Congress is preparing to take up an Obama Administration proposal to establish a Small Business Lending Fund to help meet "unmet" small business demand for credit. The problem is that there's not really a supply-side problem with credit for small businesses right now, outside of construction and real estate. So we'd basically be throwing more money at small businesses at a subsidized rate, which is just going to help those who are already doing just fine. There are industry-specific problems facing the economy that need to be addressed. Sadly, Congress seems to be looking at a "solution" for that too.

Loan guarantees for homebuilders?!

I daresay that there are homebuilders out there who deserve loans they can’t get. But the same is true of other businesses too — businesses which create the vibrant sectors of tomorrow’s economy that ideally we really want to encourage, rather than crowd out. Banks aren’t going to lend more if this bill passes: they’re just going to shunt their lending from non-guaranteed sectors to homebuilding. And that can’t be good for the long-term health of the economy.

As for the unemployment problem, there’s no doubt that we want the people who have lost their jobs in the homebuilding sector to find new jobs as quickly as possible. But do we want those new jobs to be in the homebuilding sector? Not really. If we’re going to encourage job creation, let’s try to do it in areas of the economy which will help drive exports rather than imports, and which underpin a genuinely strong economy.

Actually, the problems facing homebuilders are industry-specific and most other small businesses are having their credit needs met. I don't know if one or both of these proposals will pass so it's hard to figure out the specific impact they would have, but neither one would have a meaningful positive impact. There are clear problem in trying to respond to the ongoing economic malaise with proposals to just prop up the industries that brought us down in the first place.

The difference between Germany and Spain, when you get down to it, is that Germans work for companies which provide goods and services that the rest of the world wants. In doing so, they make good money, which they save up. That’s how they became rich. The Spanish, by contrast, have massive unemployment, and most of the country’s GDP growth in recent years has come from the construction industry. Their main export is tourism, if that counts as an export, and the main way that Spaniards have become rich in recent years is by sitting back and watching the value of their real estate grow exponentially.

The U.S., going forwards, needs to be less like Spain and more like Germany. So let’s not subsidize housing. That way lies fiscal disaster.

Richard Florida has been calling this the Great Reset and compares it to how we recovered from past periods of economic woes. Over the next thirty years American consumption habits and lifestyles will shift and we'll see new industries develop and grow. I don't think we'll go back to the system in which ever rising home values and overleveraged credit fueled a consumer craze. If we do we'll probably have another burst bubble during a time of even greater fiscal crisis. That's not a good combination.