Do Forced Mortgage Writedowns Create Wealth?
Matt Yglesias recently added his voice to the long running calls for principal reductions on underwater mortgages. His argument is that such would create additional spending. Or as he puts it, “I think that if people in Phoenix got a principal writedown on their mortgages, they’d have more disposable income and might go to the bar more.”
What Matt, and others calling for forced principal reductions, miss, or choose to ignore, is that while a mortgage represents a liability to the borrower, it is an asset to someone else. Matt’s logic, which I agree with here, is that an increase in one’s net wealth (via a reduction in one’s liabilities) should increase one’s consumption. To complete the analysis, however, we must extend that same logic to the holders of the asset, so that a reduction in the value of their asset (the mortgage) should reduce their spending. Taking x from A and giving x to B is not going to increase A+B. To assert otherwise is to engage in Enron-style social accounting.
Now if you want to argue that the borrower has a higher marginal propensity to consume than the investor (say, a retiree living off a pension) then provide some support for that position. It is just as likely that those on the losing end will take efforts to protect themselves from this loss, decreasing overall social wealth. So what one has to show is that the marginal propensity to consume for the borrower is so much larger than that for the investor that it offsets any costs from the investor trying to protect his investment from theft.
Now if you simply favor redistribution of wealth for its own sake, just say so. If you hate investors and love defaulting borrowers, then just say so. Personally, I don’t believe the role of government should be to take from A to give to B. I just ask that we stop pretending, in the absence of compelling evidence, that redistribution of wealth is the same as wealth creation.
Was There a Libertarian Golden Age?
Recently I wrote an article arguing that there never was a golden age of liberty and that in particular libertarians should not hail 19th-century America as a small-government paradise, at least not without grappling with the massive problem of slavery. Jacob Hornberger, author of an article that I criticized, responded in Reason, and I then responded here. Meanwhile, an interesting discussion took place on a email list of libertarian scholars, and I’m pleased to have gotten the permission of several participants to include some of that discussion here:
What’s a Libertarian?
In a new episode of Stossel, Cato’s David Boaz and Jeffrey Miron join a panel of experts to discuss where libertarians stand on a host of major issues facing the nation today. They tackle libertarian views on war, abortion, the welfare state, gay rights and more.
Watch the videos below for a full re-cap.
The first video covers the so-called culture wars, including gay marriage, abortion and immigration:
More videos after the jump.
A Warning for President Obama
Last November’s rejection of the failed GOP didn’t mean voters were ready to embrace a massive increase in the size of the federal government, says Scott Keeter, director of survey research at Pew Research Center:
Obama campaigned for strong government action on the economy and health care, and most of his voters agreed with this direction. But Obama’s efforts to expand the role of government have alienated many of those who did not vote for him but nonetheless gave him high marks when first he took office.
Pew Research’s political values survey this spring showed no surge in public demand for more government. Indeed, anti-government sentiment, which had been building for years, was heightened by the financial bailout and stimulus program.
Adam Smith Goes to Somalia: “Competition Keeps Prices Low”
Many people would agree that modern-day Somalia represents a Hobbesian state of nature. But could anarchy strengthen Somalia’s private sector? This article is certainly very old, but I came across it yesterday and thought the argument would be of interest to political theorists and classical liberals:
…local businesspeople find it easier to do business in a country where there is no government. “There is no need to obtain licences and, in contrast with many other parts of Africa, there is no state-run monopoly that prevents new competitors setting up. Keeping price low is helped by the absence of any need to pay taxes.”
Of course, the absence of a stable and legitimate political and judicial system, compounded by unyielding internecine violence, means individual and private property rights can never be fully protected and we aren’t likely to see foreign businesses flocking to this chaotic country in the foreseeable future. Generally speaking, the proper role of government is to protect individual rights. But the proper role of our government — abroad — should be limited to instances when our national sovereignty or territorial integrity is at risk. As exemplified in Somalia, America’s attempts to stabilize failed states or pacify foreign populations usually fail, exacerbate already disastrous situations, and are, in principle, gratuitous abuses of American power [See: the calamitous U.S.-backed Ethiopian invasion of Somalia].
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