Thursday, 12 May 2016

Proposed home-loan to income restriction



It has to make you laugh: everyone everywhere these days purports to be against price controls, except when it comes to money.

The central banks have a firm grip on the price of interest, controlling the price at which money is lent and borrowed – yet nary a yelp is heard about their right to tinker as they send rocket fuel into the housing markets, and then seek to sop up the price explosion (as they are again now with more “new house price curbs”) by making it harder for new entrants into the housing market to enter anyhow at all.

To solve the problem of high house prices making it hard for young house-buyers to buy houses by introducing rules making it harder for young house-buyers. What could be more ingenious? Who but a central banker (or their supporters) would even find this remotely congenial?

The argument against price controls per se is a very simple one (make a price too low and shortages result; make a price too high and expect to see a glut) but the most powerful argument against controlling prices is the disclocations these slegehammer blows make to the price system as a whole. The system of prices, as Hayek explains, is one of the most delicate yet powerful communication devices human beings have devised (“the result of human actions,” he would say, “not of human design”).

The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement…
    The price system is just one of those formations which man has learned to use (though he is still very far from having learned to make the best use of it) after he had stumbled upon it without understanding it. Through it not only a division of labour but also a coördinated utilization of resources based on an equally divided knowledge has become possible.

Yet we allow central bankers not just to tinker with this delicate mechanism but -- by controlling the prices of money, the very means by which proces are signalled – to take a sledgehammer to it merely on their promise to “trust me, I know what I’m doing.”

But they don’t, as sundry depressions, recesssion, credit crises, NIRPs, ZIRPSs and house-price hyperinflations have proved.

The argument against the current proposal -- proposed home loan to income restrictions – is not primarily that they are bad or unhelpful or will only make things worse for new buyers. It is that they represent just more tinkering on top of earlier tinkering on top of earlier disasters all caused or made necessary by the choice to let central bankers meddle with our money.

And to make it ever worse, every time they stuff up, it’s always the markets they try to control that get the blame.


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