeping them artificially high.  Perhaps the most important effect this will have for you and I is that it will slow down economic recovery by delaying the inevitable price falls now taking place.  Those prices falls will occur.  Propping up housing prices is relatively futile and in this case, also expensive.

The mortgage rescue plan seems well-intentioned: it aims to create government incentives and penalties to encourage “responsible” homeowners to stay in their homes rather than foreclose.  Unfortunately, as it takes away from individual liberty (by further intervening in private enterprise) and burdens current and future generations with debt, it has negative consequences which far outweigh potential benefits.

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3 Comments

Filed under Austrian Economics, fiscal policy, politics, recession, role of government

3 responses to “On Obama’s Mortgage Rescue Plan

  1. This is very useful information, I will appreciate your efforts thanks allot. nicole

  2. I’d say you are more of an expert in Economics than Paul Krugman, Tim Geithner, Ben Bernanke, and just about every other government leader in Washington DC.

  3. plato04

    I’m flattered.

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