Sept. 29 (Bloomberg) — Home buyers are infants. They can't think ahead and don't try to.

That's the attitude of President Barack Obama, House Financial Services Committee Chairman Barney Frank and even the folks at Fannie Mae, whose Web site is headlined "Helping You."

Our leaders seem to believe that U.S. home buyers stumbled because they were allowed to enter the fast-moving waters of the treacherous secondary mortgage market without a lifeguard. As Frank argued recently: "If in fact residential mortgage loans were made only by banks or thrifts or credit unions, then we would not have a subprime crisis."

In this view the only way to get the country to a recovery is to protect these infants and, of course, jolly them and other consumers into spending and borrowing again. Special treats are in order, including one-time house tax credits or auto clunker programs.

Maybe the U.S. home buyer is not an infant but a grown-up who thinks. Someone who does plan ahead, though he may have been wrong on, say, the direction home prices were heading in 2005. This is the profile that emerges from a forthcoming paper in the Journal of Finance, written by Kristopher Gerardi, Harvey Rosen, and Paul Willen, economists with the Federal Reserve Bank of Atlanta, Princeton University and the Boston Fed, respectively.

Rich Database

Gerardi, Rosen and Willen wanted to test Milton Friedman's permanent income hypothesis, which says that consumers do try to see ahead and act on what they see. The scholars turned to the University of Michigan's Panel Study of Income Dynamics, which has been tracking home buyers for about four decades. The PSID collects multiple details about home purchasers — their level of education, their income the year of a house purchase, the purchase price and what those buyers earn three or five years post-purchase.

The paper's authors looked first at the 1970s, the period when a mortgage was a plain vanilla 30-year fixed contract with a local banker of the very sort Frank longs for. They discovered that sometimes a home buyer who resembled his peer on paper, with similar education and income, bought more house than the peer. This extravagant fellow splurged on a garage, French doors in the kitchen or even a swimming pool.

A few years out, and Mr. Splurger was sometimes earning more than his old peer with the smaller house. So he wasn't Mr. Splurger at all, but rather someone whose purchase reflected an accurate private forecast.

Inefficient Market

There were also those who bought precisely what their peers did, and then went on to earn more than the rest. Their house was smaller than what they turned out to be able to afford. Maybe this mismatch wasn't due to buyer caution. Maybe it was because that local bank hadn't offered this buyer the right kind of mortgage at the right rate. Perhaps that market of plain 30-year products from the local bank wasn't efficient enough.

In the 1980s, the 1990s and this decade, something changed. Americans got better at matching their house purchases with their own future income. The statistical correlation between initial house purchase price and later income levels strengthened mightily, by 80 percent. The data suggest that deregulation and securitization were a key part of this shift.

As a result of this much-maligned phenomenon, the mortgage market began to broaden and deepen, offering buyers ample supply and a cornucopia of products, including some that suited their own career better.

Here's a counterintuitive notion: Perhaps the story of American housing is not that couples in the 1990s bought too much house. It is that their parents bought too little house, and didn't know it.

Imperfect Forecasts

But if consumers are so smart, why did they slip up so badly in this decade, taking out unaffordable home-equity loans, or signing contracts for subprime mortgages?

The answer is that consumers can't always predict the future. They may get two factors right, such as their own house purchase price and their personal lifetime earnings, and then guess wrong on a third factor such as house price movement, the soundness of Fannie Mae, or the reliability of certain credit rating companies.

What matters is not whether home buyers are always brilliant forecasters. What matters is that they forecast at all. The implication of Gerardi-Rosen-Willen is that short-term stimulus measures such as rebate checks (President George W. Bush) or first-time home-buyer tax credits (President Obama) won't have much long-term effect.

The consumer is too sensible to be tricked into buying something more than he otherwise would. What looks like an extra purchase (clunker program) is merely a purchase moved up, or postponed.

Safer Markets

Congressman Frank's idea of making mortgages safe for America sounds cozy. But making a market "safe" involves reconfiguring it in a way that will probably yield more primitive and fewer mortgages — the kind that can't entirely capture buyer potential. That means no French doors and garages, and, for some, no mortgages at all.

It is heresy to say this in the week that Michael Moore's "Capitalism: A Love Story" comes to theaters. But the homeowner now may need more mortgage-related financial products, not fewer.

Gerardi, Rosen and Willen suggest a new instrument that allows Americans to trade home-price risks as they plan for the future. Everyone says confidence is important for recovery, but true confidence isn't merely feeling flush enough to head to the mall. It is the confidence to plan decades ahead. Home buyers have a hard time summoning this kind of confidence when lawmakers insist on babying them.

(Amity Shlaes, author of "The Forgotten Man: A New History of the Great Depression" is a Bloomberg News columnist. The opinions expressed are her own.)

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