23 April 2012

The Irony of Government

The U.S. Government has been fighting illegal drugs for decades. LSD, marijuana, heroin, cocaine, methamphetamine. And yet, surprisingly, none of these have been able to be eradicated. In fact, the cost of cocaine is decreasing.

Why? Well, like any business, the drug lords are making gains in efficiency of production, with economies of scale and new technology allowing the drug lords to lower the price of the product while maintaining or increasing their profits.

So the government has been trying (in vain) to eliminate the scourge of illegal drugs (as well as perfectly legal ones, like oxycodone and pseudoephedrine), during which we've seen the price of these drugs drop. Meanwhile, the government's been pushing mortgages and college like . . . well, a drug dealer. One might ask what the effect has been.

Thanks to the government's push towards loans with minimal down payments (at least before 2008!), PMI was added to those borrowers who didn't have enough to put down. Of course, the banks realized that people didn't want to pay PMI, and so offered 80% down traditional mortgages and 20% HELOCs. Or they allowed buyers to refinance 120% Loan to value. Or they encouraged people to cash out the equity in their homes in order to pay off credit cards or buy new cars. Because, you know, financing things that drop in value is so smart. And now, if you buy a house with less than 75% LTV, you get to pay for Obama's mortgage bailout with a 1/4 point fee.

 And the costs of a college education . . . well, a picture's worth a thousand words.

Let's recap, shall we? Government tries to stop something by declaring it "illegal," cost goes down. Government subsidizes the cost of something, it goes up. The lesson should be "STOP HELPING!" But instead, we get politicians who insist that they know better than us mere mortals.

h/t Radley Balko

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