Opinion: Obama Subsidizes the Wrong People

The Obama mortgage bailout plan is a subsidy to all the wrong people, a continuance of the economically errant past, and generally expensive and nonsensical.

But I could hold my nose and support it under one big condition. Okay, one big condition and one small condition.

First, it needs to contain an apology. President Obama needs to say that a big part of the reason the housing market in the U.S. is so screwed up is that government has for decades been using housing as a misguided social engineering experiment. There is a lethally romanticized vision of home ownership in this country, one that says that right after flag and country, comes a 2,200 square-foot house with a yard.

It's not true, and it never has been. A house is an asset. Pretending otherwise is a form of childishness that we can no longer afford.

There can be no denying this has been a costly misadventure. Home subsidies have caused a massive misallocation of capital in this country, away from productive investments and into housing and housing-related markets. Money that should go into bridges, manufacturing, startup companies and other assets with longer-run economic value has gone into housing stock. Spending that would have supported companies that build our nation, like Caterpillar (CAT Quote), D.R Horton (DHI Quote)and Toll Brothers(TOL Quote) was squandered -- in large part because the government has created incentives to make that happen.

People did what the government-distorted economics of the housing market told them to do, and now they we have a financial mess because of it.