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Terrorists and the housing crash

While cruising along I-90W I found myself at a moment when my playlist was over and I shifted over to the radio. This is usually a nice thing as I can grab some NPR, some local flavor, or get a burst of energy by becoming angered at conservative talk or religious right ranting. One note of caution is that you may have the desire to ram your car into a cement post to end it all.

Anyway, I’m hearing what I think is a business report, and then I realize that it’s a radio preacher explaining why it is the duty of good Christians to support the housing bailout as an essential part of the war on terror (oh, and part of the fight against usury, too). The preacher then goes on to explain that housing collapsed after the terrible attacks of September the eleventh, two thousand and one (he pronounced it so slowly that it ought to be spelled out). Without examining his facts (which are wrong), or his theological argument (which I don’t care about), I’m more interested in the incentives.

Incentives, both positive and negative, are powerful. While this action might have been a necessary delaying action for the American economy, by refusing to allow failure to occur then we increase risk-taking behavior beyond what the free market would otherwise bear. What we need to recognize is that these markets were not, are not, and will not be free in the typical sense that any economist would use the word. While our preacher friend talked about correcting the market that the terrorists had unfairly damaged (to do otherwise would to let them win!), what he really is arguing for (besides his McMansion or vacation McMansion that is probably underwater in an ARM) is that we should prioritize today. Not thinking about consequences appears to be a time-honored tradition in this country (and in human nature), having incentives to restore that balance might not be a bad thing.

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