Wednesday, February 11, 2009

The price of government "stimulus"

This would be a valid assessment if it were published today:

Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in they long run they do not increase overall national production but encourage malinvestment.
The interesting that it was published in 1946 and is still as valid today as it was back then.

If you haven't read Henry Hazlitt's Economics in One Lesson, do yourself a favour and get a copy.