Senator Catherine Cortez Masto is now saying that one of the biggest issues facing Nevadans is a lack of affordable housing. Senator Cortez Masto says that HUD Secretary Dr. Ben Carson isn't doing enough to help create more affordable housing. See: https://www.rgj.com/story/news/politics/2018/03/27/masto-says-trump-appointee-carson-has-no-plan-help-nevadas-affordable-housing-crisis/464506002/ But is Senator Cortez Masto's indictment legitimate?
"The art of economics consists in looking not merely at the immediate, but at the longer effects of any act or policy; it consists in tracing consequences of that not merely for one group, but for all groups." -Henry Hazlitt
Far too often, politicians in Washington are plagued by myopia. Rising prices are not synonymous with economic growth, and falling prices are not synonymous with economic decline. Genuine economic growth tends to beget falling prices. Yet Senator Cortez Masto and her colleagues have supported government schemes to combat falling prices, i.e. price fixing. There's a paradox in that politicians have sought to combat falling real estate prices while simultaneously complaining about a lack of affordable housing.
It's the effort to prop up prices through stimulus that's prevented the housing market from clearing. People have lost homes because homes are unaffordable, not because they are too cheap. Thus deflation is the cure, not the problem. What sense does it make to provide somebody with a cheaper mortgage -- by interest rate manipulation through loose monetary policy at the FOMC -- on a more expensive house that costs more to maintain? But that's the aim of present policy. What sense does it make to stimulate more home building when housing isn't clearing the market as is?
No matter which way the government inserts itself into the housing market, this diminishes the need for sellers to set prices pursuant to supply vs. demand (i.e. market-clearing prices). Whether the government buys up bad mortgages, bails out the homeowner or the bank, this interferes with the price mechanism. If we continue down the current policy path, one will have to be politically connected to get an "education," a job, healthcare, and".a house!
Suppose there's a shop owner whose inventory is piling up because nobody can afford to pay for his prices. What does the shop owner have to do? Lower prices. But suppose the government inserts itself into the picture and subsidizes the shop owner. No longer is the shop owner's sustenance dependent upon having to satisfy consumer demands, thus diminishing the need to set market-clearing prices. Within the construct of the unhampered free market there can't be price gouging any more than there can be wage gouging, since vendors can't short inventory at prices above what consumers are both willing and able to pay.
Let's try another scenario. Suppose the government distributed "credits" or "vouchers" to this shop owner's customers. This would be perceived as an "enlightened" form of welfare for the shop owner's customers. However, this is yet a different way to subsidize the shop owner, by letting the shop owner sell at artificially high prices. A move like this prices the poorer non-recipients of "credits" or "vouchers" out of the marketplace. No surprise that education and healthcare -- two of the most government subsidized cartels -- have also had the highest levels of price inflation. This begets the erroneous perception that the problem is a dollar shortage for the one who didn't receive "stimulus."
It's the subsidies and stimulus that have priced the poor out of the marketplace. Rather than understanding that it's the "help" that has hurt us, the mistaken conclusion is that we need more subsidies and stimulus.
I've always said that, by rights, the impoverished belong to the free market movement. With the government as large as it is today, would it not be a fair assumption that many people who are poor are so precisely due to big government, whereas many people who are wealthy are so precisely due to big government? You see, big business uses big government to manipulate the marketplace on its behalf.
The flawed assumption made by some progressives is that big government is somehow less dangerous than big business. This begets the erroneous conclusion that the problem is an absence of regulation. It's paramount to understand that we can't regulate away insolvency. We can't regulate away past mistakes. But we can regulate everybody except the big cartels out of existence.
Ludwig von Mises and Eugen von Bohm-Bawerk saliently articulated how labor can't increase its share at the expense of capital. Nobody can argue against capital without arguing for a reduction in their own standard of living. Thus the problem for the progressive should not be with capital, per se, but that capital is so inaccessible to the common person.
Why is capital so inaccessible to the common person? Every tax, every regulation, every government program drives up the cost of capital. Politicians love this, because they get power. Big business loves this, because it creates barriers to competition. Big government creates monopolies, as a monopoly is a state of imperfect competition, and imperfect competition is begotten by government interference in the marketplace.
The situation with housing is no different than that of the shop owner I described above. In a market unhampered by government, sellers are sustained by selling inventory. When the government inserts itself into the picture, sellers are no longer dependent upon having to satisfy consumer demands by selling inventory. Sustenance is disconnected from the satisfaction of consumer demands. In the case of housing, the government and the Fed have subsidized the loan market to hold back inventory. See: https://www.sfgate.com/realestate/article/Banks-aren-t-reselling-many-foreclosed-homes-3165431.php
Simultaneously people are living in tents. The mission of politicians in Washington is literally to keep people homeless. Politicians are little more than kleptocrats masquerading as philanthropists. So long as the government keeps trying to prop up prices - as it has done with healthcare and education - housing will become increasingly unaffordable and the market won't clear.
Economic recovery rests upon a smooth-functioning price mechanism, where the market can discover real prices. How is Senator Cortez Masto or anybody else supposed to know what prices of everything are supposed to be? Would politicians mind telling me what housing prices are supposed to be?
DEBUNKING MYTHS & OFFERING THE SOLUTION