Business columns: A case study in the folly of stimulus
If you want to learn why federal stimulus programs are “counterproductive and destabilizing,” said Kevin Hassett in Bloomberg.com, check out the Obama administration’s failed housing stimulus program.
If you want to learn why federal stimulus programs are “counterproductive and destabilizing,” said Kevin Hassett, check out the Obama administration’s failed housing stimulus program. In May, new-home sales “dropped to their lowest level in recorded history, increasing the risk of the dreaded double-dip recession.” It’s no coincidence that the drop came a month after the expiration of the federal tax credit for home buyers, which Congress rushed through in 2008 and then extended in 2009. Yet new-home sales “failed to rise above the level of 477,000 that they posted in the month that the credit was first passed.” Granted, sales would probably have dropped further without the credit, but “a large share of credits were almost certainly claimed by people who were going to buy a house anyway.” And predictably enough, when the credit expired, sales plummeted. In other words, “the credit program increased volatility in the housing market.” Yet congressional Democrats are already clamoring for another round of tax credits for home buyers. Will they ever learn?