Why has housing been stalled for years? Because people lack confidence, say some. Because there’s not enough liquidity, say others. Because here the taxes are too high, or there the neighborhood has become too dangerous, or over there, there are no jobs, or away over there, the traffic congestion is so bad, nobody wants to live there anymore.
So the government offers loan programs… tax credits for new homebuyers… new rules forcing banks to Make More Loans or be shut down. The government does everything it can think of to fix the symptoms, and most importantly, when nothing else works, to make excuses.
“It’s because we were overbuilt before, you know,” says the government’s economist, or the economist on the government’s side. “Irresponsible businesses were building more houses, more apartments, more condos than were needed, so now there’s a glut. It’s all their fault.”
The economist says it on the radio, on the TV, in congressional testimony, in White House briefings. So people believe it. “Don’t worry,” continues the economist. “We’ll be fine once the bubble bursts, once we find the bottom. We’re just not at the bottom yet.”
For six years we’ve been waiting to find the bottom. Obviously the problem isn’t waiting for prices to sink, it’s failing to understand what drives prices in the first place!
Of course the economy builds more than we need for the moment at hand. The economy builds for the future, based on past predictors. The invisible hand will plan appropriately, if government meddling doesn’t throw in a monkeywrench, by rewarding bad choices by the builders, the loaners, the architects… or perhaps, by meddling with their potential customer base.
Getting past the hogwash.
We didn’t overbuild. The left has spent so long in their zero-sum fantasy world that they have forgotten that economies are supposed to expand. There are supposed to be ever more people, ever more businesses to employ them, ever more capital to pay them, ever more purchases on which to spend that capital.
When a business is formed, an investor, or group of investors, employs people in the process of creating wealth. Perhaps they turn wood into cabinets; perhaps they turn steel into faucets; they may turn paper into books or canvas into art or clay into porcelain. The more of this they do, the more wealth is created, wealth that goes to management and investors, vendors and employees.
The person who used to live in a nice house can now buy a mansion; the person with a starter home can move into a nicer home. The middle manager in an apartment can now buy a starter home; the assembly line worker or clerk living at home with his parents can now move into his first apartment or condo.
So with every business that grows or is born, the need for housing stock is increased, and it’s this need that establishes the value of homes. This need waxes and wanes somewhat, geographically, and with the passage of time, but the gradual march is undeniable. In a growing economy – of thousands, tens of thousands, hundreds of thousands of businesses, old and new – you will always need more homes in which those businesses’ employees will live, because the market for them continues to grow. The market will develop to purchase and rent out that housing at market rates.
But what has happened over the last few years? These businesses – the employers of the renters or buyers – have been stillborn, strangled, driven away. Our nation has closed them, or artificially kept them from growth, or discouraged people from starting them at all in the first place.
So for every business that hasn’t been started, there’s two or three or ten or twenty moves that aren’t happening. People who aren’t moving up. People who are either unemployed, or stuck in their last job, the job from which they should have moved on by now, but haven’t been able to.
All over the country, you see the evidence. Office buildings with more vacancies than in the past, storefronts left empty for years rather than months, strip malls started but unfinished, factories closed, boarded-up, without even prospect of a new tenant.
In the old days – in the pre-Pelosireidian economy before the Democrat takeover of 2006 that ended the greatest economic boom in history and ushered in the current stagnation – these vacancy rates were temporary. When one business closed, another opened. No longer… or at least, no longer in the same numbers, or at the same rates. Today, we see buildings lying vacant for years not months, perhaps even worse.
The problem wasn’t built in a day; Pelosi, Reid, and Obama are only the culmination of decades of similar moves down the same direction. But what a culmination.
For people who had always wondered what would finally stop the economic engine of America – what would finally slow it to a halt, what would be the last straw, what would finally be too much for this resilient private sector to bear, well, now we know.
The Invisible Handcuffs of the Obama Economy
What we have seen in recent years is a phenomenon that Adam Smith never envisioned. He posited that the market is guided by an invisible hand, that businesses would grow to meet needs, producing wealth in an upward spiral that becomes self-sustaining. Capitalist economists recognized that this invisible hand would enable a broad growth across the board, as new manufacturing would necessitate and therefore produce new distribution, that this new distribution would necessitate and therefore produce new wholesale and resale businesses, that this greater activity would create greater standards of living for everyone in the economy.
But we never dreamed that there would be a conscious, intentional set of handcuffs placed on that invisible hand. These handcuffs – imposed by government – have pulled back the hand that guided growth, so that irrational and uneven growth has occurred.
Government programs in the energy sector encourage a business without a market or a buyer without a product to buy. Government programs in the housing sector have made businesses give mortgages to people without the means to make payments, and made people go ever deeper in debt by forbidding banks from evicting those who reneged on loans they should never have been granted in the first place.
Government programs to nationalize health care are raising taxes and creating such uncertainty that all businesses fear expansion. Tax increases in our most industrial states like Illinois and California are driving manufacturers to move production lines across the country or across the seas. The annual threat of January 1 tax increases has become a manacle in its own right, permanently affixed to the calendar, as every fall the repeal of now-decade-old tax cuts is contemplated, to devastating results.
There is a bright side, however: If we recognize the source of the problem, we can easily unlock these handcuffs and set the economy free again.
Dropping the corporate income tax rate from the highest on earth to something competitive, say, 15%, would go far. Removing the unfair advantage given to unions, at the expense of employers, by the Departments of Labor and Justice would go a long way toward keeping businesses from situating their new plants abroad instead of here at home. Removing the dead weights of the EPA, the FDA, and Obamacare from the neck of American business would remove the fear that has kept American business curled up in a fetal position throughout the Obama presidency.
In short, the causes of our stagnant housing sector have nothing to do with housing itself. There’s nothing wrong with our home prices, our mortgage rates, our real estate system. We will only solve the housing crisis when we solve the larger economic crisis itself.
We will return to a robust housing sales climate – a climate in which home values are climbing rather than falling, when people are moving up instead of downsizing, when families are able to trade up to a better home rather than pray for a way to rent out their current one to avoid foreclosure – only when employment and real business growth return.
When we see people snapping up those shuttered factories to build something new again, when we see the “for lease” signs on store windows replaced with the new names of new shopkeepers, when we see unemployment figures plummet, then and only then will our housing sector recover as well.
It won’t take much. It’s an easy change, in fact. We just have to complete what we began in 2010: the total migration away from this disastrous brew. We’ve already ejected Nancy Pelosi from the Speakership, and the destruction leveled off with her departure from power. That’s when this economy finally stopped its nosedive; when the business sector saw that there was a chance that this catastrophe might end.
In 2012, we have the opportunity – no, the obligation – to complete this process, to return America to the upward economic trajectory that was once our birthright.. The American people must turn out the Senate’s Harry Reid and the White House’s Barack Obama. We must eject these job-killing, “invisible handcuffing” bureaucrats from the seats of power, and set our economy free again.
Only then will there be enough – oh, call it what you will: wealth, capital, cash – to restore not just the housing sector but all the sectors from coast to coast that have suffered so much for so long.
We don’t have much time. Already some fear that it is too late for America; already there are businesses that have pulled up stakes and moved their headquarters or their manufacturing to other shores. The sooner we make the American economy welcoming again, the sooner we can not only stop the bleeding, but enable the nation to thrive again.
We must elect people who will revoke the executive orders and crippling regulations of recent years, people who will put the handcuffs back where they belong: not on the American private sector, but back on every limb of the leviathan itself.
November can’t come soon enough.
Copyright 2012 John F. Di Leo
John F. Di Leo is a Chicago-based Customs broker and international trade lecturer. A former County Chairman of the Milwaukee County Republican Party, he has now been a recovering politician for over fifteen years.
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