Killing Mosquitoes

Many government imposed changes have unintended consequences. This is especially true with regards to the economy.

The economy is like an ecosystem. Imagine there is a pond in your neighborhood. And around the pond there are annoying mosquitoes. The government comes in and says they plan to kill the mosquitoes. Everyone is thrilled and agrees to the plan because no one likes mosquitoes. So the government kills the mosquitoes and pats themselves on the back for providing such a great public service.

Sometime after, the fish that feed on mosquito larvae start to die. Then other animals that feed on mosquitoes and fish, such as frogs and birds leave the pond or start to die. Before anyone knows it, the whole ecosystem around the pond dies and the water becomes stagnant.

Can you guess what happens next? The government sees the mess the pond has become and declares that it will take over the whole pond to fix the problem.

Unfortunately, no one seems to remember, or cares to remember, that the government caused the problem in the first place. Those who took credit for killing the mosquitoes are never held accountable. Often the same people will take credit for trying to solve the new mess.

It is the same with the present financial crisis. Politicians wanted low income people to be able to afford new homes. Using bills like the Community Reinvestment Act they pressured banks to provide easy mortgage terms. In response, banks issued subprime loans to many people with poor credit. Congress then had government sponsored enterprises such as Fannie Mae back the loans that would otherwise be too risky for banks to offer.

The government killed the mosquitoes. Constituents were thrilled because more people were able to buy new homes. Millions bought houses they really couldn’t afford. This caused the demand for houses to increase which caused the price of houses to go up. A housing boom was created that could not be sustained. The bubble burst causing millions of foreclosures and the current credit crisis.

Can you guess what happens next? The government sees the mess the market has become and declares that it will take over to fix the problem.

Unfortunately, no one seems to remember, or cares to remember, that the government caused the problem in the first place. Congressmen who took credit for pushing low income people into homes they couldn’t afford are not being held accountable. And the same people are left in power to try to solve the new mess.

There are many examples of the government killing mosquitoes. The government wants everyone to go to college. They give grants, tax breaks, and low interest loans to people to go to college. But this increases the demand which helps cause tuition costs to go up. The report, “Measuring Up 2008: The National Report Card on Higher Education,” by the nonpartisan National Center for Public Policy and Higher Education, found that college tuition costs have risen 439 percent since 1982. With tuition costs raising even more people can’t afford to go to college, so the government promises more money thinking that will fix the problem they created.

They just keep killing mosquitoes.