Wednesday, November 30, 2011

Somewhat defending Barney Frank

I want to roll the dice a little bit more in this situation towards subsidized housing.
—Senator Barney Frank, chairman of the Financial Services Committee in 2009.  This remark was made on September 25, 2003, as reported by The Wall Street Journal on November 29, 2011 (Editorial: The Barney Frank Era).

I am not saying Barney Frank played no role in the housing bubble and subsequent recession, but economics does not predict that a subsidy in a good will cause a bubble in that good. Look in any economics textbook, and it will assert that house subsidies should result in more houses being built than is [socially] desirable, but that equilibrium with a subsidy is just as stable as an equilibrium without the subsidy.
Of course, there is no economic narrative that allows economics to predict when a bubble will occur, but unless Senator Frank was spreading false information about the future value of houses, he cannot be blamed for the bubble.
I should also like to add that, while I do not share Senator Frank's politics, I have seen him on TV many times, and believe that he has more respect for American democracy than anyone else. When others complain about the squabbling that goes on in Congress, only Mr. Frank and George Will (what a pair!) raise their heads to remark that that is exactly what Congress is supposed to do. If you want political stability with no debate among political leaders, it can only be found in a dictatorship.

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