Let’s take liberal economics to its logical extreme and come up with an all-encompassing solution for the market. Here we go:
The real estate market is in turmoil. There is simply too much housing, and too little demand. Meanwhile, the unemployment rates are too high. Let’s solve both problems in one fell swoop: let’s spend tax dollars to hire thousands of people to tear down apartment buildings and condos and houses. Sure, that means we’re destroying perfectly good housing. And it also means that banks will lose tons of cash, since those houses are value to them. So let’s tax people more to pay off the banks.
Now we’ve jacked up the price of real estate, raised the ability of banks to lend by shoring up their accounts, and created jobs. The only cost: tremendously high taxes.
Where’s the problem?
The problems are obvious if we keep in mind the two basic principles we’ve established. First, the economy is fluid. If we tax people to pay for the destruction of real estate and to pay off the banks, people will not work as hard because they know they will make less money anyway. If banks know that real estate is being deliberately destroyed to heighten prices, they will make it more difficult to get loans, knowing that the price of real estate will eventually fall again once supply increases to meet demand.
Second, opportunity cost is high. The tax dollars spent for tearing down and bailing out could be spent by consumers buying houses that already exist, boosting the real estate economy directly; or they could be saved and put in banks, which would boost lending directly; or they could be spent elsewhere, in a market that isn’t already saturated.
Now, if this liberal strategy seems inane, don’t scoff – it’s precisely what FDR did during the Great Depression with make-work projects and agricultural programs designed to pay farmers to burn grain even as American starved in the streets. Now we’re repeating the process. Does that sound like compromise, or idiocy?
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Excellent post Ben.
Tell us how much it cost per job created under the stimulus package and why merely giving the money back to the people directly would not have accomplished much more.
They just don't get it.
Given these well known facts I take a contrarian stand on much of the gloomism out there. Since fiscal collapse of some sort is as close to inevitable as an economic event can get, would it not be best to get to the terminal point as quickly as possible? On this stipulation the best outcome would be no deal whatsoever while Obama goes 14th or otherwise simply orders Treasury to keep issuing bonds. The one, crucial upside to this scenario is this: clarity.
Let’s solve both problems in one fell swoop. The funny thing is that this is pretty much what China has been doing, in reverse. The "John Batchelor Show" (http://www.wmal.com/showdj.asp?DJID=9992) on WMAL examines China in detail a couple of times a week, and lately has described the large number of ghost cities which the Chinese have built. There is no demand for them, nobody actually lives there, but building them keeps the construction workers employed. http://www.dailymail.co.uk/news/article-1339536/G…
Some folks believe that the government can do anything and that the instrumentality of the state can be used to compel citizens to comply with such a government "for their own good".
I oppose such dictatorial notions.
The Only action that will solve our debt crisis and Job solutions is to vote Obama out of Office… Good Bye El Creepo!