Monday, May 25, 2009

The Housing Boom and Bust

Interview by Tomas Sowell on reasononline
. Sowell's latest book is The Housing Boom and Bust,
"a plain-English explanation of how we got into the current economic disaster that developed out of the economics and politics of the housing boom and bust".

reason: What sort of reactions should the federal government have to the current situation?

Sowell: First, the government should not try to artificially keep up housing prices. The tremendous irony is that the very politicians who for years talked of affordable housing are fighting to keep housing prices from falling. How does housing become more affordable except by keeping prices down? They really have no interest in having housing become affordable by means other than their largesse.

reason: Do you think they need to be doing anything to ease the woes of people in foreclosure?

Sowell: Not at all. Foreclosure is not something that happens to you like being struck by lightning. Foreclosure is the end result of things people have done that they need to stop doing in the future. And the market can take care of that. California is one of those states where we’ve seen a drastic reduction in fancy no-money-down mortgages and all kinds of creative financing; we’ve seen those things drop sharply within just a couple of years as housing prices fell and foreclosures rose, as long as the government isn’t there to prop them up.


annares said...

Well, reasononline - and Sowell on housing - take a very strong "free market" approach. How would you reconcile strong support of the "free market" with the "tragedy of the commons"?

Chief said...

Short answer - The best way to solve the "original" tragedy of the commons scenario is for the commons to be privately owned. With private ownership, the incremental cost of each additional animal (along with said profit) is borne solely by the owner and not society as a whole. Thus, the incentive to sustainably manage the pasture is dramatically increased.

Long answer - There are certain scenarios that fall under the tragedy of the commons that are quite wicked problems, e.g. climate change. A pure free market solution to these may not exist; but then again, no equitable solution may exist. I talk more about this in several posts:

Key Concept - Tragedy of the Commons

Road to Serfdom

I can hazard a guess from your blog, but what are your thoughts on the free market?