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.\u00a0 If you force people to pay less than the market would dictate – “artificially lower the price” – the supply vanishes;\u00a0 if you artificially raise the price, you get an oversupply (and build a black market).<\/p>\n
Glenn Reynolds at Instapundit iterated the idea to tie it to our last, and most likely our next, bubbles:<\/p>\n
\u201cThe 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\u2019ll have more middle-class people. But homeownership and college aren\u2019t causes of middle-class status, they\u2019re markers for possessing the kinds of traits \u2014 self-discipline, the ability to defer gratification, etc. \u2014 that let you enter, and stay, in the middle class. Subsidizing the markers doesn\u2019t produce the traits; if anything, it undermines them.\u201d<\/em><\/p><\/blockquote>\n
Joe Doakes, who lives in the Como Park, works in the real estate business.\u00a0 And he notes a real-life example of this in Saint Paul.\u00a0 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.<\/p>\n
And as I put up the fiberglass insulation batts, I thought about the financials involved.\u00a0 There was a lot <\/em>of money going into this house – vastly, vastly more than it was going to “sell” for.\u00a0 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).<\/p>\n
In this case, it certainly didn’t work:<\/p>\n
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 \u201cforgivable\u201d third mortgage for $6,000 (doesn\u2019t 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.<\/p>\n
The owner walked into that house cheaper than s\/he could have gotten into [a typical St. Paul-area apartment] \u2013 nothing out of pocket, not even a security deposit!<\/p>\n
By July 2009, the homeowners association slapped a lien on the townhouse for unpaid monthly association dues, $1,800.<\/p>\n
By April 2010, just one year after the closing, the property went into foreclosure. It has not resold, it\u2019s sitting empty, bank-owned.<\/p><\/blockquote>\n
Now, I’m not going to pick on Habitat itself.\u00a0 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.<\/p>\n","protected":false},"excerpt":{"rendered":"
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.\u00a0 If you force people to pay less than the market would dictate – “artificially lower the price” – the supply vanishes;\u00a0 if you artificially […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[69],"tags":[],"class_list":["post-19489","post","type-post","status-publish","format-standard","hentry","category-socialism"],"_links":{"self":[{"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=\/wp\/v2\/posts\/19489","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=19489"}],"version-history":[{"count":2,"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=\/wp\/v2\/posts\/19489\/revisions"}],"predecessor-version":[{"id":19491,"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=\/wp\/v2\/posts\/19489\/revisions\/19491"}],"wp:attachment":[{"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=19489"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=19489"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.shotinthedark.info\/wp\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=19489"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}