100 Years of Being Right: The Austrian School on Business Cycles

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John James Posted: Wed, Jun 8 2011 1:22 AM

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"The case against government-guaranteed loans and mortgages to private busi-
nesses and persons is almost as strong as, though less obvious than, the case
against direct government loans and mortgages. The advocates of government-
guaranteed mortgages also forget that what is being lent is ultimately real capital,
which is limited in supply,and that they are helping identified B at the expense of
some unidentified A. Government-guaranteed home mortgages, especially when a
negligible down payment or no down payment whatever is required, inevitably mean
more bad loans than otherwise. They force the general taxpayer to subsidize the bad
risks and to defray the losses.

They encourage people to "buy" houses that they cannot really afford. They tend eventually
to bring about an oversupply of houses as compared with other things. They temporarily
overstimulate building, raise the cost of building for everybody (including the buyers of the
homes with the guaranteed mortgages), and may mislead the building industry into an
eventually costly overexpansion. In brief in the long run they do not increase overall national
production but encourage malinvestment."  [emphasis added]

Anyone know what that's from?  1978.  That's what.  I went back to have another read of Henry Hazlitt's classic Economics in One Lesson (the 3rd edition) and this passage just made me laugh out.  I was surprised to find it is not included in the 2007 edition now available through the Mises Institute (but of course quickly realized that version is a 1st edition reprint).  But it reminded me of this lecture...