The road not taken
The Economist, March 21, 2009, pg31
I recently wrote about home ownership and how the recession has the power to change America’s landscape. These changes should be encouraged and accelerated.
Recession and Geography
Brent Danley, The Rhetoric, February 22, 2009
The essay I read today in The Economist magazine only strengthened my opinions about both home ownership and health care. Both issues are devastating our economy and weakening our chances to grow and lead.
“Mobility is part of the American dream”, the author writes. And I agree. People should move to where the work is and where they will be able to find employment that will best utilize their talents and skills. Unfortunately, policies of past administrators have succeeded in promoting home ownership as the new American Dream. The consequences of this short-sighted idealism should be obvious to even the casual observer.
House prices have collapsed by 27% since their peak in 2006. By December last year a fifth of homeowners with mortgages owed more than their homes were worth. Such people are only half as likely to move as those whose homes are above water
Owning a home is no longer considered the secure investment it was just a few years ago. This is a good thing. For most Americans owning a home is an awful idea. It limits mobility and the opportunities that that mobility affords.
In Europe, nations with high rates of home-ownership, such as Spain, had much higher unemployment rates than those where more people rented, such as Switzerland. He found this effect was stronger than tax rates or employment law.
It’s no wonder: if a worker loses her job and has an opportunity someplace else she might not be able to accept the offer. Instead, she might be forced into a situation where she has to be out of work or accept a job she does not want and is not as well suited for.
The government and its policies are partly to blame. President George W. Bush made home ownership a hallmark issue of his administration. Now we’re all paying the price.
America subsidises more than most. Owner-occupiers typically pay no tax on capital gains and can deduct mortgage interest from their income-tax bills. Fannie Mae and Freddie Mac, two government-backed mortgage firms, have squandered a fortune promoting home-ownership among the uncreditworthy.
The other threat to American mobility is our health care “system”. Among many many problems with our current health care situation is that it limits worker mobility.
A company can buy health insurance for its employees with pre-tax dollars; an individual can buy it only with after-tax dollars. So although soaring premiums are prompting many firms to drop or restrict coverage, most Americans still get their health insurance from their jobs.
This makes it hard for anyone with a sick child to quit and start a new firm. It also makes it harder to switch jobs, despite a law helping employees to stay in company plans for 18 months after they leave.
Perhaps the silver lining in this mess is that families are deciding to stick together and ride out the storm.
Some people even get stuck in bad marriages because they need their spouse’s health insurance. As Alain Enthoven of Stanford University puts it, this gives new meaning to the word “wedlock”.
Workers need to be able to go where there is work. If they are unable to relocate they may be forced into jobs they do not like or for which they aren’t well matched. The consequences of this are obvious. Renting should not be snidely considered an unwise financial decision. For most Americans renting is an ideal choice. The government needs to eliminate subsidies and rhetoric that promote home ownership. Our workforce should be dynamic and properly matched to their strongest skills. We have turned many of our best workers into hostages by promoting both home ownership and employer-based health insurance. In addition to eliminating subsidies for homeowners, which would effectively increase tax revenues, we need to develop a single-payer health care system for all Americans and remove the enormous burden from American businesses.