Thursday, January 28, 2010

Communism is So Bad, It's Not Communism

Most people agree that Communism is bad news. But every once in a while you get some wise guy who says "China is communist, and their economy does great." Of course, China is not really Communist. You see, Communism is so bad, even the Communists don't want to practice it any more.

That's part of the problem with analyzing mortgage modification programs. On paper, they impose marginal income tax rates far beyond 100% (think textbook Communism). That's why lenders are so tardy in making the modifications the Treasury recommends. In the end, we may only find that the effects of mortgage modification programs were bad, instead of truly terrible. But that doesn't mean that the federal programs were better than terrible - it just means that following them would have been so terrible that few lenders followed them!

1 comment:

dWj said...

I apologize for the vague details here, but I seem to recall that Nixon's economic team had some disagreement as to how to handle requests for increases during the price control regime; some wanted to grant all requested exceptions so as to mitigate the harm the policy would do, while others wanted to adhere to the price control regime so as to demonstrate how much harm it would do. (I think the former camp largely won.)