Thursday, September 25, 2008

Of Homesteads and Houses

Due to my desire to procrastinate on the housework, I'd like to take a moment to make a wild historical comparison between irresponsibly regulated financial institutions and irresponsible railroad expansion. I'd love to hear your perspective, dear reader, as to whether or not my comparison is valid.

Back in the olden days, we here in the US were looking to populate the continent from coast to coast. The Homestead Act helped achieve this goal, and homesteaders claimed lands (often from indigenous peoples) at a tremendous rate. When railroads got to be big, more of the countryside became reachable than ever before. (Huzzah! USA! USA! USA!) But, the railroads needed refueling and water stations all along the way in order to operate. How do we give more people a chance to farm, industry an opportunity to expand, and make our country great? Hmmm...

The Homestead Act. Originally signed into law by Abe Lincoln, it could be "improved" upon to convince people to move to the real hinterlands. All of the best arable farmland was taken, but there was dry land that needed train tracks through it to get us from coast to coast. As a result, you could get as much as 640 acres of land (as opposed to 160 acres for a regular homesteader) as a bonus for taking a risk on this new kind of farming. Procedures for farming (read:destroying) semi-arid land were developed and demonstrated to wide-eyed dreamers. My great-grandfather was one of those, and he had the misfortune to see an impressive example of what was possible in a very wet year. He, and and many, many others headed west.

Montana's population more than tripled in less than 20 years as a result of this expansion of the Homestead Act. For some very good perspective on this, I recommend this article. Go ahead and read it-this page will be waiting for you when you get back.


Fascinating, eh? The unusually rainy years came to an end when my grandfather was born. People lost their homes. They starved. Gramps told stories of families too poor to afford a stamp to write to family back east for help. Sixty thousand people left Montana in the 1920s. What began as a seemingly reasonable plan to achieve something great failed dramatically. Real people suffered in earnest, and the railroads carried on.

It's ridiculous to compare homesteaders to people who borrow beyond their means, but I think the legislative and regulatory situations are very similar. In an attempt to stimulate growth, we relaxed regulation on major industry and incented lots and lots of people to take major risks to bolster that growth. Whether it's railroads or the housing industry, Americans have invested heavily. In the case of the dry land homesteaders, they simply failed and moved on to deal with the effects of poverty and disappointed dreams for generations. Today's honyocker (a term used to describe those short-lived dryland homesteaders) has too much house that's been foreclosed AND gets to pay for a loan (and interest on that loan) back to the people who sold it to them in the first place. At least this time people aren't starving to death and the costs are being shared. Small consolation.

One of the figures I've heard floating around is that this bailout is the equivalent of $10,000 for each household in the nation. Me, I'd rather have the $10k myself. The investment bankers can go build railroads.

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