Arnold Kling  

An Assignment for Progressives

PRINT
Paragraphs to Ponder... Robin Hanson on the Singularit...

First, read Peter Wallison's op-ed.


Congress should assure that housing does not again make itself a ward of the government.

Then, write an essay that consists of something other than ad hominem attacks on Wallison. Instead, write an essay that explains why government-subsidized mortgages with low down payments are a great idea. Answer Wallison's main point, which is that other countries where people seem to be well-housed do not rely on the GSE model.

If you want to criticize the banking models of other countries, that is fair game. If you want to discuss the property bubbles that occurred in some other countries, that is a good point. But in the end, come back to the question of how it is that lenient, subsidized mortgage credit is so darn good for our society that we simply must have it in some form.

What strikes me is the political pressure that builds up in support for government-subsidized mortgage securities--you bring together real estate agents, home builders, mortgage originators, and Wall Street to form a lobbying superpower. What I want to understand is how a progressive, who claims to be for the general interest and not for special interests, thinks that there is a diamond buried in this dung-heap of rent-seeking.


Comments and Sharing





COMMENTS (26 to date)
Steamer writes:

Although I thoroughly disagree with practically all the interventionist ideas, a lot of marginally sensible arguments can be made about subsidized housing.

One may sound roughly thus:
Ceteris paribus, having your own relatively spacious home tends to raise your marginal propensity to have kids and thus boosts fertility rates. Assuming positive externalities from having kids and/or some sort of (market) failure due to long investment horizons (viewing children as an investment may seem cynical, naive, ignorant, etc., but to me it makes some sense, especially in social context) or other factors interfering in the picture and spurring people to generally have less children than an optimal situation, subsidizing housing makes at least a bit sense.

Now, I am not saying that this argument is correct. I am not saying that progressives have ever made a valid and well argumented point about why the government should subsidize housing. What I am saying is that they are non-ad hominem, non- natural rights (to decent shelter, if you assume it as natural right, as many left-leaning people do) arguments about why the government should subsidize housing. And it is better to adress rather than dismiss them as dogma as some libertarians do.

Arnold Kling writes:

Steamer,
I am not taking on subsidized housing in this post. I am taking on the narrower issue of lenient, subsidized mortgage credit.

Brett writes:
What I want to understand is how a progressive, who claims to be for the general interest and not for special interests, thinks that there is a diamond buried in this dung-heap of rent-seeking.

I don't.

I wonder how many progressives think so, either. If you asked Matt Yglesias or Kevin Drum about this, both would probably tell you that we shouldn't be subsidizing mortgages.

As for subsidizing housing, I'm in favor of a voucher system. Publicly owned housing created some of the worst of the "projects" in the past 50 years, in large part because the real estate business saw it as competition and used their political pull to make it so crappy that it wouldn't be competitive with the private real estate business.

Robert Bell writes:

I think the reasons progressives would attack Mr. Wallison is that they believe he changes his views depending on which way the wind is blowing:

http://delong.typepad.com/sdj/2010/12/more-on-the-four-stupidest-economists-alive-of-2010-thomas-hennessy-holtz-eakin-and-wallison.html

So I believe there is a legitimate question of why one should engage someone's arguments when they themselves are not committed to them.

Yancey Ward writes:

If banks are backstopped on bad mortgages, with or without a GSE like Fannie or Freddie, then what is the difference?

Mercer writes:

" how a progressive, who claims to be for the general interest and not for special interests, thinks that there is a diamond buried in this dung-heap of rent-seeking. "

It is not only the left that is for government subsidizing home ownership. It was a big part of Bush's agenda and I doubt the new house will do much to change current policy.

Wallison complains about the GSEs having subsidized rates. The big banks also have low rates because creditors know they will be bailed out. If he does not like the GSEs subsidies he should also address the big banks which also have implicit federal guarantees.

He also says the FHA should still insure mortgages. Why? Does he think it is ok when taxpayers money is used to make up for losses on creditors who hold mortgages on FHA backed loans? How is that better then bailing out the GSEs?

He mentions having standards for mortgages several times but does not specify what he wants. I think a 20% down payment requirement should be written into law. If no hard standards are written into law the FHA will still insure mortgages with 3% down payments.

liberty writes:

I hope that there are more progressives/leftists like Brett - and I hope that they also see the good sense in replacing public schools with a voucher system (I know some who do, for similar reasons to the ones that Brett mentions about public housing: poor neighborhoods will have worse public schools, they won't change without competition, there is rent-seeking, etc).

I commented on your post from yesterday ("Arnold Kling with a minus sign") as well Arnold - and I think we (who are Austrian/libertarian-leaning) have to be very careful about separating arguments against public provision from arguments against redistribution.

There are serious issues with many kinds of subsidies and public ownership that do not exist with simple income redistribution or vouchers. The arguments against redistribution per se I think are a lot weaker, and many can be overcome by redistributing (a basic income or vouchers) to ALL citizens, funded by a flat tax. I would like to see your comments on that sort of argument.

Robert Bell writes:

Also, I should have said that I generally agree with the implicit thrust of Arnold's argument about cross country comparisons. It may be that the presence of flawed banking and housing bubbles in other countries (as well as problems with CRE lending here) tends to undermine the argument that Fannie and Freddie were somehow major culprits in the financial crisis. However, that *doesn't mean* support for the GSE's is warranted.

Patrick R. Sullivan writes:
I wonder how many progressives think so, either. If you asked Matt Yglesias or Kevin Drum about this, both would probably tell you that we shouldn't be subsidizing mortgages.

Back in the 90s it was an article of faith among progressives that to not subsidize mortgages for low income people was 'discrimination'.

Patrick R. Sullivan writes:
I think the reasons progressives would attack Mr. Wallison is that they believe he changes his views depending on which way the wind is blowing:

Which is evidence of their intellectual dishonesty. Wallison has been a critic of the GSEs for over a quarter century. DeLong is taking one non-relevant criticism of Wallison's against a specific congressional proposal to raise the FM's mortgage limit from $400K to over $600K in order to change the subject.

Lord writes:

Yes, the very same Wallison that previously lambasted the GSEs for not doing enough. That's the one.

Not a progressive writes:

I would think that the best argument would be about changing the racial dynamics of the suburbs by allowing lower-income families to move there. We've seen that people resist forced school integration by moving outwards to new suburbs. If you move lower-income people out to the suburbs, then you get some racial integration with little visibility.

There are probably better policies that would achieve the same thing, but a progressive could reasonably answer that the alternative policies would never get passed. For example, one could create subsidized housing projects in the suburbs, which would cost a politician all those middle class votes because of its visibility.

If this is the argument, then the amount of the mortage being subsidized should be enough to get a lower-income families out into the suburbs. That amount varies widely by metropolitan area, so a high statutory limit seems required.

If this was the progrssive's goal, then surely they would also choose to pair it with channels and mechanisms that make sure a largish portion of that subsidy goes to minority families. I would look at two things:
First, I seem to recall that ACORN and its affiliates helped people find mortgages. Presumably, its clients would be predominantly minority. A close working relationship between the GSEs and these types of orgnaizations would be good anecdotal evidence.
Second, there is federal legislation that prohibits excluding predominantly minority neighborhoods from loan programs. I don't know its exact scope, but I recall reading that Jesse Jackson's Rainbow Coalition made a practice of aggressive dialogue with banks that they believed were not doing enough, and used that legislation as the threat.

Chris

Peter Finch writes:

If I understand correctly, the question is not "should we subsidize housing," rather it's "should we subsidize housing through subsidized debt?"

I don't think I buy this, but I'll throw out an argument that could be made:

Debt has a disciplinary effect. It doesn't just go away, and it requires you maintain an income to keep servicing it. So we should encourage mortgages over cash purchases or rentals specifically because they tie a little anchor to the borrower's life, and that little anchor encourages the sort of behavior we want to encourage. If borrowers are swimmers, and what we want is hard swimming, well, a little anchor will do a lot to encourage hard swimming.

Guest writes:

[Comment removed for supplying false email address. Email the webmaster@econlib.org to request restoring this comment. A valid email address is required to post comments on EconLog.--Econlib Ed.]

Liberal Roman writes:

I think this is a huge misconception. As posters above have commented, a lot of progressives have come out against housing subsidization. And in fact, if were to put the biggest housing subsidy (the mortgage interest deduction) up on the table, I GUARANTEE you it would be Republicans who would be defending it more than Democrats.

Peter Finch writes:

> And in fact, if were to put the biggest housing
> subsidy (the mortgage interest deduction) up on
> the table, I GUARANTEE you it would be
> Republicans who would be defending it more than
> Democrats.

I doubt this, not because of any philosophical difference, but because the home mortgage interest deduction is so much more important in California and Massachusetts than it is in Texas and Mississippi.

There's a lot of blame to go around.

Patrick R. Sullivan writes:
I seem to recall that ACORN and its affiliates helped people find mortgages. Presumably, its clients would be predominantly minority. A close working relationship between the GSEs and these types of orgnaizations would be good anecdotal evidence.

That relationship is the one between an extortionist and his victim.

Second, there is federal legislation that prohibits excluding predominantly minority neighborhoods from loan programs. I don't know its exact scope, but I recall reading that Jesse Jackson's Rainbow Coalition made a practice of aggressive dialogue with banks that they believed were not doing enough, and used that legislation as the threat.

'Aggressive dialogue' being a synonym for extortion. 'Nice little financial institution you have here. It would be a shame if anything should happen to it.'

Not a progressive writes:

Guest writes:

You must know that not all "progressives" agree with govt-subsidized mortgages.
You're [sic] politics sadly get in the way of fairly good commentary.

I think the Professor was asking for help understanding how progressives could be in favor of it. I did not read him to be claiming that all, or even most, progressives were actually in favor of it. I would think that the most principled progressives would be opposed. "Progressive" dilettantes would be in favor of it for unprincipled reasons, just as "libertarian" dilettantes would.

Chris

Brett writes:
I hope that there are more progressives/leftists like Brett - and I hope that they also see the good sense in replacing public schools with a voucher system (I know some who do, for similar reasons to the ones that Brett mentions about public housing: poor neighborhoods will have worse public schools, they won't change without competition, there is rent-seeking, etc).

It's one of those things where it would be nice in some form, but extremely difficult to get to. I have two major concerns:

1. I'm worried that a bunch of kids might get short-changed on education. I'm thinking here of fundamentalist private schools, where you might end up with a whole cluster of kids totally ignorant of anything resembling modern biology, ancient history, and so forth. That has consequences at voting time, when you get the same people deciding various national science-oriented policies.

2. I'm concerned about the transition process. One thing you have to remember about the school reform process is that you can't simply say, "Well, let's move towards a private system with vouchers, and let the whole thing sort itself out", since in the chaos in-between, you might end up with a bunch of kids with screwed-up education. That was one of the big concerns in the debate over vouchers in my state.

What I'm in favor of is basically a system of charter schools, magnet schools, and private schools with vouchers (provided the private schools agree to teach a certain minimum curriculum in exchange for receiving state funds - like what they do in Sweden). I do have some issues with "tracking" - from what I've heard from our German friends, it hasn't really helped employment - but I think having a variety of different schools to meet the needs of different types of students would be very useful.

It would also probably help if we replaced the standard High School Diploma that you get when you graduate high school, with something more like the current GED, something that anyone could take and get regardless of where they went to school. Right now, GEDs are still usually considered inferior to high school diplomas.

Steve Sailer writes:

"you bring together real estate agents, home builders, mortgage originators, and Wall Street to form a lobbying superpower. What I want to understand is how a progressive, who claims to be for the general interest and not for special interests, thinks that there is a diamond buried in this dung-heap of rent-seeking."

Because the progressives are in on the scam, too. It's not just ACORN, it's much more respectable-sounding organizations like the Greenlining Institute and it's a whole bunch of Ph.D.'s who do papers on fighting redlining and read them to each other at conferences.

Loose credit generates so much money during boom times that everybody gets a cut of the action.

Matt Flipago writes:

What use does knowledge Modern Biology and Ancient History have to most workers? If some schools taught biology without evolution, who cares? Any that use it will be taught by a college, who will likely need to go to a medical school, grad school, or someplace, and who's knowledge of biology without evolution isn't that bad. They still teach micro evolution, so they aren't really at a disadvantage, even for biologist.
Ancient History, which mostly mean paleolithic history is pointless for almost everyone, and again any person in that field will go through college and grad school, so why does it matter. So long as they can read, write, and do math, they will be fine. And IF they can't, and it somehow affects their income, over time this gap will be evident enough to show them the cost of being wrong. That cost I still think is 0 for 99% of the population. You can't control 400 million people, some are going to have to take their own risks.

steve writes:

I get lumped in with progressives, but I would do away with the mortgage deduction, the GSEs, the health care deduction and income tax for that matter. I suspect more progressives favor the mortgage deduction, but by a rather small percentage. Whenever I suggest eliminating it, I get attacked from left AND right. Having read Wallison off and on for a while, I think that he is wrong on the GSEs as a primary cause of the financial crisis, but correct that they distort markets and should go.

Steve

Brett writes:
What use does knowledge Modern Biology and Ancient History have to most workers? If some schools taught biology without evolution, who cares?

These are the same people who vote in representatives that decide national science policies. Do you want ignoramuses deciding that they don't want to fund biology research because God Created The World in 4004 BC?

As for history, that has more direct consequences. Who do you think the better voter, the one that's completely ignorant of history, or the one that isn't?

R Richard Schweitzer writes:

This issue on housing costs (via credit) is only a small (yes small) part of a much larger burgeoning "policy" of redistribution.

As incomes and revenues have become more contricted, the movement now is toward accelerated and broadened redistribution of COSTS.

SEE: FERC "allocation of grid costs" to serve alternate forms of power generation.

Healthcare legislation (state and Federal)

EPA "Regulations" and "Orders."

ALL subsidies.

And more to come.

Jayson Virissimo writes:
As for history, that has more direct consequences. Who do you think the better voter, the one that's completely ignorant of history, or the one that isn't?

I think a better question would be "who is a better voter, someone that is completely ignorant of history or someone who was educated in history by the American public school system"? The answer to such a question isn't at all obvious.

Matt Flipago writes:

"As for history, that has more direct consequences. Who do you think the better voter, the one that's completely ignorant of history, or the one that isn't?"
I don't see why my knowledge of prehistoric man, stuff that isn't actually history, by definition. I can't see ANY use in politics.

And the amount of young earth creationist is probably around10%, keeping in mind that "literal" interpretation doesn't mean YEC. Based on about 1/3 of protestant preachers seem to be YEC. And given how little research that will be, and how valuable that research is likely to give the risk seems slim to none. So the benefits seem even less since most of the research can have obvious benefits if it's worth it. It seems like paranoia or a lame attempt to control people. I'll grant the biology funding could yield suboptimal, amounts but given the repercussions of enforcing it, the not unlikely scenario seems to be extremely implausible to be worth.

Comments for this entry have been closed
Return to top