October 30, 2015

Free Stuff Can Turn Out to Be a Bad Buy

Free college! That’s what the Democratic candidates were offering in their presidential debate. And it’s likely that, if the subject had come up, they would have offered something like free home mortgages as well, to judge from Hillary Clinton’s statement that she had urged Wall Street to stop mortgage foreclosures. Sounds a lot like free houses!

Free college! That’s what the Democratic candidates were offering in their presidential debate. And it’s likely that, if the subject had come up, they would have offered something like free home mortgages as well, to judge from Hillary Clinton’s statement that she had urged Wall Street to stop mortgage foreclosures. Sounds a lot like free houses!

Free stuff sounds good to many people, and it’s not just Democrats who promise it. Republican candidates have been talking about reducing college costs, too, and George W. Bush was as passionate a supporter as Bill Clinton of encouraging home ownership for blacks and Hispanics.

Such policies are not necessarily examples of political demagoguery, though some are. They are based on observations of undisputed facts. College graduates over the years tend to make more money than non-graduates. Homeowners over the years tend to accumulate wealth and to build communities more than renters.

From these observations policymakers have drawn the following conclusion. If we just get more people — especially minorities — into college, they will make more money. If we just get more people — especially minorities — to become homebuyers, they will accumulate more wealth. And what easier way to do that than to make these things free, or close to that?

This argument has special appeal to those oldsters born in the 1940s — Bernie Sanders, Bill and Hillary Clinton, George W. Bush, Donald Trump. Back then most Americans did not own homes, and only a small minority graduated from college.

These politicians saw how public policies such as the FHA and VA home loans and the GI Bill of Rights, together with unexpected postwar prosperity, changed that. By 1960 more than 60 percent of Americans were homeowners. By the 1970s most high school graduates were going on to some form of higher education. If old public policies could increase college attendance and homeownership, shouldn’t new public policies be able to increase them still more?

Over the last quarter-century we have had such policies, with some unhappy results. By 2007, 69 percent of American adults were homeowners. In 2009, 70 percent of young Americans went on to some form of higher education. But those numbers have slipped down since.

Government grants and subsidized loans have enabled many people to afford higher ed. But they haven’t guaranteed that recipients graduate or that graduates find satisfactorily remunerative work. The availability of government subsidy has prompted colleges and universities to raise tuitions far more rapidly than inflation, with much of the proceeds going into administrative bloat. That has left many borrowers with enormous debts that they cannot shed in bankruptcy.

Government policies, aided and abetted by Fannie Mae and Freddie Mac, promoted low- or no-down-payment mortgages for buyers, especially Hispanics and blacks, previously considered not credit-worthy. Policymakers, lenders and buyers all assumed that housing prices would always rise so that homeowners could always refinance any money problems away.

Oops. Housing prices fell sharply starting in 2006, and financial firms ended up with mortgage-backed securities that regulators classified as safe but for which they suddenly could find no buyers — and the economy crashed. Mortgage foreclosures soared, and by my estimate about one-third of those foreclosed on were Hispanics in California, Nevada, Arizona and Florida, whose recent low- or no-down-payment mortgages left them deep underwater when prices plummeted.

In response, many politicians, mainly Democrats, are calling for iatrogenic policies: more of the medicine that caused the malady. Free college (actually, just free tuition) falls in this category, giving colleges and universities a more direct pipeline to government funds but not guaranteeing better results for students. Junior college is already largely free, but most enrollees don’t graduate.

And the Obama administration is seeking to reinstate Clinton and Bush administration policies providing low- and no-down-payment mortgages to blacks and Hispanics who do not meet traditional credit standards. What could go wrong?

Recent experience should tell us that college and homeownership are not for everyone. Many people lack the cognitive skills for higher education but have other abilities that can make them productive and successful adults. Many people, like those who move frequently, are better off renting than paying the transaction costs of buying a home.

Maybe policymakers got causation backwards. Increased college and homeownership, they thought, would upgrade people, and for a long while it did. But we seem to have reached the point of diminishing returns, when making things free will hurt the intended beneficiaries more than help.

COPYRIGHT 2015 CREATORS.COM

Who We Are

The Patriot Post is a highly acclaimed weekday digest of news analysis, policy and opinion written from the heartland — as opposed to the MSM’s ubiquitous Beltway echo chambers — for grassroots leaders nationwide. More

What We Offer

On the Web

We provide solid conservative perspective on the most important issues, including analysis, opinion columns, headline summaries, memes, cartoons and much more.

Via Email

Choose our full-length Digest or our quick-reading Snapshot for a summary of important news. We also offer Cartoons & Memes on Monday and Alexander’s column on Wednesday.

Our Mission

The Patriot Post is steadfast in our mission to extend the endowment of Liberty to the next generation by advocating for individual rights and responsibilities, supporting the restoration of constitutional limits on government and the judiciary, and promoting free enterprise, national defense and traditional American values. We are a rock-solid conservative touchstone for the expanding ranks of grassroots Americans Patriots from all walks of life. Our mission and operation budgets are not financed by any political or special interest groups, and to protect our editorial integrity, we accept no advertising. We are sustained solely by you. Please support The Patriot Fund today!


The Patriot Post and Patriot Foundation Trust, in keeping with our Military Mission of Service to our uniformed service members and veterans, are proud to support and promote the National Medal of Honor Heritage Center, the Congressional Medal of Honor Society, both the Honoring the Sacrifice and Warrior Freedom Service Dogs aiding wounded veterans, the National Veterans Entrepreneurship Program, the Folds of Honor outreach, and Officer Christian Fellowship, the Air University Foundation, and Naval War College Foundation, and the Naval Aviation Museum Foundation. "Greater love has no one than this, to lay down one's life for his friends." (John 15:13)

★ PUBLIUS ★

“Our cause is noble; it is the cause of mankind!” —George Washington

Please join us in prayer for our nation — that righteous leaders would rise and prevail and we would be united as Americans. Pray also for the protection of our Military Patriots, Veterans, First Responders, and their families. Please lift up your Patriot team and our mission to support and defend our Republic's Founding Principle of Liberty, that the fires of freedom would be ignited in the hearts and minds of our countrymen.

The Patriot Post is protected speech, as enumerated in the First Amendment and enforced by the Second Amendment of the Constitution of the United States of America, in accordance with the endowed and unalienable Rights of All Mankind.

Copyright © 2024 The Patriot Post. All Rights Reserved.

The Patriot Post does not support Internet Explorer. We recommend installing the latest version of Microsoft Edge, Mozilla Firefox, or Google Chrome.