Thursday, May 08, 2008

Come Onna My House, Come On, Come On

Permit me to be the rude bastard who points out the turd in the punchbowl. The wonderful "entrepreneurs", "businesspeople", "investors", and other such euphemisms, are the speculators and profiteers who have brought our economy to its knees.

During boom times they buy up endless amounts of residential real estate and force prices to artificially inflated levels. Speculators buy from speculators and sell to other speculators. Prices spiral ever-higher. The speculators harvest money while producing nothing. Families who want housing for such unimaginative purposes as living in it, are priced out. That is what the complaint was in the housing market during most of the past few years, was it not?

The crash that follows is inevitable because housing prices are supported by neither value nor utility. When the turndown comes, the speculators, having no reason to keep the property they bought solely for appreciation, all run for the doors at the same time to unload their now-declining-in-price properties. There is an immediate glut on the market and prices plummet. Real homeowners now get stuck with houses worth less than what they owe on them. They are faced with either being unable to sell or taking a huge loss if they do.

These disastrous fluctuations achieve exactly the opposite of what a free market governed by supply-and-demand is supposed to achieve. Instead of supplying a life necessity at a price corresponding to people's demand for housing and industry's ability to supply it, it penalizes and endangers home buyers and home sellers, precisely those whom it is supposed to serve.

Speculation so distorts the market that we find economic waste and absurdity such as one-fourth of the housing in Phoenix standing empty.

The reason for the distortion and instability is not hard to find. The government has given favored tax treatment to homeowners and made our mortgage interest deductible. Congress did that because it is a generally shared view that home ownership is to be encouraged. That a large number of Americans should own their own homes is generally agreed to be in the public interest.

However the homeowners interest deduction has been extended to speculators. What public interest is served by encouraging speculation and speculators? Speculation in housing is about as much in the public interest as selling cigarettes in schools.

If the government can intervene in the housing market with a tax policy to encourage home ownership, it can intervene with a tax policy to make speculation unprofitable.

It would be as simple as eliminating deductibility of mortgage interest for more than one residence. Which is what the law actually was until a few years ago when the speculators bribed the Republicans under Reagan to change it. (Campaign contributions aren't bribes? Dream on.)

It isn't just the president who is up for election this fall. Every congressman and every third senator is up for election as well. McCain has already said that the Republican policy will be more of the same. It is time to turn the rascals out.

In the meantime, if you meet one of Francine's "investors", spit on his shoes.

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