Giving Credit Where Credit Is Due
I was reading an article today by a libertarian who was noting how much the federal government did to encourage more loans to low-income borrowers by subsidizing lending to them. This was done in the interest of making housing more affordable.
I have to admit, driving a good's demand curve hard to the right is an odd way of making that good more affordable.
UPDATE: Somewhat stunningly (especially given the title) some commentators apparently thought I was criticizing the author of the article! That they thought this is so surprising to me that it took me a couple of days to realize that's what they thought. No: I am criticizing the silly policy of trying to make things "affordable" by driving the demand curve for them rightward.
UPDATE: Somewhat stunningly (especially given the title) some commentators apparently thought I was criticizing the author of the article! That they thought this is so surprising to me that it took me a couple of days to realize that's what they thought. No: I am criticizing the silly policy of trying to make things "affordable" by driving the demand curve for them rightward.
They're more affordable to the people who get the loans, and less affordable to the people who don't.
ReplyDeleteSuppose the government passed out $10,000 vouchers for new cars. Would you say that doesn't help the people who got the vouchers? The demand for cars would certainly go up.
What year is this article from? LOL
ReplyDeleteYes, Bob, simply because I'm not a libertarian anymore does not mean I've lost all ability to analyze economic problems. I took it for granted that readers would grasp that detail. As well as the fact that, if the price elasticity of demand is high enough, not even the people who get the loans will find housing more affordable.
ReplyDeleteGene, you just said, "Yes, Bob I agree that X is X, except if it's not."
ReplyDeleteI don't care what the elasticity of demand is. You're telling me that if we give an extra $x to a certain group of buyers, and they go spend it on some good, that it's possible every single buyer ends up worse off, including them?
"They're more affordable to the people who get the loans, and less affordable to the people who don't."
ReplyDeleteBTW, do you think I'm criticising the author? I'm criticising the policy!
"I don't care what the elasticity of demand is. You're telling me that if we give an extra $x to a certain group of buyers, and they go spend it on some good, that it's possible every single buyer ends up worse off, including them?"
ReplyDeleteI didn't say anything about worse off. I said the good being subsidized might be less affordable.
Example: A "poor" buyer wishes to compete with a wealthier buyer for the painting "Starry Night." The painting would otherwise go for $100 million at auction, which he can't quite afford. The government grants the "poor" buyer a $1 million voucher to help his bid for the painting. But his new bid simply drives the price of the painting to $102 million. (Let us posit that the wealthier guy isn't sure how much the voucher is for, and overbids just to make sure.)
The fellow with the voucher is now *less* able to afford the painting than he was before the voucher.
I was actually criticizing the author of the article you were talking about, but doing so in a jokingly manner (i.e. he was a little late to the party IMO).
ReplyDeleteI figured that it was a foregone conclusion that the policy was absurd, though I have never thought of it in terms of elasticity of demand even though it is one of the things that is at the heart of any bubble. Obviously, there are other economic factors that aid in the broadening of this elasticity.
"This was done in the interest of making housing more affordable."
ReplyDeleteThe public justification was making housing more affordable.
That may have been part of the actual interest, but was nowhere near all of it. Much of the actual interest was seeking political favor from, and rewarding the campaign contributions of, the contractor and banking lobbies.