It’s the most iron-clad law in economics; you an not make people to pay more or less for a good or service than the market will bear without distorting the market. If you force people to pay less than the market would dictate – “artificially lower the price” – the supply vanishes; if you artificially raise the price, you get an oversupply (and build a black market).
Glenn Reynolds at Instapundit iterated the idea to tie it to our last, and most likely our next, bubbles:
“The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle-class people go to college and own homes, then surely if more people go to college and own homes, we’ll have more middle-class people. But homeownership and college aren’t causes of middle-class status, they’re markers for possessing the kinds of traits — self-discipline, the ability to defer gratification, etc. — that let you enter, and stay, in the middle class. Subsidizing the markers doesn’t produce the traits; if anything, it undermines them.”
Joe Doakes, who lives in the Como Park, works in the real estate business. And he notes a real-life example of this in Saint Paul. His example cuts close to home; it’s the foreclosure of a Habitat for Humanity project that I believe I worked on with a previous employer.
And as I put up the fiberglass insulation batts, I thought about the financials involved. There was a lot of money going into this house – vastly, vastly more than it was going to “sell” for. And for all that, to my admittedly financially-unsophisticated mind, it seemed like a real house of cards, all dependent on someone whom the credit industry (also admittedly not my favorite people in the world) wouldn’t deem a great credit risk somehow not only becoming a great credit customer, but riding out an economic downturn (which some saw coming, and some studiously ignored).
In this case, it certainly didn’t work:
The sale closed in April 2009 for $153,000. The purchaser gave Twin Cities Habitat for Humanity a first mortgage for $104,040; a second mortgage for $48,960; a “forgivable” third mortgage for $6,000 (doesn’t have to repay if lives there 10 years); and gave a $10,000 fourth mortgage to Housing and Redevelopment Authority of the City of Saint Paul, for a total debt of $168,000, which is $15,000 more than the purchase price and plainly was enough to cover closing costs, taxes, fees, etc.
The owner walked into that house cheaper than s/he could have gotten into [a typical St. Paul-area apartment] – nothing out of pocket, not even a security deposit!
By July 2009, the homeowners association slapped a lien on the townhouse for unpaid monthly association dues, $1,800.
By April 2010, just one year after the closing, the property went into foreclosure. It has not resold, it’s sitting empty, bank-owned.
Now, I’m not going to pick on Habitat itself. But Joe’s example shows a microcosm of the madness of America’s entitlement culture; subsidizing the “Middle Class” as a destination is like putting money down on a hotel room in Disneyland when you can’t pay for the gas to get there.
This is why I’ve always hated Extreme Makeover Home Edition on ABC. They send the family to Disney World and build them a new house, zero sweat equity involved, and then get all warm and fuzzy over the good work they’ve done. They never address the underlying symptoms of the problem.
Same thing with the “What Not to Wear” show. I’ve watched episodes where there were obvious personal issues in the subject’s life that accounted for the way she dressed; while she could overcome these in time for the “reveal” at the end of the show I wondered what the odds were that their behavior and veneer of new-found sense of style would last.
Same with “Queer Eye For The Straight Guy”. The show would always end with an over-dressed, manscaped, impeccably metrosexual-looking fella that you just knew wasn’t really even the slightest bit bi-curious.
But that does bring up a great reality show idea; “Extreme Personality Makeover”. A bunch of shrinks, therps, life coaches and a slightly misplaced Drill Instructor descend on a grossly dysfunctional person and, in 24 hours, turn them into a whole new person.
And while the experts are doing the makeover on the dysfunctional jackwagon, the show pays for all his friends and family to go to Disneyland!
If you force people to pay less than the market would dictate – “artificially lower the price” – the supply vanishes; if you artificially raise the price, you get an oversupply (and build a black market).
An important addition to these rules is that a command economy always produces an oversupply or a scarcity of items because with no free market the people who set the prices have poor or non-existent information on the real value of items.
This doesn’t mean that we have to be slaves to the market. It does mean, however, that when we allow public policy to over ride the market mechanism of determining value we damn well better know what we are doing. If you raise the minimum wage to $20/hr you are going to have a vast oversupply of labor willing to work for minimum wage, and the greatest oversupply will be for jobs that return the least value. As the market tries to restore balance, employers will work very hard to cull their $20/hr employees so that they hire only the most qualified.
The first step towards becoming a conservative is taken when you realize that politics is a hell of a way to determine public policy.
They never address the underlying symptoms of the problem.
I don’t really watch the show, do they ever re-visit the families they’ve “helped”?
And I have the same question for HfH. At present, I give to the Central MN HfH instead of the national or metro chapters because I live closer to St Cloud but mostly hoped they might understand the value of a dollar better. I’m not sure.
I’m really curious, because I’m not giving the money for my self-esteem or to feel virtuous.
do they ever re-visit the families they’ve “helped”?
Not that I’m aware of. But I doubt it, because that would be bad TV.
The “let’s make everyone a homeowner” nightmare is a classic in cargo cult thinking. It’s one think that President Bush deserves criticism for, but since he went into it with most of the political liberals in Washington, we never hear about it. Instead, the credit disaster was the fault of “rich people”, “speculators”– in short, Captain Renault’s “usual suspects.”
I’ve noticed the same thing. A few years back, I volunteered with Habitat, and the second year I went, I noticed that the homes I’d been working on were just plain trashed. Cars all over the yard, porches collapsing, you name it–if it could go wrong, it did as they put people who were marginal renters into homes.
Same thing with any welfare program, really. One of the things I hold most strongly against our current President is that he was somehow able to live and work around the South Side of Chicago without ever connecting the dots and asking himself “huh, why isn’t this working better?”
I remember the first one that they did here out in Minnetonka for the Swenson – Lee family. Vicki Swenson was the sister of Terry Lee who was murdered along with her boyfriend, by an deranged ex.
Anyway, after it was done, one of the local propaganda stations, interviewed Ms. Swenson and she complained about what she didn’t get!
Conservatives who suggest that spending tax dollars on these programs is unwise are pilloried. Heartless! Uncaring! No Compassion!
Maybe. But that doesn’t mean we’re not right.
I like “Hoarders”. Can you really cure someone who has 15 years worth of newspapers stacked on his kitchen counters?
There was a Nick Coleman column a few years back about a Native American female who died of alcohol over consumption at some very low age like ten or eleven. Before a positive ID she was reported as mid-teens age. …….. As I recall, Nick Coleman described every dysfunction imaginable in the family like chronic welfare and more kids on welfare and the children spending a lot of time in juvenile detention and prison. It also mentioned that Habitat For Humanity had set this family up in a house.