Provocative question of the day: should mortgage applications come with a short IQ test, where potential borrowers receiving a score below a certain level are required to undergo extensive counseling to make sure they fully and completely understand the mortgage, payment schedule, and the all the issues it is assumed a borrower should understand?
I’m confident that Adam recognizes the fact that, hyperbolic discounting being the problem, this would de facto exclude all but the most determined of those who lack basic arithmetic skills. But still there is a chance that people will put off their instantly-gratifying ways just long enough to get a loan, take the bad loan due to the stronger effect of larger monetary gain, and end up in the same boat. Fortunately, they will be able to draw out an amortization schedule that shows exactly where they went wrong. Unfortunately, they will have still gone wrong.
AND, given a central bank unwilling to satisfy AD, they will still have “caused” a deep recession.
As long as we’re being overtly paternalistic, why not just push for an 80%/20% loan-to-value rule? In fact, codify it into stone (for real; Kaufman, Levin, and Sanders can do the chiseling, because they’re morons). Thus we have a real barrier: the ability to save 20% on a down payment. That involves a much more serious time commitment — much longer than a 4-week math course — and it also involves a savings commitment.
Doubleplusgood as far as safeguards go.
Plus by using the impersonal price mechanism, we avoid the entire debate about the relevance to IQ to intelligence. Admittedly, we do dive headfirst into the homeownership/equity debate.
Oh the trade-offs!