The Goal is Freedom: Less than Nothing by Sheldon Richman

[Stephane Budge]

The story is told that Ludwig von Mises was once asked, “Do you mean
to say that the government should have done nothing during the Great
Depression?” Mises responded, “I mean to say it should have started
doing nothing long before that.”

I hope the story is not apocryphal, because it perfectly sums up the
government’s proper role in managing the economy: none. The misnamed
stimulus law is now on the books. While nearly everyone believes the
government has to do something to get the economy out of the
recession, those who understand markets insist that we’d be better off
if the government did nothing at all. Of course, politicians are
incapable of doing nothing when there is harm to be done, but the
“stimulus” critics intrepidly insist that anything the government does
will be worse than doing nothing at all.

This is certainly true. Unquestionably, doing nothing is better than
borrowing nearly $800 billion from the credit markets (to be repaid
through inflation and taxation) and spending it on pet political
projects, from food stamps to bridge repairs to subsidies for favored
energy forms. (Remember opportunity cost!) Doing nothing is indeed is
an attractive option. For example, it would avoid re-stimulating parts
of the economy shouldn’t have been stimulated in the first place, such
as housing and autos. As economist Mario Rizzo said recently, “Trying
to prop up housing prices or injecting capital into areas of
misallocation is a bad idea. It prevents the market’s corrective
mechanisms from working. Wealth should not continually be destroyed
after the errors of the bubble have been revealed. This is the
proverbial practice of throwing good money after bad.” (Watch Rizzo’s
presentation here. The written remarks are downloadable here.)

But, frankly, doing nothing is only the second-best option. We can do
better. We need the government to do less than nothing. It should undo
many things.

Government-Inflated Bubble

Let’s remember that government created the housing bubble through a
constellation of policies that made borrowing for home mortgages —
prime and subprime — artificially attractive. Because of the
securitization of mortgages (in itself a good risk-spreading device),
the consequences of government housing policies spread far beyond the
housing and banking industries. When home prices seemed to be
perpetually rising, people were encouraged to refinance their homes
and withdraw equity so they could spend the money on cars, trips, and
other big-ticket items. Government-stimulated demand touched
everything. When the bubble popped — when interest rates rose and the
housing glut became apparent — things turned around. People now had
costly mortgages they couldn’t refinance; homes bought on the
expectation of early profitable resale were now money losers. The
party was over.

It was a party that couldn’t have been thrown without politicians
eager to do things for us and, not coincidentally, to boost their
reelection prospects as well.

The upshot is that if the economy is to thrive again, the reigning
philosophy of government as a social service center will have to
change. Many things will have to be undone.

These things will strike most people as politically impossible, but if
no one ever talks about them, that’s what they will remain. We have to
start somewhere. The first thing we need is a monetary system that is
beyond the reach of manipulative politicians and political appointees.
Whatever the Fed Reserve’s role in the housing bubble — even if it was
only the Alan Greenspan’s promise to provide liquidity to overextended
lenders — the central bank has again proven itself hazardous to our
economic well-being. When will we cease to tolerate this continuing
threat in our midst? When will we realize that the mortals who run it
cannot know how much money the economy needs or what interest rates
should be? Market-rooted money — most likely gold — and free banking
are long overdue. How can we afford to wait any longer?


No More Housing Policy

Also on the list of things to go is every manifestation of housing
policy. In a free society there would be no such thing. The alphabet
soup of agencies — from HUD to FHA to FHLB, and the rest — should be
abolished at once.

The same goes for those privileged cartoon characters Fannie Mae,
Freddie Mac, Ginnie Mae, and any I may have overlooked. They exist to
circumvent the market in order to carry out the agendas of
politicians, who must dispense goodies to favored constituencies in
order to keep their hold on power. Because the agencies are backed by
captive taxpayers, they are can do things no free-market institution
can do, such as obtain special low-interest loans and guarantees.
These bureaucracies have no place in a free market. If we haven’t
learned that by now, what will it take? (We haven’t learned it. The
Obama administration wants to give them more billions.)

While we’re at it, let’s get rid of the income tax if for no other
reason than because it would end the mortgage deduction. We must stop
thinking of home-ownership as something worthy of government
privilege. There’s nothing magic about housing. It’s one more thing we
need. Yet it gets special treatment in the law, and economy-watchers
give it special attention. Why do news agencies report housing starts
faithfully each month as though the fate of the planet hangs in the
balance? They never tell us how many computers, Coca-Colas, or boxes
of Cheerios were produced.

Other taxes should be cut or abolished too, including the payroll tax,
which is a tax on hiring. But — this is often overlooked — tax cuts
without spending cuts require more borrowing and more inflation. It’s
a bad bargain in the tradition of Keynes. We must cut government
spending along with taxes.

If government really wants to make it easier for people to own homes,
let it give up control of money and banking, divest itself of the land
it holds off the market, and generally relieve society of its endless
burdens.

The biggest favor the state can do for us is to stop doing us favors!