An Economist editorial reminds its readers that, in the mania to assign blame for the global financial mess—think sinister bankers, monocled capitalists, Wall Street gangsters, Jim Cramer—we run the risk of overlooking a more obvious culprit: government. And specifically a government obsession with raising rates of home ownership:
BANKERS, frauds, predatory insurers: there has been a stampede to punish the villains of the global meltdown. Yet one culprit is not only rarely seen as an offender, but is also being cosseted and protected. Governments' obsession about home ownership has contributed as much to the meltdown as any moustache-twirling financier.
The bust began in America's housing market and soon spread to government-sponsored institutions created to increase home ownership, Fannie Mae and Freddie Mac. Part of the problem came about because of policy. In most rich countries the state subsidises private housing. Some places (America, Ireland and Spain) give tax relief on mortgage-interest payments. Others, such as Britain, eliminate or lower the tax on capital gains from sales of someone's main house. Still others use state-backed outfits to direct credit to housing or to make it easier for first-time buyers or the poor to buy their own homes. Subsidies are not to blame for everything-the housing bubble affected a range of markets regardless of how much they were subsidised-but the distortions aggravated the boom and bust by making housing artificially attractive.
The whole piece, which weighs the economic and social benefits of home ownership, is worth a read.
The Economist is surely right that government is more often than not viewed as a savior of the American economy. And it is also true that media accounts of the crisis tend to underplay Washington's role in the current mess. But for the enlightened readers of this magazine, it isn't an unfamiliar argument. In January, for instance, I sat down with Stanford University economics professor John B. Taylor, author of the new book Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis, to discuss the American government's role in creating the current financial crisis: