Friday, February 20, 2009

Enable Now, Punish Later

David Brooks on the housing rescue plan: rewarding bad behavior is a bad idea, but what are you going to do?

Right now, the economic landscape looks like that movie of the swaying Tacoma Narrows Bridge you might have seen in a high school science class. It started swinging in small ways and then the oscillations built on one another until the whole thing was freakishly alive and the pavement looked like liquid.

A few years ago, the global economic culture began swaying. The government enabled people to buy homes they couldn’t afford. The Fed provided easy money. The Chinese sloshed in oceans of capital. The giddy upward sway produced a crushing ride down.

These oscillations are the real moral hazard. Individual responsibility doesn’t mean much in an economy like this one. We all know people who have been laid off through no fault of their own. The responsible have been punished along with the profligate.

It makes sense for the government to intervene to try to reduce the oscillation. It makes sense for government to try to restore some communal order. And the sad reality is that in these circumstances government has to spend money on precisely those sectors that have been swinging most wildly — housing, finance, etc. It has to help stabilize people who have been idiots.

Mr. Brooks comes to the sad conclusion that there’s more at stake than just the moral hazards of enabling the idiots, because the housing crisis touches more than just the people who borrowed more money than they could possibly afford: such as people like me who rented homes from landlords who had no way of paying the mortgage. Usually it’s the landlord who does the credit check on the tenant, not the other way around.

Mr. Brooks gets it right; we’re all in this together. But I think that once we get this all straightened out, the government and the people have a duty to go after the people and the practices that got us here in the first place.