TCS Daily

The Dream Deferred?

By James Pinkerton - April 12, 2005 12:00 AM

Is it really the Republican Party's goal to reduce the wealth of its core constituency, which is middle-class homeowners? Moreover, is it really the mission of the GOP to have fewer folks own their own homes in the future? Most profoundly, is it really the purpose of the leadership of the 109th Congress to reverse the nation's two-century commitment toward widening the circle of ownership -- a commitment that has saved this country from lefty proletarianization and destructive class warfare?

It's been a while since anybody called the Republicans "the stupid party." And that's too harsh a judgment, at least for now. So for the time being, let's just say that many leading Republicans are acting ahistorically.

These top Republicans have put purist ideology ahead of practical prudence. They have forgotten a basic lesson of statecraft, which is, those who want a stable and conservative country must put in place policies that encourage stability and conservatism. And the bedrock for such policies is the pursuit of property, a pursuit that encourages people to be hard-working, prudent, and entrepreneurial, all at once. So no wonder the 2004 Republican National Convention used the word "property" 15 times in its platform document.

Yet some Republicans, notably Federal Reserve Chairman Alan Greenspan and his chief ally in Congress, Rep. Richard Baker of Louisiana, seek to reverse course -- toward a narrower, not wider, distribution of property. As we shall see, that's out of keeping with the dominant political tradition in America, and it's also out of step with the political welfare of the Republican Party itself, which flourishes only when most Americans think of themselves as independent, not dependent. The issue is the proposed transformation of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, commonly known as Fannie Mae and Freddie Mac. Those Republicans who say that they wish to "reform" Fannie and Freddie put their party at risk, their own careers at risk, and the American Dream at risk. Yet amazingly, their effort to destroy the ownership-expanding function of Fannie and Freddie is gaining momentum.

Last Wednesday and Thursday, the Senate Banking, Housing and Urban Affairs Committee, chaired by Sen. Richard Shelby of Alabama held hearings in which Greenspan testified. The mere fact that Shelby held the hearing is evidence that Republican hierarchs are gunning for Fannie and Freddie. One way or another, by legislation or regulation, they seek to eliminate the special legal treatment that enables these two institutions to help finance home ownership in America. Their argument is that Fannie and Freddie, as private institutions with implicit public support, are interfering with the pure private free market in home mortgages, because they deliberately subsidize low- and moderate-income home buyers. Greenspan, Baker, and Shelby see such ownership-fostering as the devil's work of too much big government and also as a distortion of the housing market. Beyond those concerns -- to the politico-historical reality that home ownership is public good as well as a private good -- they simply cannot see. And so most Republican senators on the banking committee piled on: John Sununu of New Hampshire saw "systemic risks" in the way that Fannie and Freddie operate; Elizabeth Dole of North Carolina espied "serious questions that need to be addressed."

Some Republicans, happily, defended the pragmatic idea of widespread private ownership against the onslaught of ideologues. Sen. Jim Bunning of Kentucky, for example, declared, "We must make sure the institutions are financially sound, but we must also make sure that we do not do anything to jeopardize the American dream of homeownership." The American Dream: that's the key idea here.

Others here at TCS have written eloquently about the challenges facing Fannie and Freddie, and the best way to address them. But for our purposes, let's not get lost in a thicket of numbers and data points. Let's focus instead on the American Dream, an idea that began with the Founders.

As we all know, Thomas Jefferson & Co. originally wanted the Declaration of Independence to list "life, liberty, and the pursuit of property" as the inalienable rights for which the Revolution was being fought. They changed it, of course, to "the pursuit of happiness," but that's only because the two concepts, "property" and "happiness," were seen as interchangeable, and Jefferson thought that "happiness" sounded better.

But Jefferson was a property proponent, that's for sure. And not just for the few, but for the many. In 1785 he wrote to James Madison, declaring, "The small land holders are the most precious part of a state." These yeoman farmers, Jefferson believed, would be the bulwark of republican values, steadfastly guarding their plots against foreign tyrants and also against urban mobs. Then, and only then, the second president insisted, would the American Experiment be able to continue moving forward.

But while Jefferson was something of a libertarian, he was not an absolutist. He was not for private armies, for example, nor for private police, either. In fact, he was willing to use government power to make sure that property remained widely distributed. It would have been easy, for instance, for Jefferson simply to sell off the vast territories of the Louisiana Purchase -- all 800,000 square miles -- to the highest bidder. In that case, a few rich families might have come to own the bulk of continental America. Thereupon they would have established vast plantations, reaching all the way, perhaps, to the Canadian border. So what then would have been the prospects for "small land holders"? Probably none. Those wishing to work the land would have had to work it as serfs, or worse. And so North America would have developed a political culture more akin to that of South America, that is, a few big landowners overseeing millions of landless. That would have been fine for the rich -- except, of course, for the occasional revolution and the inevitable rise of a land-expropriating political movement.

Jefferson understood these dangers to republican virtue, and so he constantly sought to strengthen and widen the fundaments of the American Way. Four decades after his letter to Madison, in an 1824 letter to Major John Cartwright, the English political reformer, the Sage of Monticello thanked Cartwright for sending along him "your valuable volume on the English constitution." As part of his grateful reply, Jefferson put forth some political ideas of his own for improving Virginia's constitution, which he described as "very imperfect." Much better, he continued, would be these changes:

        "The subdivision of our counties into wards. The former may be estimated 
        at an average of twenty-four miles square; the latter should be about six 
        miles square each, and would answer to the hundreds of your Saxon Alfred. 
        In each of these might be, 1. An elementary school. 2. A company 
        of militia, with its officers. 3. A justice of the peace and constable. 
        4. Each ward should take care of their own poor. 5. Their own roads. 6. 
        Their own police. 7. Elect within themselves one or more jurors to attend the 
        courts of justice. And 8. Give in at their Folk-house, their votes for all 
        functionaries reserved to their election. Each ward would thus be a small 
        republic within itself, and every man in the State would thus become an 
        acting member of the common government, transacting in person a great 
        portion of its rights and duties, subordinate indeed, yet important, and entirely 
        within his competence. The wit of man cannot devise a more solid basis for 
        a free, durable and well administered republic."

Much of Jefferson's plan seems strange to the modern eye, and no doubt the second president would have different ideas were he alive today. But what seems certain, based on the historical evidence, is that Jefferson would have supported vigorous governmental efforts to push more property into more hands.

Indeed, most presidents since have built upon Jefferson's vision. In 1862, Abraham Lincoln signed the Homestead Act, because the 16th president was also determined to make more Americans into sturdy and stolid burgers -- and if they voted for the party, the Republican Party, that gave them their land, well, that was OK with the Great Emancipator.

Interestingly, when Democrats followed the Jeffersonian model, they made America better -- even if they ended up, presumably unintentionally, strengthening the Republican Party. Franklin D. Roosevelt and his New Dealers established Fannie in 1938 and the mortgage-interest tax deduction the following year. FDR was no leftist: he wanted America to be a middle-class country in which home owners felt that they had a stake in the status quo.

And the plan worked: during the 30s, less than two-fifths of Americans owned their home. Today, the suburbs have expanded, pulling people out of teeming cities, and the percentage of home owners now exceeds two-thirds. And it's no coincidence that as America moved from renting to owning, it has also moved from being a Democratic country to a Republican country. That is, as people became property owners, they had less need for a big government to protect them, and more fear of a big government that would take their homes away from them.

No doubt there are some partisan Democrats who regret the bourgeois-ization of America, but the rest of us should take a moment and reflect that presidents across the centuries have stepped above partisanship and political opportunism in their effort to build a stable, property-owning middle class. And in the long run, of course, that's good for all Americans.

Now back to the politics of 2005. Driven by holier-than-thou economic ideology, and perhaps also by big banks who see Fannie and Freddie (the latter institution created by Republican Richard Nixon in 1970 as part of his efforts to build a New Majority for the GOP) as a rival, Republicans today seem eager to undo a financial linchpin underneath suburbanism, conservatism, and, oh yes, Republicanism.

If the anti-Fannie/Freddie Republicans thought a bit further, they might ask themselves: do they really think that they will benefit from a fall in real estate values? If they shrink the mechanism that widens the circle of ownership in 2005 -- or even if they damage that mechanism, such that mortgage rates rise -- do they see political profit at the polls in 2006? Or 2008? Are homeowners, and would-be homeowners, across the country truly crying to their elected officials, begging them to maim or kill the goose that has laid so many golden eggs?

Finally, do Greenspan, Baker, and all the other Fannie/Freddie-bashers really understand what's at stake in this battle? Do they want to be the "leaders" who reverse course on the steady expansion of the American Dream? That seems very stupid, indeed.



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