Over the past few months, the press has deluged Americans with weepy stories about people who are in danger of losing their houses because their sub-prime mortgages now exceed the value of their houses, which the recession and the popping of housing bubbles have caused to drop.
I am sympathetic; and I, and other taxpayers, am being asked to provide relief in one form or another. People who bought houses whose basic value far exceeded what they might reasonably have expected are now expecting other taxpayers to bail them out; and the expectations will probably be satisfied.
But what if one poses the issue in reverse: Would taxpayers be willing to put tax dollars into a program that would buy single-family houses that are larger and more valuable than would be consistent with usual standards of prudence in mortgage lending? I strongly doubt it.
Implicitly, proponents of homeowners’ bail-outs are relying on what one might call a “second-hand endowment effect.” We are supposed to offer money in sympathy with others’ losses (not of life, merely of property), whereas we wouldn’t offer money out of sympathy to provide them gains. Similar second-hand endowment effects exist, I believe, toward a variety of existing and proposed government programs to “help” citizens.
(Hat tip: DJH)