‘ ‘ ‘ ‘ Pundits are quick to point out the housing bubble as a brilliant example of the private… ‘ ‘ ‘ ‘ Pundits are quick to point out the housing bubble as a brilliant example of the private sector failing. Is this a reasonable narrative? ‘ ‘ ‘ The private sector fails all the time. General Motors was tooling plants to build SUVs while middle schoolers were learning that we’re running out of oil. A studio spent $175 million to make ‘Waterworld.’ Someone spent $6 to see ‘Waterworld.’ ‘ ‘ ‘ However, it’s rare for the private sector to foster an inexcusable, colossal failure like the housing bubble without some help from the government. Consider this: There was a blog called ‘The Housing Bubble Blog,’ chronicling the housing bubble while the it was going on, and people kept investing in housing. Now, consider just how much the government does to make people invest in housing: ‘ ‘ ‘ First, there are deductions for housing. The government lets you deduct the interest on your mortgage from your income taxes. Is this a good way to help poor people own homes? Not really, given that the deduction applies to mortgages of up to $1 million. The deduction subsidizes bigger and pricier houses more than modest, affordable shelters. And for that, it costs the government $75 billion a year ‘mdash; three times our infamous farm subsidies. ‘ ‘ ‘ Likewise, the government lets you deduct property taxes ‘mdash; meaning the more expensive your property is and the more likely you live in a high-tax bubble zone like New Jersey, the bigger your deduction. Culturally, these subsidies fostered the fantasy that money spent on housing isn’t money spent at all. And both are part of the fantasy in Republican culture that anything that results in the government raising less money is equivalent to smaller government, even an effort to steer capital toward a privileged sector. ‘ ‘ ‘ Second, the government backed the debt of two privately held mortgage companies: Fannie Mae and Freddie Mac. With their debt guaranteed, they could borrow at lower rates and thereby offer lower-rate mortgages. This might be an acceptable idea, although its effects are on the mortgage market in general and not targeted at all toward low-income, low-wealth buyers. ‘ ‘ ‘ However, this scheme bears the flaw that, if profits flow to shareholders but losses flow from taxpayers, the companies will borrow and lend recklessly. They did. In 2003, the Bush administration tried to introduce some sobriety into the free-lunch ethos of these hijinks by creating a Treasury Department agency to regulate the shareholders gambling with government money. But Democratic Sen. Barney Frank, D-Mass., a self-described Democratic socialist, complained, ‘These two entities ‘mdash; Fannie Mae and Freddie Mac ‘mdash; are not facing any kind of crisis.’ The saga ended with little oversight and a huge bailout ‘mdash; at worst, $200 billion, more than $600 per American.’ ‘ ‘ The more interesting question, though, runs, ‘Why does our government encourage housing so much?’ A subsidy should at least have paternalism or social virtue to defend it. ‘ ‘ ‘ If housing investment is so smart, why do we need a subsidy ‘mdash; i.e. why do people that don’t buy it have to pay higher taxes? We might say the government is smarter than us and should nudge us toward home ownership. But is buying a house actually smarter than renting an apartment? We usually say so, because one day you’ll own the house. But what if I rent a modest apartment and invest heavily in the stock market? My stocks will grow more than 10 percent per year ‘mdash; double every seven years ‘mdash; in the long term, while my house’s value will normally just keep place with inflation. I know I’ll feel safer with a giant, diversified portfolio than a smaller, single asset, the value of which might depend most on my school board. Besides, if government cares so much about its citizens’ financial future, it should nix the deductions and bailouts and then devote those billions to cutting tax rates or paying down government debt. ‘ ‘ ‘ Socially, the case for housing subsidies fairs even worse. We’re encouraging sprawl and discouraging dynamic, idea-producing rental communities. Subsidized McMansions use more energy to heat and cool than apartments, where your neighbor’s radiation can heat your home and you’re insulated on five sides and where you can walk to the grocery store. Home ownership causes unemployment, as laid-off workers struggle to sell off all the houses in a neighborhood before they can move away to better jobs. In contrast, in my apartment, for example, my savings would flow toward job-creating, life-enhancing investments like industrial equipment, infrastructure and drug design. ‘ ‘ ‘ Housing policy runs on a superstition that housing is somehow more worthy than other uses for our savings. That policy, in turn, justifies that superstition. It’s time to stop indulging superstitions. It’s time that everyone follow what I say. Do as Lewis says. E-mail him at [email protected].