This week, the Wall Street Journal’s Holman Jenkins returned to his hobby horse of propping up housing prices by having the federal government pay for the destruction of houses. ($ article)
“So far, Washington has put its political capital into trying to refinance salvageable homes for unsalvageable homeowners, when a relevant policy would consist of judiciously buying unsalvageable houses and demolishing them. Fannie and Freddie’s strength is housing market software: They could be put to work devising a least-cost, maximum-bang strategy for demolishing unoccupied homes to preserve as much value as possible for the homeowners and mortgage creditors who remain.”
I invite readers of this blog to propose other examples in which the US government could provide a service to some portion of the market it has wrecked with excess credit creation, subsidies or other counterproductive interventions. For example, why not tax the public and use the money to demolish ethanol plants, thereby improving the supply/demand balance for the subsidized but ailing ethanol producers? Or how about a Rescue Fund to pay above market prices for – and then destroy – used Big 3 cars and vehicles coming off-lease? This would relieve oversupply and prop up the aftermarket/residual values for the unwanted products of American automakers, helping them to avoid imminent bankruptcy.
Maybe Jenkins’ Republican and crony capitalist friends should propose a cabinet level National Supply Destruction Agency that would judiciously demolish what it considers to be unsalvageable products throughout the economy?
Mr. Jenkins concludes his article with a proposal to fix Freddie Mac and Fannie Mae:
“Of course, right now their [Fannie/Freddie's] overriding imperative is to avoid recognizing losses rather than rushing toward them — which is why Fannie and Freddie should be nationalized (and later privatized).”
This would merely set them up in the private sector with “non-explicit” federal guarantees, further moral hazard, and re-nationalization some time in the future. Why not bulldoze them, Mr. Jenkins?