Squeezing out a market-generated recovery
On Wednesday, the National Association of Realtors reported that existing home sales fell 5.3% in January, much worse than expectations, and the slowest sales rate in 11 years. There was an interesting comment from NAR's senior economist, Lawrence Yun, who said "Given so much stimulus package discussion in January, some would-be buyers simply sat out for clarity and certainty on the nature of housing stimulus" The Associated Press summarized the story this way: "A real estate group says sales of existing homes took an unexpected plunge from December to January, falling to the lowest level in nearly 12 years as buyers waited for the government to boost the U.S housing market." In other words, hope and fear about what the government might do in the future is keeping people from buying homes and preventing a market-based improvement in the housing market. It's not only the housing market where this sort of squeeze-out of private action is likely to be making our recession worse rather than better. It's probably happening with cars, with energy development (whether efficient sources or "renewable" sources), and even with banks making loans or businesses looking for loans (the demand for which would obviously be low in any case.) It's sort of an economic analog to studies which show that the chance of a witness to an accident acting to help an accident victim is inversely related to the number of witnesses. It's basically a free-rider problem, with people believing that they don't need to do something because someone else will. A nanny-state government does the same thing. If people don't need to help themselves with education, health care, retirement, or even home ownership, they won't. They'll just let government do it. And the more government does, or even hints that it will, absolve individuals of such responsibilities, the more individuals will abandon responsibility, dumping their problems on government and increasing bureaucracy, inefficiency, and cost to the rest of society. Politicians, but especially liberals, seem to completely miss the psychological squeezing out effect, even while a few of them seem to recognize the financial squeezing out of the private sector by excessive government taxation and borrowing. As long as government gives people reason to believe that "we're here to help", they will deter the proper function of the private free market which could, if not cause a short-term substantial recovery, at least stabilize for a time while business, markets, and individuals catch their collective economic breath.
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