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Santelli’s Ayn Rant

February 23, 2009

Rick Santelli’s “Rant of the Year” is said to have hit a “populist nerve” and that is undoubtedly true. But concentrating on the “populist” part of what Santelli said, ie his opposition to Obama’s housing plan because it is “rewarding bad behaviour”, is grabbing attention from the stronger arguments Santelli makes.*

Towards the end of the five-minutes clip, Santelli argues against the so-called Stimulus Bill and, more precisely, the blind belief in the existence of a Keynesian multiplier greater than one that underlies it. He says that by the logic behind this bill all our economic worries can be ended by letting the government spend huge sums of money because it will reap 1.5 times the amount in return. Maybe Santelli puts his argument into provocative terms, but he is pointing his finger directly at what is factually problematic in Obama’s medicine of choice for the economy.

Arguing that it is unfair to help people who have made economically unwise decisions when buying houses they couldn’t afford with the money of those who didn’t make that mistake is never going to convince someone who, well, just thinks it isn’t. But doubting that it is a good idea to bet nearly a trillion dollars of taxpayers money on an unproven theory about a Keynesian multiplier greater one – especially given an already burdensome deficit – is not simply populist. It is a reasonable argument that can be assessed objectively.

And, concerning the housing plan, there is another worthy argument that Santelli makes, not in the “rant” but in an interview in reaction to it. He says that the real problem with Obama’s effort to save the housing market is the undue intervention into unforced contracts. Once a (legal) contract has been made it has to stand. If judges have the right to dissolve or re-negotiate contracts on reasons other than their being illegal, the basis for a functioning market gets eroded.

Those who think that the housing bill is a good idea apparently believe that it is ok if government breaks contract law when not doing so would be too costly or painful for people who matter. This is a principle that can be stretched and adjusted to virtually any type of contract. Imagine you buy an item from a store and a week later receive a letter from a lawyer informing you that you owe the seller of the item another $50 because he has realised that, after all, the item was more valuable to him than the price you paid. If you refuse to pay the additional $50 you will be sued for causing the seller emotional distress. Time to ask: where to draw the line?

*This is not say that this “populist” argument is without any merit. But the French Cowboy believes that the basically correct notion that rewarding bad behaviour is seeding more of it is less convincing in this context. Individual households will not feel encouraged to make economically unsound decisions any more with the housing bail-out than without it. That is because as individual decision makers they cannot reasonably expect government to help them pay their bills once they got themselves into trouble unless there is enough political pressure to do so. And they cannot create that pressure on their own.

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