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The Law of Unintended Consequences is a fascinating thing. You can never be entirely sure what the second-, third-, etc.- order effects of any action will be. This is especially so with government policy because centralized decision-making can do so much damage to so many people. That ought to humble the politicians and bureaucrats, but it never does.

Take the possible connection between the “public schools” and the current housing and mortgage woes.

Robert Frank, drawing on a 2003 book by Elizabeth Warren and Amelia Warren Tyagi, The Two-Income Trap, suggests that one factor in the housing mess is the government school system. In an April 27 Washington Post op-ed, Frank wrote that since the assignment of children to government schools is determined by geography, the way for parents to get their kids into putatively better schools is to buy homes in the best districts and neighborhoods they can. That system, they claim, encourages families to strain their budgets and to bid up the price of those houses.

Governments have traditionally assigned students to schools by district and neighborhood, regardless of parents’ wishes. District and intra-district boundaries could not be crossed without special permission. In rebellion against this system, parents have been known to lie about their address to get their children into better schools. But parents who didn’t want to lie might have instead bought more house than they could afford.

“Public schooling” is said to be free, but of course it can’t really be free. Parents (and others) pay through their taxes. Frank’s point is that parents also pay through their mortgage. Instead of paying higher tuition for better schools, they take on bigger mortgage payments by buying houses in more expensive neighborhoods with what they believe to be better schools. “[W]hen a family buys a house, it buys much more than shelter from the rain. It also buys a public-school system,” Warren and Tyagi write.

A couple naturally asks, “How are the schools?,” when scouting a prospective home. Government policy thus has made education a key factor when people buy houses.

This has long been true, of course, but the limits on such behavior were once stricter. Frank writes, “In the 1950s, as now, families tried to buy houses in the best school districts they could afford. But strict credit limits held the bidding in check. Lenders typically required down payments of 20 percent or more and would not issue loans for more than three times a borrower’s annual income.”

However the architects of public policy decided there should be no such barriers to the American Dream of home ownership. So a constellation of federal agencies and government-sponsored enterprises proceeded to subsidize ownership by providing mortgage insurance and other ways to avoid stringent income requirements and large down payments. “Down payment requirements fell steadily, and in recent years, many houses were bought with no money down. Adjustable-rate mortgages and balloon payments further boosted families’ ability to bid for housing,” Frank adds.

In other words, the politicians invented ways to weaken the credit market’s natural checks on excessive risk.

If Frank, Warren, and Tyagi are right—the thesis may provide a piece of the housing-bubble puzzle, but it has its critics and empirical work needs to be done—we can say one thing with certainty: the phenomenon couldn’t have occurred in a free market for education. There you wouldn’t have to live in the same neighborhood as your children’s schools because education entrepreneurs would not limit their customers to a given zip code. Thus no direct connection would exist between the size of your mortgage and the quality of the schools your kids attended.

I don’t know how much if anything the state school system contributed to the housing bubble and resulting problems. But it stands to reason that it played some role.

* * *

Dropping housing values, burgeoning mortgage defaults, and the rippling effects in the credit markets have spawned a variety of proposals for government interference with lending and investment. All would make the situation worse, reports Robert Murphy.

Free-market economists agree we live in a world of scarcity. Yet they also optimistically insist we need not run out of resources as living standards rise. Can this paradox be resolved? Yes, it can, says Steven Horwitz.

Advocates of the freedom philosophy often preface their remarks with the words “In a free market . . .” because we don’t have a free market today. Interventionism has been significant throughout even American history. As Kevin Carson writes, that legacy has had lasting and distorting effects.

One of the great tragedies of the second half of the twentieth century was China’s one-child policy to combat alleged overpopulation. Wendy McElroy has the details of the shameful episode that is not over yet.

John Taylor of Caroline trusted freedom and distrusted centralized power. In his second article about Taylor, Joseph Stromberg surveys the early American’s positions on political economy.

Freeman columnists serve up a cornucopia of insights this issue. Richard Ebeling relates the Austrian theory of the business cycle to current economic events.

Donald Boudreaux explores why the statist left is willing to believe every gloomy report about people’s economic circumstances.

Robert Higgs revisits a construction boom and bust from the past. John Stossel goes after lawyers who abuse the tort system.

Charles Baird predicts bad things for universities just getting faculty unions. And Aeon Skoble, pondering the claim that only government can save people from dying for lack of medical insurance, responds, “It Just Ain’t So!”

Our book reviewers have consumed volumes on judicial activism, government planning, eminent domain, and consumer-driven health care.

—Sheldon Richman