Finally, a Pure Bailout
By Arnold Kling
The Washington Post headline reads Housing Accord Puts Builders First but waits until the last paragraph to explain.
Both parties wanted to help home builders and other businesses. Under the agreement, corporations that lose money in 2008 and 2009 would be permitted to apply their losses to tax returns from as far back as 2004, making them eligible, according to a bill summary, to “receive any applicable refunds.”
1. Homebuilders lost money by speculating on rising home prices. So did other people. After all of the talk about bailouts, this is the first big policy move enacted that is a pure bailout.
2. Of all the forms of tax breaks, the ones least likely to stimulate any economic activity are those that are retroactive.
3. The level of public clamor for giving taxpayer money to homebuilders has not been particularly high, but this bill is being lauded as a response to popular demand.
Pundits have been braying that the subprime mortgage crisis demonstrates the failure of private markets and the need for more regulation. They say that the crisis is a reminder of why we need more government intervention, not less. The housing bill is a reminder of the opposite.