I’m From the Government — I’m Here to Help

Uh, no, thanks.

Jeff Jacoby notes two good examples of why the good intentions of government meddling in the free market usually ends up causing more problems than it solves.

First, the big push to create more corn-based ethanol, in order to reduce CO2 levels and fight global warming.

The problem, laid out in two new studies in the journal Science, is that it takes a lot of land to grow biofuel feedstocks such as corn, and as forests or grasslands are cleared for crops, large amounts of CO2 are released. Diverting land in this fashion also eliminates “carbon sinks,” which absorb atmospheric CO2. Bottom line: The government’s ethanol mandate will generate a “carbon debt” that will take decades, maybe centuries, to pay off.

Second, the sub-prime mortgage fiasco is a problem entirely of the government’s making.

The crisis has its roots in the Community Reinvestment Act of 1977, a Carter-era law that purported to prevent “redlining” – denying mortgages to black borrowers – by pressuring banks to make home loans in “low- and moderate-income neighborhoods.” Under the act, banks were to be graded on their attentiveness to the “credit needs” of “predominantly minority neighborhoods.” The higher a bank’s rating, the more likely that regulators would say yes when the bank sought to open a new branch or undertake a merger or acquisition.
. . .
Banks nationwide thus ended up making more and more subprime loans and agreeing to dangerously lax underwriting standards – no down payment, no verification of income, interest-only payment plans, weak credit history. If they tried to compensate for the higher risks they were taking by charging higher interest rates, they were accused of unfairly steering borrowers into “predatory” loans they couldn’t afford.

Trapped in a no-win situation entirely of the government’s making, lenders could only hope that home prices would continue to rise, staving off the inevitable collapse. But once the housing bubble burst, there was no escape. Mortgage lenders have been bankrupted, thousands of subprime homeowners have been foreclosed on, and countless would-be borrowers can no longer get credit. The financial fallout has hurt investors around the world. And all of it thanks to the government, which was sure it understood the credit industry better than the free market did, and confidently created the conditions that made disaster unavoidable.

And people want to turn over their health care to the same bunch of bungling bureaucrats? The free market can be an ugly mess sometimes, but at least it is a self-correcting mechanism that eventually drives out inefficiencies and improves the standard of living for everyone. Government mandates work in the opposite direction. When will we learn that?

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