Bubble Economics 101

Seemingly Washington does not believe one government-induced housing bubble this decade was enough; President Obama, approved overwhelmingly by the Senate, signed into law a $24 billion economic "stimulus" bill extending the first-time home buyers credit, and unemployment benefits.

More economic fallacies to prop up past failed government market interventions.

How exactly do our politicians believe that further subsidization of home purchases will ease the [necessary] correction in our economy? Government's attempt to continue and prop up home prices will only prolong the housing mess.

When asset bubbles pop, prices must, as a corollary of a free market (which is certainly questionable whether the U.S. still has one), adjust to their pre-bubble levels. Home prices are not deflating as some sort of unknown phenomena, rather home prices are adjusting to their market-clearing levels (or at least as close to it as possible).

With statements such as the following, our politicians continue to prove just how willfully ignorant they are when it comes to market economics. "The credit will allow more people to purchase a home in my district", states Rep. Shelley Berkley of Nevada.

Rep. Berkley may be correct, in the short-run; however, inflated prices, as a result of government intervention into the economy, are precisely what had initially prevented many first-time home buyers from entering the housing market. Moreover, why must taxpayers of the entire union support home purchases in Rep. Berkley's district.

Further intervention into the housing market will again artificially make housing less affordable, and further hurt our economy - as these measures prevent necessary economic correction.

Homes are a consumer good, and the price of this good (homes) is subject to the market forces of supply and demand. Ironically, the government intervention that lead to the first housing bubble of this decade, in part the very reason for the lagging economy, was supposedly a way to make homes more "affordable". The result was exactly the opposite, for many first-time home buyers.