The problem of administrative costs

Hilzoy has a post that doesn't make much sense to me:

Anyone who thinks that the mortgage plan should have a way to determine whether the people it's trying to help sent their kids to private schools or took expensive vacations or put in marble countertops is presumably willing to spend the large sums of money it would take to find that sort of thing out about the 3-4 million people the loan modification program is designed to reach. Moreover, s/he should be willing to accept the serious intrusion into people's privacy that this sort of investigation into people's past spending would entail. And s/he should also be prepared to reach many fewer people, since presumably a number of people would not be able to document that all their spending fell within whatever guidelines we deem acceptable. 

Back in the Reagan era, I used to marvel at people who would first rail about the excessive size of government bureaucracies and then complain about, say, welfare fraud. (I was all for managing bureaucracies more effectively; it was the people who seemed to resent their very existence who puzzled me.) If you want a program to be able to distinguish the people who actually qualify for welfare from those who don't, I thought, someone needs to be going through their casefiles. And if you fire all those government bureaucrats, is it any wonder that the people who remain don't do as good a job making those distinctions?

Same here. If we base decisions about who qualifies for the loan modification program on relatively simple criteria -- income, size of loan, other debts and assets -- then we can carry it out relatively simply. But if we insist on figuring out whether each and every applicant spent too much on their vacation in the recent past, or renovated their bathroom without a government-approved reason, or violated the Guidelines on Acceptable Countertop Materials that the Department of Housing would need to draw up, or sent their kids to private schools, we should be willing to pay for the army of bureaucrats who will need to pore over people's financial histories in order to make that kind of determination.

Personally, I'm not willing to pay for any such thing. I'd rather keep my money, or else spend it on something worthwhile, like upgrading the electricity grid or providing better medical care for vets. That means that I need to accept the fact that some deserving people will not be helped, and some undeserving people will be. The best we can do is try to design the best simple way of deciding who will be eligible that we can, while accepting that any simple criterion will get things wrong, and then try to figure out which side we think we should err on.

This seems to presume that we will spend more on administrative costs than we will save on disallowing bailouts for those who took cash-out refis.  That's unlikely.  The average mortgage is $150,000 and the average US government subsidy is $20,000.  Once your hypothetical expensive administrator has disallowed 5 subsidies, he's paid for himself.  Everything above that is pure cash to the taxpayer.

It's more complicated than that, of course--people will undoubtedly appeal, adding costs.  But It's highly unlikely that this program would cost more than it saved.

Of course, if you don't care whether people are collecting welfare while working off the books, or getting bailouts for borrowing that financed vacations, expensive renovations, or new cars, rather than the actual purchase of a home, because you think that this is within the range of what they deserve from society, then it is a total waste of money to worry about who you're giving money to.  But most people do care what people and companies do with their tax dollars, which is why everyone got so mad about the bonuses paid to bankers out of TARP funds.

Most conservatives are also pretty comfortable with the notion that if you want the government to give you money, you should be prepared to account for why you need it.  Most of us don't give money to strangers without good reason.  Hell, my parents wouldn't give me the kind of no-questions-asked-no-strings-attached help that this implies they, as taxpayers, should help extend to hundreds of thousands of other peoples' children.  Which may be why I don't need it.