Political "Solutions"

Thomas Sowell

10/30/2007 12:01:00 AM - Thomas Sowell

It is remarkable how many political "solutions" today are dealing with problems created by previous political "solutions." Three examples that come to mind immediately are the housing market crisis, the wildfires in southern California, and the water shortages in the west.

Congress and the Bush administration are currently vying with each other to come up with a solution to the housing crisis, brought on by widespread defaults on home mortgage loans -- especially defaults by those who took out risky "subprime" loans.

Why were borrowers taking out risky loans in the first place? And why were lenders willing to lend to risky borrowers? In both cases, the government was a prime factor in "subprime" loans.

Many people took out risky mortgage loans to buy a house because housing prices were so high that this was the only way they could own a home. Where housing prices were highest, the most people took out risky loans.

In the San Francisco Bay Area, where housing prices are the highest in the nation, risky interest-only loans went from being 11 percent of all new mortgages in 2002 to being 66 percent of all new mortgages in 2005.

Study after study has shown that housing prices are highest where government restrictions on building are the most severe. That is the ugly result of pretty words like "open space."

Why were lenders lending to people whose prospects of repaying the loans were below average -- that is, "subprime"?

Government laws and policies, especially the Community Reinvestment Act, pressured lenders to invest in people and places where they would not invest otherwise. Government also created the temporarily very low interest rates that made the mortgages seem affordable for the moment.

Now that politicians have created this mess, they are ready to play heroes riding to the rescue.

As for the flames sweeping across southern California, tragic as that is, this has happened time and again before -- in the very same places in the very same time of year, just like hurricanes.

Why would people risk building million-dollar homes in the known paths of wildfires? For the same reason that people choose to live in the known paths of hurricanes. Because the government -- that is, the taxpayers -- will get stuck with a lot of the costs of dealing with those dangers and the costs of rebuilding.

Why is there such a huge amount of inflammable vegetation over such a wide area that fires can reach unstoppable proportions by the time they get to places where people live? Because "open space" has become a political sacred cow beyond rational discussion.

The same severe government restrictions on building that drive home prices sky high also lead to vast areas with nothing but trees and bushes. Where it doesn't rain for months, that's dangerous.

No matter how much open space there is, it is never enough for environmental extremists, who will make political trouble if anyone is allowed to break up those miles and miles of solid vegetation with buildings, even though pavement and masonry don't burn.

In other words, government preserves all the conditions for wildfires and subsidizes people who live in their path.

As for water shortages, they are as endemic to California as wildfires. But when an economist hears about a shortage that persists for years, the first question that comes to mind is: Why doesn't the price rise until supply and demand are equal?

If you said, "the government," go to the head of the class.

The federal government's water projects supply much of the water used in California that enables agriculture to flourish in what would otherwise be a desert.

The government sells this water to farmers at prices artificially lower than the cost of providing it -- and at a tiny fraction of what people pay for water in Los Angeles or San Francisco.

Is it news, at this late date, that people waste things that they get cheap? It's been happening for centuries.

But none of the political "solutions" through drastic water rationing schemes will touch the cheap prices of water that lead farmers to grow crops requiring huge amounts of water in a desert.