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Should Gay Marriages be Allowed?
Gary Becker

Many gay couples want to be allowed to call their union "marriage" mainly because they believe this will give their relation a degree of acceptance that is closer to that given to heterosexual unions. They also believe that marriage connotes a more stable long-term relation, although gay unions have a well-known tendency to dissolve at even higher rates than heterosexual marriages, and that very likely would continue even if their unions are called marriages. The narrowly economic gains from being married are a decidedly minor part of the desire by gays to have their matches called marriages.

For the reasons just stated, one can understand why many gay couples want to be allowed to marry. What I find difficult to understand is why there is so much opposition; for example, I doubt if a referendum legalizing gay marriage would pass in many states. As Posner indicates, allowing gay couples to marry will have little effect on either the attraction or stability of marriages between heterosexuals. I believe this opposition reflects hostility to gays and their unions that can no longer be expressed in other more traditional forms, such as calling them names or harassing them. As a result, the marriage issue has become a rallying point that allows hostility to gays to be hidden behind other reasons.

To be sure, it is a strange way to express that hostility in light of other options that have been allowed to gays that are far more radical. I am mainly thinking of the recent practices of allowing gay couples, married or not, to adopt children, allowing lesbian couples to bear children through sperm supplied by sperm banks, or allowing male gay couples to use their sperm to impregnate women who bear children that a gay couple raises. Although rather few gay couples have children as yet, that practice is a far bigger venture into the unknown than is permitting gay couples to be married. It is still too early to have reliable evidence on the effects on children of being raised by gay parents, but I suspect these effects will be more negative than positive, in part because even married gay couples are likely to dissolve their match at relatively high rates.

I also find it strange that gays having and raising children arouses much less opposition than does polygamy, where several women voluntarily agree to be married to the same man (a far rarer form of polygamy is when several men agree to be married to the same woman). Why should society care if two (or more) women are willing to be married to the same man, especially in an environment where men and women rather than their parents generally make their choices about who to marry? We trust women to make many other decisions that seem strange to others-such as when a twenty year old woman marries a 65 year old man- so what logical grounds are there to disallow several woman voluntarily accepting marriage to the same man? Moreover, since polygamy would increase the demand for women as marital partners-however slightly since polygamy would be very uncommon- the argument that it is a form of exploitation of women is also without foundation.

I have proposed for many years that marriage should be basically a private contract between the men and women involved-they can add a religious ceremony if they so desire. There is no reason why the standard contract should be supplied by the government rather than by market forces. An explicit contract would be compulsory, even if it only has a minimum number of stipulations and rules. Most persons marrying might use such a standard contract, but others would have special provisions, such as the allocation of assets in event of dissolution, responsibilities for housework and other activities, and obligations toward children. The state would set minimum obligations toward children since society has an interest in how children are treated.

Such contracts would be equally available to homosexuals, as they are already in some countries and many states of the United States. These contracts would reduce the role of governments in marital arrangements where they have no special competence or interests- again, aside from the protection of children. It would also eliminate the gay marriage issue since gays would have access to contracts as fully as heterosexuals. It would also allow couples to stipulate in writing any special arrangements they want to see enforced in their unions.

Such contracts are unlikely to replace government determined marital terms in the foreseeable future. So until then, it would be wise to expand the concept of marriage to include homosexual relations, and perhaps polygamy as well.

The Economics of Gay Marriage

Richard Posner

In 1989, Denmark began allowing homosexual couples to form "registered partnerships," which gives a couple most of the legal rights of married persons; the other Scandinavian countries followed suit. In 2001 the Netherlands began allowing homosexual couples to marry. Spain followed, despite the fierce opposition of the Catholic Church. Canada too, and it is plain that most North Atlantic nations will soon recognize gay marriage. In the United States, Massachusetts and California, by virtue of state court constitutional rulings, now allow gay marriage. Several other states recognize "civil unions" or "domestic partnerships," the equivalent of Denmark's registered partnerships. (All these laws, except the Scandinavian ones, are recent, and there have been few studies of their effects.) The federal Defense of Marriage Act (1996), however, not only denies the federal benefits of marriage to gay marriages, but also empowers states to refuse to recognize such marriages, and a majority of states have enacted laws (usually as part of the state's constitution) refusing to recognize such marriages.

The gay-marriage movement raises a number of interesting questions, which I approach from an economic perspective: why do homosexuals want to marry? What are the consequences of gay marriage likely to be? Why is there opposition to gay marriage?

All sentimental and religious considerations to one side, marriage is a source of benefits. One, which is a genuine social benefit, is a saving of transaction costs. If you want to leave money to someone to whom you are not married, you will need a will; but if you are married, upon your death your spouse (if you have no will) will automatically receive a share of your estate. Nor do you have to have a contract specifying the financial or other consequences of an abandonment or other dissolution of the relationship; the law of divorce supplies the necessary machinery. In other words, the law provides a kind of standard contract that enables the costs of negotiating and drafting a private contract to be avoided. In this respect it is very much like partnership law, so that the term "domestic partnership" to describe a marriage-like law for homosexuals is apt.

There are also private benefits (in the sense that there does not seem to be an efficiency justification for them), such as survivors' social security benefits and rights under the Family and Medical Leave Act, but most of these benefits (offset, but for most couples not fully, by the "marriage tax"--the higher incomes taxes paid by a couple each of whom has a good income than they would have to pay if they were not married) are federal, and the Defense of Marriage Act denies federal marriage benefits to the parties to gay marriage. There are also, however, state-law evidentiary privileges that enable one to prevent his or her spouse (or sometimes even ex-spouse) to testify against one in a criminal case.

Employers often provide health and other benefits to the spouses of their employees as well as to the employees themselves, but there is nothing to prevent employers from offering those benefits to a same-sex partner of the employee, whether or not married.

Given the Defense of Marriage Act (and no-fault divorce, which enables each spouse to dissolve the marriage unilaterally), the net benefits of gay marriage to homosexuals are small, and indeed no greater than those conferred by domestic-partnership laws. Nevertheless, most homosexuals are very strong supporters of gay marriage even on the assumption that the Defense of Marriage Act will not be repealed and even though it appears that relatively few homosexuals have taken advantage of the Massachusetts law, though this may be because of its newness; it was created by the state's highest court by an interpretation of the state's constitution in 2004, and there was initial uncertainty whether it would stand, or be nullified by constitutional amendment. But probably the main reason for homosexuals' support of gay marriage is simply their desire to be treated equally with heterosexuals, which probably is also the principal reason for homosexuals' opposition to the armed forces' discrimination against them, rather than a great desire for either marriage or military service.

What are likely to be the consequences of gay marriage? If few homosexual couples take advantage of the right to undertake such a marriage, the consequences, at least in the short run, will be slight, especially since the right will be recognized in only a few states for the foreseeable future. But even if all states recognized gay marriage and the Defense of Marriage Act were repealed, the consequences would be small simply because the homosexual population is small and many homosexual couples will not bother to marry; many heterosexual couples nowadays do not bother to marry, especially if they don’t plan to have children, and a higher percentage of heterosexual than homosexual couples do not plan to have children. The much-bandied-about figure that 10 percent of the population is homosexual is false; it is based on a misinterpretation of Kinsey's data. The true figure is about 2 to 3 percent for men and 1 percent for women.

My qualification "in the short run" was intended to leave open the question whether widespread recognition of gay marriage, and thus the legitimating of homosexual relationships, might either increase the number of homosexuals or undermine heterosexual marriage. I do not think either consequences is likely. Sexual preference seems pretty clearly to be genetic or otherwise innate rather than chosen on the basis of social attitudes toward particular sexual practices. Despite greatly increased tolerance of homosexual behavior in many countries (including the United States) in recent decades, there is no evidence that I am aware of that the number of people who prefer homosexual to heterosexual sex has grown. Homosexuals are more open about their sexual identity and this creates an impression that there is more homosexuality than there used to be--and there may indeed be more homosexual behavior. But the preference appears to be unchanged. So parents probably need not worry that recognizing gay marriage will increase the likelihood of their child's turning out to be homosexual.

Although some of the opposition to gay marriage is religiously motivated, I believe the main opposition comes from the feeling of many (heterosexually) married people that allowing gay marriage degrades or depreciates the concept of marriage, much as if polygamous marriage were permitted or people were permitted to marry their dogs or their automobiles. Apart from the weight that widespread public opinion is entitled to be given in a democratic society, there is the danger that if people respect the institution of marriage less, the marriage rate, already low, will fall still lower, with adverse social consequences. Again, the danger seems small. The people who worry about the effect of gay marriage on the institution of marriage are those most committed to the institution, and they are unlikely to desert it. And if they did? If what marriage mainly is is simply a standard contract, it is not obvious that its decline, and replacement by private contracts (in other words, the privatization of marriage), would have serious social consequences, given the ease with which under modern law marriages can be dissolved by either party.

Marriage retains and will probably long retain tremendous symbolic significance in our society as a symbol of love and commitment (that is why cheating on a spouse attracts greater opprobrium than cheating on a person with whom one has a long-term, but not marital, sexual relationship), and it is likely to retain that significance even as gay marriage becomes more widespread, as it seems bound to do.

The Real Cost of a Full Bailout

by Don A. Rich

A recent study from the Congressional Budget Office (CBO) has zero credibility. It pegged likely taxpayer losses in the Fannie Mae and Freddie Mac bailouts at $25 billion. For those with a sense of history, it is worth remembering that the S&L bailout had a $160 billion price tag. The numbers diverge so far from reality as to be laugh-out-loud funny. Funny, that is, except that the CBO estimate demonstrates a willful disconnect with the actual consequences of federal government actions.

As demonstrated below, the real cost of the bailouts will easily exceed $1.3 trillion. In fact, the real cost is likely to range between $1.3 trillion to $1.6 trillion, and is not unlikely to reach $2.5 trillion.

Between 2001 and 2007, Fannie and Freddie purchased or guaranteed $700 billion of Alt-A and subprime loans. Given the default rates on these loans — and the fact that the price of the housing that is the ultimate security of the loans will, for reasons demonstrated below, fall by at least thirty percent — this alone implies a loss for Fannie and Freddie on the order of $210 billion.

Fannie and Freddie acknowledge already-impaired loans on the balance sheet of $19 billion, which they have used creative accounting to avoid deleting from the shareholder equity account. This means that Fannie and Freddie have a maximum of $64 billion in capital remaining.

Given the inevitable losses on the Alt-A/subprime portion of their portfolio, it must be the case that if the federal government, as it is doing, guarantees Fannie and Freddie's solvency, the difference between the loss and the capital to be made up by the government (i.e., the taxpayers) must equal, not $25 billion but $147 billion.

That alone would mean that the CBO is blowing smoke with their estimated cost figures, and if you think back to the S&L cost of $160 billion, this is not a surprising result. The real picture is so much worse that it is pretty obvious the CBO is flat out inventing figures just to get the politicians through November.

The real story is simple. We have witnessed the largest asset-price bubble in US history, making the tech-stock bubble seem like an overdone weekly rally.

When you look at the graph of the Case-Shiller residential real-estate index, an index dating from 1890 to the present and an index which measures the cost of housing in comparison to other goods, the first thing you see is that the 2001 to 2006 bubble stands out like a fifty foot saguaro cactus in a patch of daisies. There simply has never been anything like it before.

When you know what you are looking at — the biggest bubble in history — it is scary.

To be precise, the Case-Shiller Index in its entire 110-year history had never crossed 140 until the recent bubble. In 2006, it reached 210. Every single real-estate bubble in the past has at best been followed by a fall back to at least the 110 level in the postwar era, although the bubble preceding the Great Depression witnessed a fall to 60.

What this means is that in the best-case scenario, real-estate prices have to fall in the medium to long run by almost half.

Now consider Fannie and Freddie. Just looking at their portfolios on the balance sheet without the guarantees, let us accept (for no particular reason other than a desire that the reader sleep better at night) that real-estate prices only fall by thirty percent.

Well, since Uncle Sam is now committed to "doing whatever it takes," that is a loss right there of $1 trillion. This committment to keep financial markets open as usual is made in spite of the overwhelming evidence that what we have been taught is usual is in fact delusional, given that Fannie and Freddie own $3 trillion and change of mortgages.

The CBO is not fence-post stupid, so obviously just as in the S&L fiasco in 1988, they are outright inventing figures so that the politicians can slither into November and then announce, Whoops! our numbers were a little low.

The more realistic scenario is actually worse. Fannie and Freddie own and guarantee a total of more than $5 trillion in mortgages.

Given the long-run historically plausible equilibrium values of residential real estate as embodied in the Case-Shiller Index, that means that the taxpayer loss definitely reaches $1.3 trillion, easily ranging up to $1.6 trillion.

Unfortunately, that is the good news. The bad news is that if real-estate prices were to replicate the Great Depression (as would surely occur in the case that hedging instruments of Fannie and Freddie were to catastrophically fail due to counterparty failure — and given the absurdly low risk premiums on credit-default swaps at the height of the bubble, such an event cannot be considered unlikely) the Case-Shiller Index tells us that the loss to the taxpayers could exceed $2.5 trillion dollars.

I don't know what those people in Washington are taking to sleep at night after all their electorally driven accounting and finance exercises, but I can tell you what they will be doing to keep the government open for business: printing a whole lot of money.

Chairman Bernanke has the discount window open to any collateralization not worth the paper it is written on, so in effect he has the helicopters ready to drop hundred-dollar bills over Wall Street — as he once famously described the ultimate policy instrument of a fiat-money system.

$10 $7

The Creature from Jekyll Island

Of course, if he does that, we will have to change his nickname from Helicopter Ben to Hyperinflation Ben, which answers the question of who picks up the tab of bailing out Fannie and Freddie: anyone owning dollars.

Produce a lot of something, and it becomes worth less. And given the losses at Fannie and Freddie, the taxpayer guarantee, and the ongoing initiation of Boomer retirement, only the inflation tax will work to pay for keeping Fannie and Freddie afloat.

Like it or not, we are about to enter interesting times, and it is too bad our supposed professional civil servants at the Congressional Budget Office have failed to tell the emperor the truth: that he is buck-naked bankrupt and getting ready to take a lot of people with him.

Our only hope is to (1) accept up front a twenty-percent fall in American living standards for a people living beyond their means for the past twenty-five years on the delusions made possible by fiat money, and (2) simultaneously discipline the creature from Jekyll Island, a.k.a. the Federal Reserve System, not to create new money just to prop up asset-price bubbles.