AFTER a scary downward spiral, the economy seems to be looking up, at least for now. Two weeks after the so-called “bailout” bill passed, the federal government finally decided what to do with the money it had been begging for. The Bush administration is not solely to blame for the economic crisis, but the administration made the mistake of taking a hands-off approach to the economy. The government is never able to control the economy; it only has a small amount of influence that it should exert at all times in order to have any impact on the economy at all. Economies are cyclical and will oscillate up and down no matter what the government does. But the government should always be giving the economy a nudge here and there, in order to keep the cycles in check.
Many of the deregulatory policies being blamed today for the economic crisis originated with the Clinton administration. President Clinton worked to lower credit and down payment requirements so that more low- and middle-income families could afford homes. What sounded like the realization of the American dream for many ultimately led to the collapse of the housing market. Sub-prime mortgage lending can be traced back to government intervention and not corporate greed. Fannie Mae and Freddie Mac were created as a secondary mortage market, to ensure that funds were always available to lending institutions that provide mortgages. Fannie and Freddie buy up mortgages and resell them as securities to investors in order to increase the money available for mortgage lending. As government institutions, Fannie and Freddie were tasked with meeting the federal Housing and Urban Development goals of home ownership, which included improving home ownership to low- and middle-income families and in underserved areas.
Though these goals began with President Clinton, President Bush furthered the problem by continuing to promote home ownership for low-income families. Under the Bush administration, home ownership reached an all time high of 69.2 percent. However, that number is rapidly falling as foreclosures rise. Steps should have been taken to partially reverse the Clinton administration’s policies when it became apparent that banks were using them to give people houses that they truly couldn’t afford. There is a level of personal responsibility involved. A person should never take on debt he can’t possibly pay off, no matter what the bank says. But a few government regulations, instead of the removal of regulations, could have eliminated many problems.
It has become clear that some regulation and oversight is necessary for the functioning of a healthy economy. Since in a free market, the government does not control the economy, it must use its small amount of influence at all times to keep the economy on track. Over a two-term presidency small measures of influences would add up. If President Bush had taken steps early on in his presidency to reverse the lowered requirements for home ownership enacted by President Clinton, the collapse of the housing market would have been less severe. Since President Bush chose not to act until the last possible moment, the government’s intervention must be massive, and therefore it cannot possibly have the intended effect. Calling it a “bailout” is a misnomer because it won’t correct the current problems, only prevent future ones.
It takes time for the effects of government intervention on the economy to become known. Keynesian demand management policies, used in the post-World War II era to justify government ownership of industries, ultimately led to a sluggish economy 10 years later. The world economy was stuck in a cycle it couldn’t get out of until many industries were returned to the private sector. Unless the federal government wants to take over the economy completely (which is obviously a bad idea), buying up large portions of it with the express intention of re-privatizing it again when things get better is little more than a stop-gap.
The bulk of the bailout bill provides for oversight so that a crisis of this magnitude can be stopped before it ever starts again. This is smart, as long as the oversight doesn’t go too far out of the sheer nervousness of Congress. A quick fix for right now is impossible and impractical. The bailout bill is not going to end the economic crisis; it can only lessen the impact on citizens temporarily. The Bush administration had no idea what to do with the $700 billion once it got it from Congress — it had to spend two weeks figuring that out. The economy is beyond the scope and comprehension of any one group of people, no matter how large and talented they may be. The federal government can’t do very much to affect the economy, but what it can do should be done all the time, so that massive intervention is not deemed necessary again. A touch here and there will have a much greater and more positive impact than major changes all at once. Since the effects of such changes cannot be known, it makes sense to stick to little adjustments to see what impact such adjustments have on the economy.
If the government exerts a little influence at all times, the authorization of major government intervention will not be necessary and the economy and the people it affects will be better off.
Annette Robertson is a Cavalier Daily associate editor. She can be reached at a.robertson@cavalierdaily.com.
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