Helping Homeowners By Printing Money
Kevin Drum hits the nail on the head when it comes to the politics of averting foreclosures, something I think a remarkable number of progressive bloggers overlook:
The only other thing I can think of that the administration screwed up seriously is mortgage reform. Again, though, that would have been politically difficult even if they had played all their cards perfectly. Like it or not, the American public hates the idea of seeing their neighbors get bailed out from stupid mortgages. It makes them feel like saps: we scrimped and saved and bought a house we could afford and we’re getting nothing. Joe and Betty down the street lived the high life, took out a NINJA loan they knew was way more than they could afford, and now they’re getting a taxpayer-funded bailout and living easy. That’s not a vote getter.
It’s probably even worse than that. Across the board principal modification would have undone some optimistic accounting lurking on bank balance sheets and required additional government capital injections (read: bailouts) of large financial firms. I’m resolutely pro-bailout, of households and banks alike, but the public feels differently.
All that said, this is one of a number of reasons why I hope next time the world’s large economies find themselves mired in recession with nominal interest rates near zero that we’ll try to rely much more on the idea of money-financed fiscal policy to solve our problems. Specifically, take the “helicopter drop” scenario out of the thought-experiment world and put it into practice. Have the Fed print up a bunch of money, stuff it in envelops, and mail it out to the American people. It winds up working as a kind of universal bailout. People who happen to need help paying their mortgages can use the cash for that purpose. Similarly for folks behind on their credit card bills. And having folks pay their loans on time works as a “backdoor bailout” for troubled banks. Senior citizens and the really poor will just go out and spend the money on some kind of goods and services they need. The unemployed will get the benefits of an Unemployment Insurance extension, but without any disincentive to work hard at finding a new job. And non-poor, non-old, non-indebted people will either have the chance to splurge on some consumer goods they’ve been eying (stimulus!) or else if they just have a preference for thriftiness they can thriftily save the money and continue to feel self-righteous without needing to express that self-righteousness in terms of opposition to the idea of helping out people who need help.
I don’t think helicopter drops can solve all our problems. There’s still an urgent need to construct some automatic stabilizers that discourage pro-cyclical state and local budgetary practices. But I think watching the past two years’ worth of politics and policy needs to make everyone pretty skeptical that congress is ever going to do a good job of adequately crafting fiscal stabilization policies on the fly.