In response to the new Pew Research Center report on the the racial wealth gap in the United States, Matt Yglesias writes:
I think Matt gets this wrong in a lot of ways. First, Matt uses the Pew Center graph that shows the disparity in median net worth, in other words, wealth, between whites and blacks and Latinos. It may be that government-backed home loans, leverage as Matt terms it, could help to flatten this inequality. In the two decades following World War II, racially exclusionary policies prevented African Americans and Latinos from purchasing homes or obtaining federally-subsidized home loans in most areas of the country. While homeowning whites accumulated wealth in the form of home equity, minority communities were unable to reap similar benefits.
Decades of wealth accumulation through home equity have allowed even middle-class whites to diversify their holdings to include other assets like retirement savings and investment accounts. This has helped to make the median white family less susceptible to the effects of a collapse in housing prices than the median black or Latino family, whose net worth is concentrated most in housing equity.
Matt’s aside about handing out subsidies for poor people to make leveraged oil futures purchases is in jest, of course, but it produces a false equivalence. While there is substantial evidence for speculatory activity in housing and land markets across history*, major structural deficiencies in the mortgage and housing markets helped to fuel the speculative bubble in housing in the early- to mid 2000s. In other words, for most home buyers prior to the housing bubble and construction boom of the 2000s, a home purchase was NOT primarily a speculative venture. A look at the Case-Shiller Home Price Index and a cursory examination of the reportage before and during the housing bubble bears this out as well.
Third, say what you will about the wisdom of the federal government subsidizing home loans for anyone, but increasing homeownership is something that has been advanced as a government priority on both sides of the aisle. As long as the middle class dream includes homeownership, political actors, however enlightened they may be, will find it is harder to slash federal home loan subsidies than it is to squeeze blood from a stone. While I agree with Matt that home loan subsidies, especially in poorly-designed programs, create perverse incentives in the housing market, I doubt we will see a change in the system until our national myth takes a different turn.
Finally, I’m puzzled by Matt’s continual flogging of cash payments to low-income individuals and families over the provision in-kind benefits. I mean, apart from the Econ 101 exam answer, that cash payments are more efficient, which seems like an unsatisfying explanation to me, what’s the deal?
When Fannie Mae or other government entities create special targeted programs to “help” low-income families achieve homeownership what they’re doing is extending an extra special amount of leverage to said families. This is a real subsidy, and it can provide a real benefit to the families in question, but it’s a mighty strange thing to be doing. After all, nobody ever proposes that the government create a program to subsidize poor people making leveraged investments in oil futures. Why not just take the expected cost of the program and give it to poor people? Of course, with housing it’s complicated because the government runs other programs, mostly on the tax side, to subsidize speculative leveraged investments in land when undertaken by higher income people.
I think Matt gets this wrong in a lot of ways. First, Matt uses the Pew Center graph that shows the disparity in median net worth, in other words, wealth, between whites and blacks and Latinos. It may be that government-backed home loans, leverage as Matt terms it, could help to flatten this inequality. In the two decades following World War II, racially exclusionary policies prevented African Americans and Latinos from purchasing homes or obtaining federally-subsidized home loans in most areas of the country. While homeowning whites accumulated wealth in the form of home equity, minority communities were unable to reap similar benefits.
Decades of wealth accumulation through home equity have allowed even middle-class whites to diversify their holdings to include other assets like retirement savings and investment accounts. This has helped to make the median white family less susceptible to the effects of a collapse in housing prices than the median black or Latino family, whose net worth is concentrated most in housing equity.
Matt’s aside about handing out subsidies for poor people to make leveraged oil futures purchases is in jest, of course, but it produces a false equivalence. While there is substantial evidence for speculatory activity in housing and land markets across history*, major structural deficiencies in the mortgage and housing markets helped to fuel the speculative bubble in housing in the early- to mid 2000s. In other words, for most home buyers prior to the housing bubble and construction boom of the 2000s, a home purchase was NOT primarily a speculative venture. A look at the Case-Shiller Home Price Index and a cursory examination of the reportage before and during the housing bubble bears this out as well.
Third, say what you will about the wisdom of the federal government subsidizing home loans for anyone, but increasing homeownership is something that has been advanced as a government priority on both sides of the aisle. As long as the middle class dream includes homeownership, political actors, however enlightened they may be, will find it is harder to slash federal home loan subsidies than it is to squeeze blood from a stone. While I agree with Matt that home loan subsidies, especially in poorly-designed programs, create perverse incentives in the housing market, I doubt we will see a change in the system until our national myth takes a different turn.
Finally, I’m puzzled by Matt’s continual flogging of cash payments to low-income individuals and families over the provision in-kind benefits. I mean, apart from the Econ 101 exam answer, that cash payments are more efficient, which seems like an unsatisfying explanation to me, what’s the deal?
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