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Tuesday, March 29, 2011

Government aid doesn’t make things more affordable

There’s much angst at the thought of government budget cuts.  There should be – it’s hard to think there will be a high quality of decision making on what to keep and what not to keep during the current bitterly partisan environment.

There’s a nice blogosphere discussion at Marginal Revolution. http://marginalrevolution.com/marginalrevolution/2011/03/fragments-of-truth.html#comments

Even in this civilized blog, some posters seem to go off the deep end.:

@orange14: "Who will buy mortgage back securities without the implicit government guarantee? Will banks ever write a 30 year fixed mortgage again? Will 20% down (or maybe even more) be required? Will any private sector company insure such mortgages? Inquiring minds want to know!"

Oldsters like me remember fixed rate 20 year mortgages (that you paid off by middle age) with 20% down (I paid 25% down for my first house) and private mortgage insurance. Incredibly enough, there was housing then. Even more incredibly, it was CHEAPER -- Fannie/Freddie presided over an era in which real estate got more expensive, and I don't think that's an accident. I think people forget that government support often tends to make things more expensive. Exhibits 2 and 3 are health care since the start of Medicare and college education since the large expansion of federal aid.

But wait! There’s more!  Government regulation of the airlines didn’t keep prices down.  Deregulation for the most part lowered prices substantially.  Sure, we’re all flying in an atmosphere we used to associate with Greyhound buses, but flying is considerably cheaper than it used to be.  There’s clearly a role for some government intervention of course: I want the FAA to be sure airline maintenance standards are very high, because the life they save may be my own!

As to 30 year fixed mortgages: are they really such a good deal?