A recent editorial in the Christian Science Monitor, “Time to End Home Subsidies,” gets it half right. It rightly criticizes Washington for continuing housing subsidies. It points up how such policies in the past have misallocated resources and have led to boom-bust cycles, of which the most recent is one of the harshest. It also correctly warns that if the subsidies continue, so will this destructive and painful pattern. But then it goes on to urge a different emphasis on Washington, a subsidy for export industries. That would be a mistake. The Monitor would simply substitute one destructive distortion with another.
It is not that exports are bad. On the contrary, they help with economic growth and job creation. But then, neither is home ownership bad. It shelters people and creates a sense of community. The problem lies in Washington subsidies themselves, whatever the chosen beneficiary. Washington’s money always brings excess and overbuilding that then begs a painful economic correction. The editorial actually, if inadvertently, points to the evidence of such folly by drawing a parallel to Japan. The government in Tokyo has spent decades subsidizing exports at the expense of consumption and home building, and though the effort helped Japan grow at first, it has in large part been responsible for that economy’s inflexibilities and its sub-par growth of the last 20 years.
Like anything else in life, economic prosperity depends on balance and an ability to adjust to new information. When the government push’s subsidies, it runs on rules and policies that are out of date before they are even e-mailed to the functionaries who administer them. There is no flexibility, no adjustment. Government cannot help but go too far, a fact to which the housing disaster speaks loudly. It would happen with exports, too, if government were to get involved. Better that Washington simply get out of the subsidy business altogether.
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