FedGov interference in the free market always has undesirable consequences. The mother of all financial disasters (well, before this one) is the Great Depression caused by FedGov by means of Smoot-Hawley.
The collapse of Fannie Mae and Freddie Mac have triggered a much wider financial crisis. As I pointed out previously, the housing collapse was brought on by FedGov (Democrat) economic policies — specifically, forcing lenders to loan to people who could not afford to repay the loans. This is by no means the first time that federal policies have wrought disaster.
Many people may have missed it or not understood it at the time but in the 1970s, FedGov very nearly destroyed the U.S. auto industry. At a time when much of the world was already paying the equivalent of $2.00 a gallon for gasoline, Americans enjoyed a much lower price due to federal price controls. We loved our cheap gas and we therefore loved our big cars.
Then in the mid 1970s, there came the OPEC oil embargo. Suddenly gasoline was in short supply and people had to wait in long lines to gas up their cars. Small cars suddenly started looking very good and there were few-to-none available from U.S. manufacturers.
Japanese auto makers made huge inroads into U.S. auto sales. U.S. manufacturers lost market share and had to quickly re-tool to manufacture smaller, fuel-efficient cars. Had Americans been paying market price for gasoline, like most of the rest of the world, demand for smaller cars would have been rising for many years prior to the OPEC embargo and U.S. auto makers would have already been producing smaller cars to meet that demand.
Fortunately, OPEC relented and — having taught us a lesson — turned on the spigot again. American auto makers had suffered a permanent loss of market share to foreign manufacturers. It could have been a lot worse, if OPEC had continued its embargo.
Of course we liked our cheap gas. But there is always a price to pay later when government interferes in the free market. That U.S. auto makers did not have the small cars that were suddenly in demand was blamed, of course, on the auto makers. The truth though, is that FedGov had “protected” Americans from high gas prices and it almost ruined the U.S. auto industry.
Fiddling (legislatively) with prices is a sure way to create crises. FedGov found that affordable hurricane insurance just was not available on the Gulf Coast and decided to “fix” this “failing” of the free market. So, acting as an insurer, FedGov insures homes in hurricane-prone areas and, naturally, loses money in the process.
Real insurance companies know that their payouts will be higher in some areas and charge higher premiums accordingly. But with below-market insurance available from FedGov, people are encouraged to build in disaster-prone areas — places where they might not build, if not for this taxpayer subsidized insurance. When the inevitable hurricane hits, the damage is thus higher because homes that otherwise would not even be there otherwise, are added to the toll.
It is FedGov too that builds levees and thus encourages people to build on flood plains. (Hint: there’s a reason they’re called “flood” plains.) Likewise building levees so that people can build below sea level in hurricane-prone areas just sets the stage for future disaster.
Just as the lack of “affordable hurricane insurance” and the lack of mortgages for poor people led to FedGov interference in the free market and inevitable future disasters — both physical and financial — now FedGov intends to do something about the lack of “affordable health care.” Do we really want to go there?
As P. J. O’Rourke once wrote: “If you think health care is expensive now, wait ’til you see what it costs when it’s free.”
Yes, we all like cheap or free stuff, but I encourage everyone to review the Sixth Law of Government before jumping on the National Health Insurance band-wagon. We may get our cheap health insurance for a while, but we simply cannot afford the kind of meltdown in the health care industry that we have witnessed in the mortgage and financial sectors.