Friday, November 6, 2009

Not-so-Temporary Stimulus

In separate actions to address Americans’ continuing economic hardship, the government moved Thursday to assist long-unemployed workers and struggling businesses, as well as home buyers and homeowners facing foreclosure.

Fannie Mae, the federally controlled mortgage company, announced a Deed for Lease program in which those in danger of eviction may be able to stay as tenants in their houses for at least a year.

At the same time, Congress gave final approval to a stimulus measure that will extend unemployment benefits for the longtime jobless, aid that will bring total assistance for many to nearly two years. Other provisions of the bill will expand two popular tax breaks — one for home buyers, the other for businesses operating at a loss.

The worst components of these extensions of the stimulus are those that support housing. The U.S. economy got into trouble in part because it over-invested in housing. The recession is a chance to re-allocate investment from housing to non-residential investment (factories, equipment, R&D) and for people who bought homes they could not afford to find smaller houses or apartments.

Propping up the housing market merely delays inevitable adjustments and perpetuates a misallocation of resources.

10 comments:

Jon from Bkln said...

When I called Schumer's office to complain, the attitude of the receptionist/intern was one of "this is the office of a politician; we don't have time for the truth."

Mario Rizzo said...

The home-buying credit has been extended beyond first-time buyers to those who have been in their current home for at least five years.

David Welker said...

One might argue that adjustments that occur in a more incremental and measured fashion is superior to sudden and extreme adjustments. Stability has some value, at least to some people who do not already have tenure.

MatyaNoBaka said...

Deed for lease seems an intersting innovation to me. Evicting a home owner has legal costs. An empty property tends to lose value and devalue the neighboring properties. The evicted family needs an apartment, which artificially supports rental prices.

Fannie Mae deserves a health dose of scorn for the problems they have caused. But no organization is perfect. They may have come up with a good idea.

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