So far, the housing crisis is undiminished, if not continuing to deepen. A problem of this magnitude, severity, and pervasiveness is surely due to many factors. I will concentrate on the following three:
- The loss of jobs (about 15 million): non-military total employment stood at about 154 million in November 2007. It now stands at about 139 million.
- the predatory, devil-may-care nature of many of the mortgages, and
- the belief that the private sector behaves in a rational manner, providing inherent self control mechanisms.
So far, the country has only tinkered with the foreclosure epidemic, preferring to concentrate on propping up the financial system, mostly the money center banks, without actually attempting to solve the underlying basic problems of the financial markets –unconstrained pursuit of bottom line profits, and development of risky financial instruments without any controls or supervision or even monitoring.
Throughout the modern era, the economic sector has on the whole behaved in a rational manner, but to assume (as our central bankers have) that the financial sector would so behave is erroneous in as much as it is not supported by the many financial bubbles and subsequent collapses that have regularly taken place in the recent past (e.g. savings & loan crisis, dot-com boom, housing bubble, etc.)
If one considers that the loss of jobs is part of the cyclical nature of market and mixed economies, the four factors listed above are systemic in nature. If one is to resolve the foreclosure epidemic one must -to use a well worn out cliché- think outside of the box. One must think in a radically evolutionary manner.
No job, hence no income; no income hence no ability to repay a mortgage. Thus, priming the pump, a la Keynes, is inevitably necessary at this stage. This can take several forms, preferably all four to one degree or another:
- Direct government employment, such as in planning and rebuilding infrastructure: transportation, national parks, etc. In education: retraining programs, k-12 in low income area, etc. Programs oriented to returning veterans from the Iraqi and AfPak fronts, etc.
- tax incentives to the U.S. industrial sector of the economy for repatriating jobs back to the U.S,
- tax disincentives for U.S. companies for exporting jobs out of the U.S, and
- tinkering with foreign exchange rates with a view to instituting a higher tax rate for U.S. companies on non-U.S. income.
The first two options will have a downward effect on government revenues, thus increasing government borrowing –a dangerous result at this stage of the federal government indebtedness level. The last two would hopefully have a net opposite effect.
The last three options may be in violation of international trade agreements limiting protectionism. Here, legal and trade experts could provide the necessary byzantine argumentation that if the government were to institute such tax and financial policies it would do not be...