Handling Finances

The size of government affects personal finances.  And no, it’s not as simple as “lower taxes means you get more money” or “more government support makes life better for the majority.”  I’m on the fence about the ideal size and function of government. I see a large potential for good from a large government as well as decreasing efficiency. I’m also a big fan of low taxes and generally being left alone by the government as much as possible but when I see injustice that is being ignored by the population, I wonder if the government shouldn’t get involved.

With that said, I just read a very interesting article about how a larger government could have prevented (or at least mitigated) the recent mortgage problems by proactively regulating subprime mortgages. It’s not as if the problem came as a huge surprise — the banks knew the mortgages were unprofitable long-term (leading most issuers to sell them immediately) and a range of academics warned of the lending problems.

The really funny thing is that we only want more government regulation when things go wrong. President Bush would have strongly opposed any regulation on subprime lending in 2003, but now he’s urging banks to change their lending policies to help bail out people and banks that made bad choices. In fact, the whole problem was undoubtedly exacerbated by the 2005 bankruptcy reform that cut borrowers’ ability to file bankruptcy and still keep their houses.

Since the September 11 attacks, many Americans demand governmental regulation to protect us from terrorists even though our daily commute is a much greater threat. Since Enron collapsed under deceptive accounting practices, we demanded more governmental regulation in business practices. Now, millions of borrowers have chosen poor mortgages advertised by now-suffering banks, and we demand that the government prevent it from happening again. As the article I read put it:

Have you heard any presidential candidate from either party explain why the appropriate response to the mortgage debacle is to let the culpable parties pay the price for their mistakes? Nothing teaches you about debt like losing your home to foreclosure. I’m still waiting for that speech. (OK, Ron Paul has probably given it — which is one reason he’ll never get more than 10 percent of the vote.)

Everyone loves small government in theory. We’re tired of being told that the coffee we’re about to enjoy is hot. But then we burn ourselves and expect someone to show up with ice. You can’t have it both ways.

I couldn’t have said it better myself. Again, I’m not trying to force my views on you — I’m not sure what I think about this whole issue — I just think it’s worth thinking about carefully (and blogging about). Smaller government is more efficient, costs less, and offers much less protection to its’ citizens. Even the largest government offering the least freedom will never protect us from inherently unpredictable terrorism, but a smaller government offers more dangerous cars and a lower standard of living to the poorest.

Because our economy and the government is so important to our personal finances, I think it’s important to look carefully at what ALL parties have to say. When the educated, informed voters are split 50-50, you know that both views are reasonable. If you usually vote for smaller government, consider the cost of corporations taking advantage of citizens. If you usually vote for larger government, consider that the price for preventing (or attempting to prevent) immoral or fraudulent action can be rather high due to bureaucratic inefficiency. This is far from the only point worth considering, but it’s much too important to ignore, and as we move into next year’s elections (in the USA anyway) keep the cost of both candidates’ (in the USA we usually only have two) position.

One last thing — if you come to the conclusion that your favorite candidate’s proposals cost nothing, talk to somebody who disagrees with you and see if you can clear up those rose-colored glasses.

This entry was posted on Wednesday, February 20th, 2008 at 12:16 pm and is filed under Economy, Personal, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.