I must vociferously disagree with Aaron Marks here. He’s right that we must let market forces sort out the mess caused by the distortive practices of government. The problem is, his prescription (a la one Dr. Meltzer) is yet more of the same distortive intervention. In short, what Marks is claim as a “free market solution” is not. Let me explain.
Marks basically wants more tax-breaks (subsidies) for housing. But anybody who knows anything about this problem (like free market economists) know that it’s not temporary tax breaks, subsidies or any other government-style epicyclical policies that will clean up the mess. It’s about government getting the fundamentals right by NOT privileging industries—including housing. It’s about getting the rules of the game set, normalized and predictable. It’s not about more Keynesian tweaks, which targeted tax breaks most certainly are.
This is exactly how the left is able to demonize free markets. Because partisan Republicans bastardize the concept. Marks’s suggestion is the intellectual equivalent of W's suggestion that the free market be abandoned to save it. Unless we understand free markets, let us not use the term like blunt instrument, applying it to whatever policy suggestion that happens to include a tax break. This is just more attempts to clean up government messes with muddy mops. Or as Peter Klein writes:
Another aspect of journalists’ remarkably credulous and fatuous attitude towards policymakers is their view that rhetoric, not substance, is what matters. Hence the constant references to the Bush Administration’s “dedication to free-market principles,” its “aversion to regulation,” its “belief in letting markets work by themselves.” This is of course sheer balderdash and piffle, virtually the reverse of the truth. Bush and Paulson and Greenspan and their clique are “free marketeers” in the same way (to borrow from A. J. Jacobs) that Olive Garden is an Italian restaurant. They adopt the language, and some of the form, of market advocacy without any of the content. The Bush Administration was already, before the “financial crisis,” the most economically interventionist since LBJ; it now ranks with Hoover and FDR as the most aggressively anti-market in US history.
Aaron Marks, I believe, is merely giving fodder to a confused MSM and lunatic left. It’s no wonder we’re losing. Until our folks understand what free market means from a broadly institutional perspective, we are lost. Jack in Michigan nails it in the comments of Marks's post:
Basic bubble economics 101: The healing only can begin when the bubble-inflated prices return to the level that's in equilibrium with the real economy, ie, that can be justified by actual income levels. Are we there yet? No, not yet, but gettin' there. The temporary tax credit only delays that, and so prolongs the agony. It's like a hard core alcoholic taking a drink the morning after so he doesn't feel so rotten.
Partisan Republicans had best stop wearing the free market hat if they're confused about free markets. That sends real free marketeers into fits. It also confuses the masses and lets lefties blame the market for the goofy government policies. In short, we need to stop subsidizing people to invest in housing. Period. Prices must reflect economic reality and the rules of the game must be established so that the market can adjust. Tweaking the rules to adjust to distortions caused by prior tweaks the the self-same prescription that keeps our economy in rollercoaster business cycles and wacky volatility. (For an antidote to interventionist thinking of all kinds, see this.)
