The High Cost of Washington’s Price Manipulation Policy

By Yaron Brook and Don Watkins

For decades Washington has been manipulating prices to encourage homeownership and “steer” the economy. To “incentivize” you to buy a house, it made mortgage payments tax deductible, largely exempted homes from capital gains taxes, and created Fannie Mae and Freddie Mac. After the stock market tumbled in 2001 and 2002, Washington established a policy of artificially low interest rates that created the illusion of cheap credit; leery of the stock market, and looking for someplace else to put all this easy money, Americans began buying homes in droves.

But eventually the drug-induced high of artificial credit wore off, and out-of-whack housing prices plummeted, sparking the financial crisis. What was Washington’s response? It ramped up its price manipulation policy, injecting us with a new round of “easy money” amphetamine:  Bush doled out “stimulus” checks, the Treasury began funneling billions into banks, and the Fed started frantically slashing interest rates. And, we are told, this is only the beginning. A new dose of bailouts, interest rate cuts, and “stimulus” giveaways is just around the corner.

Maybe it’s time for a new approach. How about we start thinking of ways to address this crisis by getting the government out of the business of price manipulation–and let prices, from home values to interest rates, be determined by people’s free choices and the law of supply and demand?

This will require some unconventional thinking–and here’s a suggestion to get us started: free up the housing market by freeing up immigration. That’s bound to be controversial, but indulge us for a moment.

Right now the housing market is in disarray. Too many homes built for our current population has sent prices spiraling downward, and millions of homeowners, stuck with mortgages they can’t afford and houses they can’t unload, are facing foreclosure. Meanwhile, there are millions of peaceful people around the globe eager to bring their wealth, talent, and ambition to this country, but can’t because Washington forcibly prevents them from immigrating.

This government-enforced cap on the number of potential home-buyers is just another instance of price manipulation. Imagine if the number of annual immigrants increased from around 650,000 a year to, say, five million. Virtually overnight we would see money pour into the American real estate market, as millions of new businessmen and workers bought and rented homes. Not only would this eliminate the oversupply of houses, we would enjoy the broader economic benefits of welcoming legions of highly skilled and motivated individuals into the American economy.

You might be thinking, “Won’t this lead to lower wages or unemployment at a time when we can least afford it?” The history of this country attests to the fact that, in the long run, immigration fosters economic growth. Even in the short run, however, the effect on wages and employment is an open question–it depends on how much capital and entrepreneurial acumen the new immigrants bring and create.

There are many other simple measures we could take to roll back the government’s manipulation of prices. For instance, we could eliminate restrictions on bank ownership, which coercively limit how much capital banks can raise.

Besides such quick, immediate steps to end government price distortions, we need a long-term strategy to eliminate all government policies that manipulate prices. We need to eliminate the countless regulatory shackles on financial institutions, which distort market forces and encourage reckless actions. We need to put an end to the government’s crusade to encourage homeownership through Fannie and Freddie, the Community Reinvestment Act, tax code manipulation, and many other avenues. Above all, we need to end the government’s ability to set interest rates and create inflationary booms–and their inevitable busts–by phasing out the Federal Reserve and allowing the United States to return to a gold standard.

These would be radical reforms, to be sure–but that’s because the government has been radically expanding its price manipulation policies for the better part of a century. We’re seeing where that path leads. It’s time to start moving in a new direction.

Yaron Brook is the president of the Ayn Rand Center for Individual Rights. Don Watkins is a writer at the Ayn Rand Center. The Ayn Rand Center is a division of the Ayn Rand Institute and promotes the philosophy of Ayn Rand, author of “Atlas Shrugged” and “The Fountainhead.”

Freedom First

Washington, D.C. – John McCain has made “Country First” the theme of his presidential campaign. In response, Barack Obama declared that “I’ve got news for John McCain. We all put our country first.”

“I’ve got news for both candidates,” said Yaron Brook, executive director of the Ayn Rand Center for Individual Rights, “Both the left and the right have been ‘putting the country first’ for decades–and that’s the problem.

“When McCain and Obama call for ‘putting country first,’ they are not simply asking us to love our country. They are urging us, as McCain once put it, to place service to the nation above the pursuit of our own values and happiness. This is collectivism, the doctrine that the individual exists to serve society and that his interests should be sacrificed to those of the group.

“This is the exact opposite of America’s founding ideal. In the American system, it is the government, not the individual, who is the servant. The government’s role is to protect our individual rights so that each of us is free to pursue our own lives and happiness. No group–not even society as a whole–can force us to sacrifice for its ends.

“Tragically, for the better part of a century, America has been moving away from the individualist ideals of the Founders and toward collectivism. Just consider the crushing tax burden we all suffer under to fuel an endless list of welfare entitlements in the name of the ‘public good.’ Or consider the policies McCain and Obama promise to enact if elected. To take just one example, instead of leaving business owners free to hire and trade with whomever they wish, McCain says we must protect ‘our’ jobs from foreigners coming in to this country, while Obama says we must protect ‘our’ jobs from foreigners outside the country–both ignoring the fact that those jobs don’t belong to ‘society’ but are created by the very individuals whose rights are being sacrificed.

“None of this is compatible with the individual’s right to life, liberty, and the pursuit of happiness. Instead of leaders who ‘put country first’ we need leaders who will put freedom first.”

Yaron Brook is executive director of the Ayn Rand Center for Individual Rights. He is a regular contributor to Forbes.com and a contributing editor of The Objective Standard. His articles have been featured in major newspapers such as USA Today, the Houston Chronicle, the Chicago Sun-Times, the Providence Journal and the Orange County Register. Dr. Brook is often interviewed on radio and is a frequent guest on a variety of national TV shows, having appeared in the new Fox Business Network, FOX News Channel (The O’Reilly Factor, Your World with Neil Cavuto, At Large with Geraldo Rivera), CNN (Talkback Live and the Glenn Beck Program), CNBC (Closing Bell and On the Money), and C-SPAN. Dr. Brook, a former finance professor, lectures on Objectivism, capitalism, business and foreign policy at college campuses, community groups and corporations across America and throughout the world.

To interview Dr. Brook or book him for your show, please contact Larry Benson:
949-222-6550, ext. 213
media@aynrandcenter.org

For more information on Objectivism’s unique point of view, go to ARC’s Web site. The Ayn Rand Center is a division of the Ayn Rand Institute and promotes the philosophy of Ayn Rand, author of “Atlas Shrugged” and “The Fountainhead.”