The View From 1776
Tuesday, June 22, 2010
Housing Slumps Despite Obama’s Stimulus Spending
The housing market is the most recent of many examples of the failure of Obama’s stimulus plans to revive the economy by repealing principles of human economic behavior.
Predictably, the still vastly overbuilt and over-supplied housing market drops dead, as it should, when not artificially supported by socialistic government subsidies. The Wall Street Journal describes the deteriorating situation:
Federal tax credits of as much as $8,000 for home buyers spurred sales in recent months…Since April 30, new purchase contracts have plunged as buyers no longer have the incentive of a federal tax break, builders and real estate agents say. Lawrence Yun, chief economist for the Realtors, estimated that contracts signed in May were 10% to 15% below the weak level of a year earlier.
Ronald Peltier, chief executive officer of HomeServices of America Inc., which owns real estate brokers in 21 states, said new home-purchase contracts in May and June so far are down about 20% from a year earlier. The tax credit accelerated sales that otherwise would have occurred later in the year, Mr. Peltier said…
“We’re seeing a loss of momentum” in housing demand since the expiration of the tax credit, [Scott Anderson of Wells Fargo] said, and that lull could last until next spring. The job market remains weak, he added, and foreclosed homes continue to weigh on the housing market.
Last week, the Commerce Department reported that May construction starts on single-family homes fell 17% to an annual rate of 468,000, the lowest level in a year.
Stimulus spending is robbing Peter to pay Paul. It doesn’t add to wealth. It distorts economic activity by channeling funds to favored interest groups at the expense of others, smothering the economic processes necessary to clear the decks for sound new growth.
In the Keynesian command economy, politicians presume to decide where consumer are to spend their money. Such is the inherent and inescapable nature of government stimulus spending programs. With incredible arrogance, politicians propose to control the economic activity of hundreds of millions of individuals, who will make their own decisions about whether to save or to spend money, and what to spend it on.
Remember, all government spending is done with other people’s money, acquired as tax revenues or borrowed to fund deficits. Either way, the government creates nothing. It just transfers that money to its favored economic and social classes or to Congress members’ home district pork-barrel projects. Transfer payments can’t return economic conditions to soundness, but they can in the short run divert business from the essential process of liquidating uneconomic inventory and production facilities. In the longer run, transfer payments permanently corrupt citizens by inducing dependence upon the welfare state.
The rationalization for the species of government transfer payments called stimulus plans is that it theoretically revives an economy in recession and creates perpetual economic booms. At least that was among the confused and often contradictory claims made by economist John Maynard Keynes.
The Democrat/Socialist Party, since Franklin Roosevelt’s New Deal in the 1930s, has adopted Keynes’s estimate of private enterprise and “the rich” in general, making them targets of punitive regulation, higher taxes, and public condemnation. In line with socialism’s thrust to redistribute income and wealth, they pound the slogan that “the rich” are not paying their fair share, because of tax breaks enacted by Presidents Reagan and George W. Bush.
Counter-intuitively, however, tax revenues grew prodigiously under both tax-cutting presidents, as well as earlier under tax-cutting President John F. Kennedy. With respect to fairness, according to the IRS, the bottom half of all taxpayers pay less than 3% of income taxes, while the top 1% of taxpayers pay 36% of taxes and the top 20% pay 53% of taxes.
It is these top-bracket citizens whose savings and entrepreneurial spirit are essential to powering a revitalized economy that will create new jobs. Freighting them with the uncertainties of higher taxes and thousands of pages of new regulations, while figuratively flagellating them in the public square, will do nothing to speed our nation’s economic recovery.