Just a few years ago, most homeowners were convinced that property values could only increase. So it made sense to take out second mortgages and home equity loans, even if that left them underwater in the short term.
After all, their home would eventually increase in value, allowing them to pay off the additional loans. In the meantime, they’d enjoy free money to renovate, pay for a child’s education, or simply spend on luxury purchases such as expansive vacations or, maybe, a boat. Of course, markets have a way of correcting such faulty thinking. Famously, the housing bubble popped, and the good times stopped rolling. As a nation, we’re still dealing with the financial fallout.
There’s a lesson here for lawmakers: Boom times won’t last forever, so it’s better to act to head off trouble instead of waiting for a bubble to pop and trying to clean up the resulting mess. Some of our leaders are taking heed.
House Speaker John Boehner, for example, says he’ll insist on “cuts of trillions, not just billions” from the federal budget before he’ll agree to allow the federal government to borrow more money.
Not every observer thinks this is such a good idea.
“[I]f the speaker truly believes that it would be ‘more irresponsible’ to raise the debt ceiling without instituting deficit-reduction measures than not to raise it at all, we’re in a heap of trouble,” Ruth Marcus opined in The Washington Post on May 11.
Well, the trouble is that our government already owes $14.3 trillion. We won’t reduce that debt by agreeing to borrow more. But that’s not what has Marcus upset. She says Boehner’s being dishonest when he points out that, “The recent stimulus spending binge hurt our economy and hampered private-sector job creation in America.”
She writes that “no reasonable economist argues that it hurt the economy in the short term.” Further, “Economists Alan Blinder and Mark Zandi estimated in a July 2010 paper that without the stimulus spending, the unemployment rate would be 1.5 percentage points higher.”