A Plea, Part 2

Tyler Cowen stops short of calling the mortgage-freeze plan a bailout, so he’s

exempt from the last plea.

But this

kind of thing is still very annoying:

There are two main arguments for breaking the loan contracts. The first is

that we could limit human suffering. The second is that we could forestall

macroeconomic catastrophe. Put together, these arguments have captured many

hearts and minds, but neither is very strong on its own.

There are three reasons this is annoying. The first is that there’s no strong

evidence that anybody is breaking loan contracts – indeed, Tyler himself

quotes Tanta

to the effect that the plan is carefully constructed not to break loan contracts.

The second reason is that Tyler misses out the single biggest reason to break

a loan contract, if a loan contract is being broken: that both the

lender and the borrower end up with more money that way – or at least

the lender ends up with more money while the borrower doesn’t lose his house.

And the third reason is that it’s unclear from Tyler’s post whether he thinks

he’s referring to Bush’s mortgage-freeze plan or not. I think he thinks that

he is, but he does confuse matters by his reference to a debt jubilee.

When Tyler talks about "having the federal government arbitrarily rewrite

legally binding loan contracts," then, he’s constructing a classic straw

man. The federal government is doing no such thing, and no one near the federal

government has proposed doing any such thing. It would be great if the commentary

surrounding this plan stayed in the realm of reality, rather than criticizing

some other hypothetical plan which isn’t going to happen.