How government makes things worse

Boston Globe piece by Jeff Jacoby covers the "Law of Unintended Consequences" of government intervention. Jacoby takes on government mandates and subsidies for ethanol:

But now comes word that expanding ethanol use is likely to mean not less CO2 in the atmosphere, but more. Instead of reducing greenhouse gas emissions from gasoline by 20 percent - the estimate Congress relied on in requiring the huge increase in production - ethanol use will cause such emissions to nearly double over the next 30 years. ...

Actually, that's not quite the bottom line. Jacking up ethanol production causes other problems, too. Deforestation. Loss of biodiversity. Depletion of aquifers. More ethanol even means more hunger: As more of the US corn crop goes for ethanol, the price of corn has been soaring, a calamity for Third World countries in which corn is a major dietary staple.

Jacoby is also critical of government's role in causing the subprime mortgage collapse:

The crisis has its roots in the Community Reinvestment Act of 1977, a Carter-era law that purported to prevent "redlining" - denying mortgages to black borrowers - by pressuring banks to make home loans in "low- and moderate-income neighborhoods." ...

Banks nationwide thus ended up making more and more subprime loans and agreeing to dangerously lax underwriting standards - no down payment, no verification of income, interest-only payment plans, weak credit history. If they tried to compensate for the higher risks they were taking by charging higher interest rates, they were accused of unfairly steering borrowers into "predatory" loans they couldn't afford.

Trapped in a no-win situation entirely of the government's making, lenders could only hope that home prices would continue to rise, staving off the inevitable collapse. But once the housing bubble burst, there was no escape. Mortgage lenders have been bankrupted, thousands of subprime homeowners have been foreclosed on, and countless would-be borrowers can no longer get credit. The financial fallout has hurt investors around the world. And all of it thanks to the government, which was sure it understood the credit industry better than the free market did, and confidently created the conditions that made disaster unavoidable.