Government has failed to solve Nevada's housing problems
Last night, GOP Presidential hopeful Sen. Rick Santorum appeared on Face to Face with Jon Ralston. The first question Ralston asked was about housing, saying:
The market has not worked so far [in fixing Nevada's housing problems]. What are you going to do? (21:18 mark)After Santorum talked about his proposal to let people write off mortgage losses, Ralston returned to his assertion that the market has failed.
I know you're a free-market guy, and I understand that. But the market did not work for a variety of different reasons. Maybe you agree with that, maybe not. (20:00 mark)Note the assertion in both of Ralston's statements - "the market did not work."
This is a false assertion that must be vigorously disputed and rejected, because it isn't true. If a defender of the free market answers a question that contains that faulty assumption, he or she is sunk. (It's like answering a "when did you stop beating your wife" question.)
This is especially important, because it's actually government's attempts to solve Nevada's housing problems that have failed, not the free market.
Let's examine the evidence.
Government interventions in the housing market led to the housing bubble. We had Keynesians like Paul Krugman actually calling for a housing bubble to boost the economy in 2002. Then we had "the government's distortion of mortgage finance through the Community Reinvestment Act and the government-sponsored enterprises Fannie Mae and Freddie Mac." And, of course, we had the Federal Reserve's manipulation of interest rates.
The free market didn't create the housing bubble. Government created the housing bubble.
After the housing bubble burst in 2007, has the market failed to fix the housing problems government created or has government prolonged the housing crash by its repeated interferences with the market process?
Let's go back to the evidence.
First, pain was inevitable. After government created the housing bubble, the bubble had to burst and financially hurt many homeowners. That's the fault of the government, not the market.
Second, government has repeatedly interfered with the housing market. The Federal Reserve has continued to manipulate interest rates. Congress passed an $8,000 tax credit for new home buyers. Nevada passed an unconstitutional Foreclosure Mediation Program. The feds are subsidizing those who can't make their mortgage payments. And the Nevada legislature passed AB 284, which has brought the foreclosure process to a standstill.
Verdict? Government has failed. After causing the housing bubble, government is now delaying a housing recovery. The free market hasn't failed in housing; it hasn't been given a chance to work.
Every defender of the free market, especially political candidates, must examine questions relating to housing and make sure the question doesn't contain a faulty assertion.
An accurate question on Nevada's housing woes, like "Why has government failed to solve Nevada's housing problems, and how are you going to stop government from interfering in the market process?" is easy to answer.
As a bonus, the answers that would follow that question would actually improve Nevada's housing market.