Downsizing Blog
Biden's Fatal Conceit
The White House’s misbegotten “Summer of Recovery” continued today with the release of another administration “analysis” that purportedly demonstrates the stimulus’s success in “transforming” the economy.
Vice President Joe Biden unveiled the report alongside Energy secretary Steven Chu and numerous businesses officials willing to serve as political props in return for Uncle Sam’s free candy. Biden bemoaned the nefarious “special interests” that were coddled by the previous administration. What does the vice president think those subsidized business officials attending his speech are called?
The money the White House has lavished on these privileged businesses isn’t free. The money comes from taxpayers – including businesses that do not enjoy the favor of the White House – who consequently have $100 billion (plus interest) less to spend or invest. Therefore, the fundamental question is: Are Joe Biden – an individual who has spent his entire career in government – and the Washington political class better at directing economic activity than the private sector?
Biden repeatedly stated that the “government plants the seed and the private sector makes it grow.” Because the government possesses no “seeds” that it didn’t first confiscate from the private sector, what the vice president is advocating is the redistribution of capital according to the dictates of the Beltway. This mindset exemplifies the arrogance of the political class, which at its core, believes that free individuals are incapable of making the “right” decision without the guiding hand of the state.
Unfortunately for Joe Biden, the state’s hand misguided the private sector into the economic downturn that the administration and its apologists would have us believe was a consequence of imaginary laissez faire policies. From the housing market planners at HUD to the money planners at the Federal Reserve, government interventions let to the economic turmoil that the perpetrating political class now claims it can fix.
Enough already.
The following are Cato resources that challenge the vice president’s breezy rhetoric on the ability of the federal government to direct economic growth:
- Energy Subsidies: The government has spent billions of dollars over the decades on dead-end schemes and dubious projects that have often had large cost overruns.
- Energy Regulations: Most federal intrusions into energy markets have been serious mistakes. They have destabilized markets, reduced domestic output, and decreased consumer welfare.
- Energy Interventions: The current arguments for energy intervention and energy subsidies fall short.
- High-Speed Rail: Policymakers are dumping billions of dollars into high-speed rail, even though foreign systems are money losers and carry only a small share of intercity passengers.
- Special-Interest Spending: Many federal programs deliver subsidies to particular groups of individuals and businesses while harming taxpayers and damaging the overall economy.
Posted by Tad DeHaven on August 24th, 2010
States Shy From HSR Money
The president’s stimulus package contained an $8 billion downpayment on a national system of high-speed rail. The money came with no state matching requirements, which generated state applications totaling $102 billion. When Congress added a 20 percent state matching requirement to an additional $2.3 billion for high-speed rails grants in this year’s budget, state applications only totaled $8.5 billion.
According the Wall Street Journal, federal officials blamed the drop in state interest in high-speed rail money on several factors. But state official confirmed to the Journal that the 20 percent match requirement was the primary reason.
The states already have dedicated revenue sources for federal highway aid matching requirements (also 20 percent). With state tax revenues flat due to the recession, where would the money come from to pay for high-speed rail projects? Proposing new taxes to fund high-speed rail would probably be political suicide. And most state policymakers recognize that shifting money away from more popular programs to pay for high-speed rail won’t be any more politically rewarding.
The issue is even affecting elections in states that are in line to receive federal funding for high-speed rail. Scott Walker, a Republican candidate for governor in Wisconsin, recently said he’d send back the $810 million in stimulus funds the state has received for a rail line between Madison and Milwaukee. Walker appears to understand that his state has more pressing infrastructure needs and that high-speed rail could become a fiscal black hole.
California offers a cautionary tale. In 2008, California voters passed a measure allowing the state to issue nearly $10 billion in bonds to start constructing a high-speed rail line from San Francisco to Los Angeles. The state's estimated cost for the entire system went from $25 billion in 2000 to $45 billion by 2008. A Reason Foundation analysis concluded that the rail line could cost up to $81 billion.
A Cato essay on high-speed rail takes a “sober” look at the costs and benefits of high-speed rail and concludes that the federal government should reverse course:
The reality is that high-speed rail systems are extraordinarily expensive and serve only a small and elite group of people even in those nations that have the longest experience with them.
High-speed rail is not a grand solution to America's congestion and mobility problems, as it is often alleged to be. While high-speed trains in Europe and Japan are technologically impressive, nearly all the routes in those jurisdictions lose money and need large subsidies to stay afloat. America's geography is even less suited for a successful high-speed rail system than Europe or Japan because our cities are less dense and spaced farther apart.
If federal policymakers won’t reverse course, let’s hope state policymakers step up to squelch this budding boondoggle before it’s too late.
Update: See Randal O'Toole's blog for more on this story and the issue of high-speed rail.
Posted by Tad DeHaven on August 23rd, 2010
FHA Insures Luxury Condos
The Treasury Department and Department of Housing and Urban Development held a high-profile conference this week on the “Future of Mortgage Finance.” The federal government is currently backing more than 90 percent of new mortgages through Fannie Mae, Freddie Mac, and the Federal Housing Administration.
Symbolic of this unprecedented federal intervention into the housing market is news that the FHA is insuring mortgages on luxury condos in Manhattan.
The New York Post reports:
Intended to spur low-to-moderate-income home ownership, relaxed regulations by the Federal Housing Administration have buildings in TriBeCa, Midtown, Battery Park and on the Upper East and West sides turning to the agency for help selling their swanky condos.
The FHA has been insuring mortgages for apartments at the 98-unit Tempo development in Gramercy Park since March, Bloomberg News reported.
The development features an outdoor movie theater, panoramic city views, apartments valued between $820,000 and $3 million – and, thanks to the government, the ability to land a mortgage with less than a $100,000 deposit.
The FHA will insure mortgage loans at the building for up to $729,750 – which means that if a homebuyer defaults on a mortgage, the agency will pay for it, spurring banks to sign off on mortgages they likely would not have otherwise, given the current financial climate.
It also benefits the well-to-do who might have had problems getting into deluxe properties for the very well-to-do. “It's a government seal of approval,” Tempo marketing chief Whitney Gollinger told Bloomberg News.
The upper limit on mortgages that the FHA will insure was “temporarily” increased to $729,750 in the 2008 stimulus bill signed into law by President Bush, which demonstrates the bipartisan nature of the federal government’s housing overreach.
Mark Calabria attended the mortgage finance conference and found it to be a virtual echo-chamber of special interests calling for the government to maintain its imposing presence:
Maybe about 80 percent of the attendees were blindly and violently attached to the status quo. Most offensive to those us who fight for free markets was that the industry representatives were the most vocal advocates for the status quo. To even suggest that lenders should bear the risk of loans they make was crazy to this group. It was a clear reminder that being pro-market and pro-business are generally two very different things.
What is the future of mortgage finance in the U.S.? Based on Mark’s observations, taxpayers and limited government devotees have little cause for optimism:
If the Administration was hoping that this group was going to come up with answers, then they must have been sorely disappointed. If Obama is serious about taking the taxpayer off the hook for risk in the mortgage market, then he is going to have to take on the special interests. My fear is that the event was just the beginning of how health care reform played out: cut a deal with the industry, pay off the Democratic base, and screw the taxpayer. Let’s hope we actually see some change on this one.
See this Cato essay for more on problems with the federal government’s role in housing finance.
Posted by Tad DeHaven on August 20th, 2010
