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On the other hand, government guarantees expand the available credit to consumers who would be just as likely to be shut out of homeownership (for example) by h

On the other hand, government guarantees expand the available credit to consumers who would be just as likely to be shut out of homeownership (for example) by higher interest rates, save for a thunderous government program to ensure housing for every citizen. With the exception of the subprime mortgage crisis, it is usually a good way to help people become homeowners without too much taxpayer burden or onerous bureaucratic micromanagement.

readams 11y ago
That's exactly the sort of thinking that leads to this sort of problem. When you consider only first-order effects, many very bad ideas seem like a good idea. When you consider that all policy choices have second-order effects and unintended consequences, you can make more intelligent policy decisions.
- rm_-rf_slash 11y ago
  Any policy can result in negative n-order effects as time passes. Postwar housing policy mostly worked well (if you were white). The global population was smaller and the devastation of Europe and Japan made America the sole economic superpower. So what makes sense (and actually gets hammered out by perennially bickering politicians) in the 50s might make sense today, it might not. But nothing in politics is correct forever. Just saying "consider second-order effects" without concrete evidence or a plan to mitigate changes in technology/laws/markets/social norms doesn't really add value.
  - readams 11y ago
    You're making my point for me :-) It is vital to consider higher-order effects and unintended consequences if you want to make good public policy. And not just "prove there are negative consequences:" it is incumbent on policy makers to understand these effects before enacting policy. Consider price controls, such as rent control. Problem: prices are too high. Solution: legislate lower prices. First-order effect: prices go down. Hooray! Second-order effect: shortages. Third-order effect: decline in investment and maintenance. End result after many years can be disastrous. You get Venezuela.
    - rm_-rf_slash 11y ago
      In a scope of logic alone, yes, you are absolutely correct. An example I like to raise regularly is the farm subsidies put in place by the Roosevelt Administration to prevent overproduction. Was there a better way for farms to stay in business and for food to be affordable to consumers? Maybe. But this way worked to solve problems created by the Great Depression. Now I'm sure as you know, farm subsidies now are sweeter than high fructose corn syrup. There is even sitting republican senator who makes millions from the federal government paying him to not plant cotton. Few can argue this policy still works as intended, but it so politically locked-in that it's almost impossible to shake out. Same with the tons of unnecessary military hardware and property sitting around solely because representatives in those districts want to be re-elected by their core constituencies. To me the problem isn't about getting it right the first time, it's about changing something that has outlived its usefulness when powerful beneficiaries fight to keep the wasteful status quo. A metaphor: bandages are useful for flesh wounds, but after the wound has healed the bandage must be removed and the skin must be cleaned or it will rot.
      - readams 11y ago
        It seems we are in violent agreement :-)
rconti 11y ago
How so? As far as I can tell, the mortgage interest tax deduction only "benefits" those buying houses expensive enough for the interest to exceed the standard deduction (or who itemize for other reasons). And it doesn't even benefit them, because all buyers in the market can afford x% "more house" and hence the housing gets bid up by exactly that amount.
Kinnard 11y ago
That doesn't account for the access driven by the decrease in the price of housing that comes from removing the artificial credit subsidy. What you might call a "second-order" effect, though because it's an effect of "doing nothing" it's both more natural and more efficient. If anything, driving up prices(by subsidizing credit) such that houses can only be bought on credit and not outright does the most to increase housing inequities! Cuz we all know how that shit works :/

readams 11y ago

That's exactly the sort of thinking that leads to this sort of problem. When you consider only first-order effects, many very bad ideas seem like a good idea. When you consider that all policy choices have second-order effects and unintended consequences, you can make more intelligent policy decisions.

rm_-rf_slash 11y ago
Any policy can result in negative n-order effects as time passes. Postwar housing policy mostly worked well (if you were white). The global population was smaller and the devastation of Europe and Japan made America the sole economic superpower. So what makes sense (and actually gets hammered out by perennially bickering politicians) in the 50s might make sense today, it might not. But nothing in politics is correct forever. Just saying "consider second-order effects" without concrete evidence or a plan to mitigate changes in technology/laws/markets/social norms doesn't really add value.
- readams 11y ago
  You're making my point for me :-) It is vital to consider higher-order effects and unintended consequences if you want to make good public policy. And not just "prove there are negative consequences:" it is incumbent on policy makers to understand these effects before enacting policy. Consider price controls, such as rent control. Problem: prices are too high. Solution: legislate lower prices. First-order effect: prices go down. Hooray! Second-order effect: shortages. Third-order effect: decline in investment and maintenance. End result after many years can be disastrous. You get Venezuela.
  - rm_-rf_slash 11y ago
    In a scope of logic alone, yes, you are absolutely correct. An example I like to raise regularly is the farm subsidies put in place by the Roosevelt Administration to prevent overproduction. Was there a better way for farms to stay in business and for food to be affordable to consumers? Maybe. But this way worked to solve problems created by the Great Depression. Now I'm sure as you know, farm subsidies now are sweeter than high fructose corn syrup. There is even sitting republican senator who makes millions from the federal government paying him to not plant cotton. Few can argue this policy still works as intended, but it so politically locked-in that it's almost impossible to shake out. Same with the tons of unnecessary military hardware and property sitting around solely because representatives in those districts want to be re-elected by their core constituencies. To me the problem isn't about getting it right the first time, it's about changing something that has outlived its usefulness when powerful beneficiaries fight to keep the wasteful status quo. A metaphor: bandages are useful for flesh wounds, but after the wound has healed the bandage must be removed and the skin must be cleaned or it will rot.
    - readams 11y ago
      It seems we are in violent agreement :-)

rconti 11y ago

How so? As far as I can tell, the mortgage interest tax deduction only "benefits" those buying houses expensive enough for the interest to exceed the standard deduction (or who itemize for other reasons). And it doesn't even benefit them, because all buyers in the market can afford x% "more house" and hence the housing gets bid up by exactly that amount.

Kinnard 11y ago

That doesn't account for the access driven by the decrease in the price of housing that comes from removing the artificial credit subsidy. What you might call a "second-order" effect, though because it's an effect of "doing nothing" it's both more natural and more efficient. If anything, driving up prices(by subsidizing credit) such that houses can only be bought on credit and not outright does the most to increase housing inequities! Cuz we all know how that shit works :/