Houses of Pain
Tim Cavanaugh is right that housing prices are a sacred cow ("Houses of Pain," January). But why would that be a surprise? As you folks at reason know better than anyone, most interference with property at the local level takes place in the name of "protecting property values."
Lower home prices, while decreasing my net worth on paper, might lead to lower property taxes and insurance rates, both of which I pay in real money. As documented by Daniel Brook in The Trap: Selling Out to Stay Afloat in Winner-Take-All America, housing prices in many parts of the country preclude those who were not born with a trust fund from buying a house and engaging in altruistic pursuits such as teaching. Lower housing prices would allow young people to have the opportunities our generation had when we entered the housing market.
We need to get over the idea that a house is anything more than a place to live. There is no constitutional guarantee that a house will increase in value, and we certainly do not need another entitlement program to accomplish something as dubious as keeping housing prices artificially high.
Kansas City, MO
Burn the Speculators
I laughed out loud while reading Air Transport Association chief economist John Heimlich's letter regarding oil index speculation (Letters, January). His letter shows quite clearly why his industry has been sucking air lately: because it gets economic advice from clueless Keynesians like him.
Of course $60 billion of new speculation money in the futures market will run up prices. Anyone with a high school understanding of supply and demand could tell you that more dollars chasing the same goods will have that effect. At some point, though, those futures contracts come due and the owner has to sell (or, heaven forbid, pay to store the oil somewhere).
If real consumer demand wasn't there to begin with, he's going to take a loss. This is exactly what happened. Billions of hedge fund dollars surged from the crumbling stock market into oil futures in the futile pursuit of an investment, any investment, that was showing a profit. Once those contracts started maturing, though, real demand was right where it always was (actually, down a few percent), and red ink flowed like oil from a gusher. What bristles economists like Heimlich is the idea that "manipulators" can drastically affect their bottom line, such as with fuel costs. The error in Heimlich-style thinking is the idea that buyers and sellers could ever be better served by a politically appointed master manipulator. Time and again we've seen government attempts to stabilize prices, and always it's had the same destructive effect of favoring either production or consumption according to the political winds.
The real lesson of this story isn't that hedge fund managers are dumb, or that the futures market is "broken," or even that a new "regulatory framework" is needed to stabilize prices. It's that a market, when left alone, can adjust to a $60 billion malinvestment and correct itself in just nine months. Imagine if we had allowed the mortgage derivative markets to do the same thing.
CORRECTION: In "Bush's Midnight Regulations" (February), the Duquesne University economist Antony Davies' name was misspelled.