I mentioned in my last post that some Republican governors were contemplating turning down some of the money their state would receive from the ERRA (the stimulus bill) for different programs. Louisiana Governor Bobby Jindal was on Meet the Press yesterday and he explained that he was refusing $100 million that would go for unemployment benefits. His reason was that accepting the money would require setting up a permanent program (the word “permanent” is actually in the bill), and the $100 million from the federal government would only fund the program for the next two years. After that, the program would still be in place and Louisiana taxpayers would have to pay for it. Jindal said he did not want to raise taxes on small businesses in the long run to pay for short-term unemployment benefits: “It would be like spending a dollar to get a dime.”

Listening to the radio on the way in to work this morning, I heard several callers saying that they disagreed with Jindal’s position because Louisiana needs help. When asked if he really believed Jindal’s explanation, one caller said that he did but he still thinks Jindal should take the money. These callers thought Jindal was being irresponsible. How dare he not take the money and not help his constitutents? After Jindal’s interview, David Gregory interviewed Florida governor Charlie Crist, also a Republican, who is taking every dollar he can get and begging for more because “something must be done” and his job is to do something. Crist apparently feels that if any one Floridian is suffering, it is his job to do something, anything, to help that person — apparently regardless of the effect it might have on other Floridians and other Americans paying for this “something.”

This is exactly the same kind of short-sighted thinking that got us into this mess in the first place. The governments of states like California increased spending when times were good, then raised taxes to pay for it and got away with it because income was high, never thinking about what would happen when the economy declined, as they all do at some point. Then when income dropped, tax revenues dropped and they were left with massive budget deficits. (Note: California has the highest income tax and sales tax in the country, and still has the highest budget deficit. Look at a list of states with the highest taxes and you’ll see most of them have the highest budget deficits too — it’s like the state governments don’t realize that some people can move out of their state when the cost gets too high… “law of demand” anyone?)

Homeowners got in over their heads, agreeing to adjustable rate mortgages or interest-only mortgages so they could buy more house than they could afford. Most did so thinking that they could just refinance in a few years and, if not, they could sell the house and cash out — house values only go up, right? So with everyone buying these houses with such low interest rates, it pushed housing prices up even more. Banks lent money to these people thinking the same thing: even if they can’t make the payments, we get the house back and we can sell it and we’ll still make money on the deal. Everyone was agreeing to things that looked good in the short run without thinking enough about the long-run consequences.

I spoke with an old college friend yesterday that I haven’t talked to in over a decade. He was telling me how when he and his wife moved back to Los Angeles in the middle of the housing boom, everyone was telling him that they should buy a house. The quicker the better, since the prices were going through the roof. He and his wife looked at the situation and thought that housing prices were just unnaturally high. While they could have afforded something, they did not want to risk getting in over their heads. So they rented instead. Their friends and family thought they were making a mistake. We know now that their decision was a prudent one. They are incredibly thankful they had the patience to wait until they were in a position to be able to afford a house in their price range. Being patient may end up saving them a hundred thousand dollars, give or take, as they are considering buying a home now while prices are hopefully bottoming out.

If a lot of governments, home buyers, and home lenders had said “nope” a little bit more in the last few years, we might not be in our current economic situation. If governments had not overspent, they would have been able to save up some more money in their “rainy day” fund and would not have to cut jobs now, or would not need as much from the federal government (read: taxpayers). If homebuyers had not overextended themselves, home prices would not have run up so far and would not have fallen back down so far either; fewer foreclosures would happen and the 92% of us that are current on our mortgages would not have to subsidize the 8% that aren’t. Four states (NV, CA, AZ, FL) account for almost half of foreclosures, so the rest of us are going to pay for their speculation — despite the fact that over 50% of homes that were modified by lenders in early 2008 to prevent foreclosure ended up in foreclosure anyway. The sad truth is that in any housing market, there are just some people who do not have income large enough or stable enough to own a home and need to be told no. Finally, if banks had not lent money to these buyers, the housing bubble would have been smaller or non-existent and we would not have to spend trillions of dollars to save our financial system.

Sometimes the “something” that needs to be done is for someone to say “no.”