Economy Ends Tomorrow! Optimists, Californians Hardest Hit

Matt Welch | July 15, 2008

The Drudge Report today is a festival of economic scare stories: DOLLAR DROPS TO RECORD LOW! LINES FOR CASH IN CALIFORNIA! Which bank next? Stocks stay south on fear! Inflation up at fastest pace in 27 years!

Beyond telling us what we already knew − that Matt Drudge and Andrew Breitbart continue to pack more good headlines above the fold than any newspaper in America − what does this tell us? Perhaps that the surprising (to me, anyway) pessimism expressed by seven libertarian-friendly economic observers in our June issue was warranted.

But the Californian in me wonders if we are all (me included!) addicted to millenarial forebodings of impending collapse, all recent history to the contrary notwithstanding. With rare exception (so rare, in fact, that I can't think of one), panics about the United States being lapped economically by Japan, or Europe, or (soon enough) China, end up looking more than faintly ridiculous. As do most predictions of imminent U.S. demise, such as (to throw out one memorable example) this Esquire cover story by Walter Russell Mead warning that:

[T]he economic crisis now sweeping the planet may be the most important event -- and the most dangerous − since the Second World War. [...]

For twenty-five years, the United States has been using its international influence to make the global economic system more and more like the laissez-faire free-market system of the twenties, and now we've got what we wanted: a system that is free to grow rapidly. And − surprise, surprise − free to crash and burn. [...]

Until a few months ago, most [Asian countries] expected to keep getting rapidly richer. Now most of the overwhelming majority face huge economic losses, and for most of them, hope is quickly disappearing. Anger will take its place, and it is all too likely that political leaders in Asia will seek to direct that anger outward − at the United States and its economic allies, who, after all, shaped the international economic system that produced this collapse. [...]

Stock prices could easily fall by two thirds − that's 6,000 points on the Dow − and it could take stocks a decade or more to recover. Many investors could be destroyed; mass liquidation of mutual funds in a panic could wipe out some funds entirely. The carnage among growth funds and such high-flying sectors as Internet and technology companies would be appalling.... Housing prices would plummet, leaving millions of highly leveraged home and apartment owners sitting on mortgages that are worth far more than their homes. Millions of people would lose their jobs, and tens of millions more would watch their wages drop as employers frantically tried to cut back their payrolls. Many cities would face bankruptcy as their revenues collapsed.

That nightmare scenario was published in October 1998. Since then, Asia has been too busy creating scores of millions of jobs and lifting hundreds of millions of human beings out of poverty to get too pissed off at the U.S. and A. NASDAQ has indeed suffered the predicted collapse, but recovered enough to be higher than it was in October 1998 (as is the Dow Jones industrials index). The median home price in the Bay Area was $272,000 in October 1998; now, in a plunging market, the number is all the way down to ... $517,000. And how many millions of American jobs have been created in the last decade? Still, full-time bears eventually guess right during a downturn.

For the record, as someone who both predicted the dollar collapse and believed fervently in the Y2K bug, I think that things will continue to get worse, especially as the housing mess continues to unwind (not soon enough for renters like me and Paul Thornton!) and entitlements continue to swell larger than Al Gore's neck. But I can't help wonder if that's more about a juvenile fondness for train wrecks than a sober assessment of an economy that, despite its many flaws, has consistently outpaced the doomsayers for what, a quarter century now?

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Technomist|7.15.08 @ 11:57AM|#

Quite right. You guys have got to stop talking your economy down over there.

|7.15.08 @ 11:58AM|#

A ha! But what about the flip side?

Are we, Matt, so numb to doom and gloom predictions that even if the economic apocalypse was coming we wouldn't see it? "They always say that" doesn't mean it will never happen. :)

|7.15.08 @ 12:03PM|#

The free market of the 20's? You mean the one with the prohibition, oppressive vice laws, and burdgeoning underground economy?

Episiarch|7.15.08 @ 12:04PM|#

The economy is a farce, wrapped in a masquerade, smothered in a facade frosting.

TallDave|7.15.08 @ 12:05PM|#

Everything Seemingly Is Spinning Out of Control!

Nigel Watt|7.15.08 @ 12:06PM|#

Maybe this will be the collapse of the monetary system, maybe it won't, but we know it's inevitable.

ed|7.15.08 @ 12:10PM|#

Won't somebody blame the Boomers?

Mike Laursen|7.15.08 @ 12:12PM|#

The Bay Area housing market is atypical of the rest of the country. Lots of well-paying jobs from the concentration of the entrepreneurial and relatively unregulated software industry. Combined that with lots of land use restrictions that effectively prevent much new housing.

There's at least one other area like that in California. In the L.A. beach cities it's a combination of entertainment industry boom and land use restrictions.

Matt Welch|7.15.08 @ 12:23PM|#

Mike -- Yeah, but the Bay Area was what came up when I Googled "October 1998" and median house prices!

Are we, Matt, so numb to doom and gloom predictions that even if the economic apocalypse was coming we wouldn't see it?

This is an excellent point!

Fluffy|7.15.08 @ 12:32PM|#

I think that the worst is not over for stocks, but that many statistical measurements of economic performance should begin to stabilize.

Unless food and energy prices double again, most of the headline-number inflation from these items has already been digested by the markets statistically. Every day that passes now brings us a step away from the danger of those price increases being reflected in core inflation.

[Yes, yes, I know that even discussing the fiat currency in its own terms is a sin against goldbuggery. But I feel to need to address the actual economic situation for a moment.]

Once headline and core inflation start to subside, the dollar should stabilize. Especially since growth is abating in the Euro zone and the ECB will be entering into a loosening phase pretty soon. Those events alone take a lot of the pressure off of the Fed.

Taktix®|7.15.08 @ 12:34PM|#

If you want to know where all this crying-wolfism is coming from, simply look at who stands to benefit.

Look to 9-11 as an example -- when people are scared, they give more power to the government to fix it.

Drudge and Breitbart are just getting orders from their neo-con master to pound the "collapse drum" as loudly as they can, so we don't notice things like the nationalization of major banking institutions.

It's fascism, any way you slice it...

Jennifer|7.15.08 @ 12:43PM|#

But I can't help wonder if that's more about a juvenile fondness for train wrecks than a sober assessment of an economy that, despite its many flaws, has consistently outpaced the doomsayers for what, a quarter century now?

But there are a lot of factors now different from the last quarter century. The US has an insane amount of debt; countries like China and India provide far more competition for world resources; world oil supplies are shakier than they've ever been; and even if there were plenty of oil left, this whole "oil bourse" thing scares the hell out of me.

(It's only within the past couple of years that I learned how the US dollar has been artificially propped up by being the sole currency countries throughout the world could use to buy oil. And I'm shaking my head in disbelief: who the hell thought it would be a good idea to have the stability of our currency dependent on a natural resource whose supply is largely controlled by religious fanatics on the opposite side of the world who tend to hate our guts? But now it looks likely that oil will soon be traded in a currency other than US dollars, and when that happens I suspect the dollar will drop like a stone.)

bernd|7.15.08 @ 12:43PM|#

It's really an interesting question - it's quite obvious to everybody who isn't Paul Krugman that the current economic regime isn't quite tenable in the long run (which Keynes himself all but admitted with his "long run" quip).

On the other hand quite a number of major crises has (more or less) fizzled out, mostly by inflating the heck out of the economy, at the price that a major contraction would become more and more painful; so often in fact that the question if that can't be done indefinitely is not obviously trivial.

For all the problems and terrible consequences of wealth destruction, what I'm sceptical about is that the consequence of crisis is war, as somewhat insinuated with things like "since WWII". WWII came out of crisis, but WWI came out of stability and prosperity. Humans are inverse Ferengi that way: "Good business is good for war. Bad business is good for war."

some sense|7.15.08 @ 12:46PM|#

Here we go again....

Reminds me of the economist of whom it was said he predicted 8 of the last 4 recessions..

Drudge and Breitbart getting orders from their neo-con master? Ummm... it is the Democrats who are mostly beating the "economy sucks" drum......

Taktix®|7.15.08 @ 12:55PM|#

Drudge and Breitbart getting orders from their neo-con master? Ummm... it is the Democrats who are mostly beating the "economy sucks" drum......

I meant to type "masters," but point being, it is in both parties' interests to have us scared shitless.

I stopped making distinctions between the "two" parties a long time ago...

|7.15.08 @ 12:56PM|#

Are we even technically in a recession yet?

I hear tons of doom and gloom. Certainly it seems like it ought to be awful times; housing is going through the ringer, the domestic automakers are having to disavow their intent to file for bankruptcy, gas is $4.00.

I mean, sure seems like we should not be growing at all; but unemployment is around 5% and we're posting really weak positive numbers in growth. So its far from GOOD, but it ain't all that horrible either.

So I'm thinking the doomsayers are overreacting.

And even if the dollar does go farther down, the silver lining is that we'll actually be able to export a lot more stuff. And maybe make some more stuff @ home w/o the need for protectionist bull.

|7.15.08 @ 1:03PM|#

Matt,

Thank your for YOUR headline.

No Name Guy|7.15.08 @ 1:04PM|#

Toxic-

We never know if we are officially in a recession until after the fact.

Invisible Finger|7.15.08 @ 1:04PM|#

The economy ALWAYS sucks if you don't have any money.

Save for a rainy day? Why, that's what loans are for! Whaddaya mean there's a credit squeeze?

Don't put all my eggs in one basket? Houses ALWAYS appreciate in value! Whaddaya mean my HELOC has been reduced?

Buyer beware? That's what the court system is for! Whaddaya mean my lender is foreclosing on me?

|7.15.08 @ 1:14PM|#

Just as it signals a market peak when your gardener starts giving you stock tips, it probably signals a bottom when economic ignoramuses (like McCain) start talking about an economy in shambles. I'm starting to commit some cash to pounded down sectors like banks, betting that the markets are pretty close to bottom now.

|7.15.08 @ 1:25PM|#

Fannie Mae and Freddie Mac have something on the order of $5 Trillion in mortgage debt which may be in whole or in part eaten by taxpayers. Fake wealth driven by HELOCs is quickly evaporating, and of course the commuter tax (gasoline) and freight tax (diesel) have gone up dramatically. How long will China be willing to accept devaluing Ameros for their goods? What assets will they buy in the USA with them? GM? Ford? Moneycenter banks? Overpriced real estate (like the Japanese)? The only saving grace is at this point China can't consume enough to guarantee the 5m jobs a year it needs to add in order to keep the populace politically quiescent and controllable.

Also, California isn't just SD/LA/SF, there's the Inland Empire and other areas that are just simply collapsing and morphing into Mexifornian ganglands, 5 more years and they'll be favelas..

The economy will never get as bad as its predicted and never as good as its hoped for. We will ocntinue to muddle around in the middle.

However, there is a coming oil crunch and I doubt it will be painless.

|7.15.08 @ 1:31PM|#

"How long will China be willing to accept devaluing Ameros for their goods? What assets will they buy in the USA with them?"

I guess they can not accept our dollars and stop selling us stuff and the 100 million or so Chinese whose livelyhoods depend on exports to the US can go back to living in trees I guess. People always forget that the seller is more dependent on the buyer than vice versa. The buyer can always learn to live without the product. A seller without a buyer has to find a new way to make a living.

There is no arguing with the "world is going to end" crowd. Right now we have an economy with 5% unemployment and moderate growth. There have been better times for sure, but to call this bad times, is pretty stupid.

|7.15.08 @ 1:32PM|#

Also, California isn't just SD/LA/SF

As someone who grew up in San Joaquin county, I thank you.

As I understand it, my former hometown is now along the lines of 30% vacant. And still as damnably hot as ever.

creech, I'm holding onto my cash until after the election and (if Obama wins, longer than that, given the likely impact his capital gains tax hike will have on the markets). I just don't see any upside until we get the election uncertainty behind us, and until the market digests a big cap gains hike.

No Name Guy|7.15.08 @ 1:34PM|#

John-

Its best to take official government numbers with a grain of salt. And we don't have moderate growth--last quarter was essentially flat.

No Name Guy|7.15.08 @ 1:37PM|#

Flat according to govt numbers, which are probably tweaked.

|7.15.08 @ 1:41PM|#

"Its best to take official government numbers with a grain of salt. And we don't have moderate growth--last quarter was essentially flat."

The numbers are not tweaked. They are made by bureaucrats at the Department of Labor who couldn't give a rats ass about their political effects. If the Bush Administration was tweaking the numbers, there would be about 100 people running to get on 60 minutes and squeel. It is not like they wouldn't get a sympathetic hearing from the media.

As far as "growth being flat" flat growth is not even a recession much less a depression. A recession is consectutive (I forget how many) quarters of contraction. We are not even technically in a recession right now. Further, even if we were, it is a pretty light one. You want to see a recession, go look at 1982 sometime.

|7.15.08 @ 1:42PM|#

Jeez. The silence of the reasonoids and Ayn Rand cult followers is deafening. You People (tm) should be loudly insisting that the government do nothing about the mortgage lending crisis. Bueller? Bueller?

Check http://www.thehousingbubbleblog.com . Folks there are pretty loudly (and rightfully) scathing in their judgement of Alan Greenspan, "Helicopter" Ben Bernanke, and all manner of proposed interventions. Even the pinkest of pinko commenters on that blog feel that any gummint bailouts would only end up lining the pockets of irresponsible financial companies and their shareholders...

IMO there is no such thing as 'too big to fail', investment banks and hedge funds should all collapse and merge as determined by the free market, and RE prices should collapse back to the point where they are within 2-3x median wage of their zipcode's family incomes (they'll probably, hopefully, overshoot first).

Paul|7.15.08 @ 1:44PM|#

and believed fervently in the Y2K bug

Oh geez, Matt, say it ain't so.

I guess everyone gets one transgression.

No Name Guy|7.15.08 @ 1:45PM|#

I didn't say we were in a recession. I don't know if we are--again we don't know until after its already happened. But if I played the predictions markets I'd bet money on it, since the odds on in-trade are pretty good.

But growth isn't "moderate" as you said--that would be 2-3% growth. Growth was 0.9%, and it may be revised downward. That means the private sector is flat. Even the amount of growth that did happen is from military spending, ethanol subsidies and other government programs.

|7.15.08 @ 1:45PM|#

God Bless you, Dr. Noisewater!

No Name Guy|7.15.08 @ 1:47PM|#

And the numbers on inflation ARE tweaked, because they exempt so many categories from consideration (food, energy) because they're "volatile". Nevermind there are things people NEED.

Paul|7.15.08 @ 1:49PM|#

You People (tm) should be loudly insisting that the government do nothing about the mortgage lending crisis.

We people are. It's falling on deaf ears though.

|7.15.08 @ 1:53PM|#

Granted the inflation numbers are tweaked by not including commodities. I have always objected to that. Yes, growth is flat and if that contintues and we end up looking like Japan in the 1990s, that is a problem. But even Japan has come back from that. In some ways, a few quarters of stagnant growth might be good in the long run. It forces us to face our problems. When times are good no one ever looks at the long term issues. Things like Fannie Mae and the real estate bubble have been building for years and are not going to get better by ignoring them.

No Name Guy|7.15.08 @ 1:56PM|#

John I think 1990s Japan is where we are headed too. It won't be particularly severe, but it will be a long period of a flat economy. Not declining, just flat, and it will remain so until our dollar strengthens and we solve the energy issue.

|7.15.08 @ 1:57PM|#

I guess they can not accept our dollars and stop selling us stuff and the 100 million or so Chinese whose livelyhoods depend on exports to the US can go back to living in trees I guess. People always forget that the seller is more dependent on the buyer than vice versa. The buyer can always learn to live without the product. A seller without a buyer has to find a new way to make a living.

IMO the saving grace is that Europe is just as f--ked as we are as far as the housing bubble goes.. But when the dollar loses its status as reserve currency for oil or other international trade, and China shifts gears to export predominantly to expanding markets in India and Brazil, as well as focuses its attention more on Europe, where does that leave the US?

China allows the US to use it as an inflationary heatsink in order for the Communist Party to be able to provide jobs and maintain its power. I doubt they like the situation much, and with the rest of the world (particularly India and the less-assholish middle east) starting to climb the quality-of-life ladder, they'll have more of a choice in the matter.

You'll know the jig is up when the RMB is allowed to float completely freely in the world currency exchange. The official rate is about 6.8 to the dollar, but it's "true" value is more like 2 to the dollar... How much US inflation is that masking?

http://en.wikipedia.org/wiki/Renminbi#Purchasing_power_parity

Travis|7.15.08 @ 2:03PM|#

America is an empire now & like all empires the health of the empire is how strong the military is. As long as our military is the most powerful in the world we will have a somewhat decent economy.

No Name Guy|7.15.08 @ 2:04PM|#

I think its the other way around, travis.

As long as we have a strong economy, we will have a strong military. If nothing else, the USSR should have taught us this.

|7.15.08 @ 2:05PM|#

and believed fervently in the Y2K bug

Oh geez, Matt, say it ain't so.

Well, full disclosure, I did some Y2k work back in 1997-1998, and I did see some fun stuff from not only internally-hacked scripts but vendor scripts as well.. Things that were on Unix boxes (which are not supposed to have difficulties until 2038), things that would do stuff like delete all backups after 12/31/99 since they used the C 2-digit year lazily instead of using it as intended (by adding 1900 to it).. Deleting all backups on a financial institution's server...

A lot of money was spent, and nothing bad happened. IMHO, that means "mission accomplished". It was definitely soul-crushing work though (the shirt & tie financial idiocy part, not necessarily the Y2k doom part) and the sort of stuff I saw in this institution and the way they did business scared the bexenu out of me.. Made me wonder how people could be that incompetent and still be able to breathe without mechanical assistance, let alone turn profits that would make Croesus blush...

|7.15.08 @ 2:06PM|#

But there are a lot of factors now different from the last quarter century. The US has an insane amount of debt; countries like China and India provide far more competition for world resources; world oil supplies are shakier than they've ever been

We had a huge amount of debt in the 80s and it was Japan fighting us for resources, real gold prices were at about the same level, inflation was well into double digits, we had just come out of an oil crisis and there was a war going on between two members of OPEC. Everything old is new again.

No Name Guy|7.15.08 @ 2:12PM|#

Japan didn't have a population of 1 billion.

India and China together are 2 billion. Now, imagine if they all had an American standard of living.

Travis|7.15.08 @ 2:12PM|#

No Name Guy,

I agree with you.

But I also think the naval fleets deployed in the Arabian Sea & elsewhere in the world have a big effect on Saudia Arabia not switching their oil market to Euros & destroying the value of the dollar.

No Name Guy|7.15.08 @ 2:15PM|#

Travis, thats certainly why Venezuela doesn't do everything their leader yammers on about.

Matt Welch|7.15.08 @ 2:16PM|#

India and China together are 2 billion. Now, imagine if they all had an American standard of living.

You mean 2 billion people living in wealth and freedom and comparative good health? MAKE IT STOP!!!

Nigel Watt|7.15.08 @ 2:18PM|#

If Venezuela did everything Chavez mentions, it would be Zimbabwe: Electric Bugaloo.

No Name Guy|7.15.08 @ 2:19PM|#

Matt-

I have nothing against that. I think it can happen, but theres going to need to be a hell of a lot of innovation on using resources more efficently.

|7.15.08 @ 2:21PM|#

Russell Mead is quoted as writing, "For twenty-five years, the United States has been using its international influence to make the global economic system more and more like the laissez-faire free-market system of the twenties, and now we've got what we wanted: a system that is free to grow rapidly. And − surprise, surprise − free to crash and burn."

Surprise, surprise, yet more blamed heaped on "the free-market system" when the conditions are not even close to "free-market" but are rather tightly managed through trade agreements.

First, the regulators squeeze the market into a straitjacket for a few years or decades, then, when it is clear that this is going to lead to big problems, they release pressure in a way that is seemingly calculated (and certainly guaranteed) to bring out the worst in the market participants, leading to reckless excess. Finally, when the inevitable crash or other serious complications occur, they blame the evil free market, use that as an excuse to take away more freedom and appropriate more resources, and then reboot the cycle for another spin.

You know, the first couple of times I saw that little scam play out, I was fascinated at its audacity and reliability. Genius! But now I'm just angry at how silly the public is, for letting the pols run their little game so often, in so many contexts. Also, at media people, such as Mead, who trot out the anti-market "moral of the story" like clockwork. If these guys ever understood, much less told, the larger story, I think I would fall off my chair.

Episiarch|7.15.08 @ 2:25PM|#

James, people like Mead see the current system as "too free", so of course he refers to it as "laissez faire".

If he ever saw a true free market his head would probably explode.

|7.15.08 @ 2:26PM|#

India and China together are 2 billion. Now, imagine if they all had an American standard of living.

Definitely a feature, not a bug.

No Name Guy|7.15.08 @ 2:29PM|#

Did you just discover an unlimited source of cheap energy RC Dean? Please share.

No Name Guy|7.15.08 @ 2:30PM|#

Make that cheap, unlimited, and clean.

Nigel Watt|7.15.08 @ 2:31PM|#

Solar will start looking might cheap soon.

*mighty

|7.15.08 @ 2:33PM|#

Speaking of China...You guys who are confused because it sure seems like the economy sucks but "gee the government says we have 5% unemployment and inflation is only 2%"....you are the same type of people living under Mao's starvation who said "gee it looks like nobody grew any crops this year after our land was confiscated and what did grow all got sent to a government warehouse, but the government is reporting a record harvest! so things must be ok.

Do you understand what it means if the dollar falls another 50%? "and you get to work and make stuff again?!?" that means you won't be dorking around on the internet with some cushy job anymore...you'll have to go do work at a factory to pay for food and electricity.

The fiscal/monetary policies are in shambles and the only solutions I see mentioned by the MSM and politicians is complete socialism...1920's was the first full decade of the federal reserve...not realy what I'd call capitalism. Unless self proclaimed libertarians become a little more free market oriented then we are screwed....or at least you are....I've got my commodity & short dollar hedges.

|7.15.08 @ 2:34PM|#

We had a huge amount of debt in the 80s and it was Japan fighting us for resources, real gold prices were at about the same level, inflation was well into double digits, we had just come out of an oil crisis and there was a war going on between two members of OPEC. Everything old is new again.

Glass-Steagall was still in effect in the 80s. And its repeal, which essentially allowed people to 'play' the housing market like the stock market as well as have 'margin' trading at levels that would make 1929 blush. I don't recall stories in the '80s of strawberry picking illegals qualifying for $400k+ mortgages with zero money down and no checks. Google the term 'NINJA loan' (No Income No Job No Assets). Google 'Casey Serin'. Google 'McAllister Ranch'. Also, thanks to the creativity of newly-liberated investment banks' ability to slice and dice mortgage debt into CDOs and 'sell' them to SIVs, and the complicity of the ratings agencies in perpetuating the fiction that the quality of the contents of CDOs could be melted together like a multi-cheese fondue, there is more funny money out there than most folks can comprehend.

Now, my opinion is that the folks who signed up for these loans were either idiots or geniuses (as a no-money-down loan in a non-recourse state like CA means you can just walk away from the house and loan, take the credit hit for a few years, and be fine), and the folks making, rating and repurchasing the loans were most definitely greedy pigs who deserve to be slaughtered, and all deserve to lie in the beds they made, and those of us who looked on in expressions ranging from shock to bitterness to bemusement as we rented for less than the cost of owning _should_ not have to pay one red cent for them.

But we will. Because in this country at this time, Democracy has boiled down to two wolves and a sheep voting on who's for dinner.

Jennifer|7.15.08 @ 2:37PM|#

India and China together are 2 billion. Now, imagine if they all had an American standard of living.

I don't think that's possible, even assuming they have the ideal governmental/economic setup. Remember the old saying "America has five percent of the world population and consumes 25 percent of world resources?" So the American standard of living requires each person consume five times "his fair share" (for lack of a better phrase) of resources.

That can't happen for the entire world. I think we'll reach some sort of equilibrium where the material standard of living is noticeably better than what the average Indian or Chinese enjoys today, but noticeably worse than what the average American has.

|7.15.08 @ 2:40PM|#

Did you just discover an unlimited source of cheap energy RC Dean? Please share.

Got my fingers crossed for Bussard electric fusion, but in the meantime, I'd say nucular/nanosolar/wind in that order, with a $4/gal federal tax on petroleum-based gasoline to subsidize them, pay down the debt, and offset spending on the military to cover access to oil and freedom of the seas.

Because libertarian or no, as an American I would rather see that money spent in my country than in Saudi, Venezuela, et al. If we're gonna subsidize anyone, it should be Americans.

|7.15.08 @ 2:41PM|#

I enjoy Drudgereport as much as anyone, but seriously the running theme is the same from day to day: "Apocalypse is IMMINENT"

Nigel Watt|7.15.08 @ 2:43PM|#

So the American standard of living requires each person consume five times "his fair share" (for lack of a better phrase) of resources.

If consumption is a zero-sum game, yes. It isn't.

|7.15.08 @ 2:44PM|#

Remember the old saying "America has five percent of the world population and consumes 25 percent of world resources?" So the American standard of living requires each person consume five times "his fair share" (for lack of a better phrase) of resources.

The US also produces about 25% of the world's goods and services. How about we let the market decide what a 'fair share' is, and who gets it? Maybe by using prices, so that if a nation is not producing its 'fair share', its costs of consuming more than its 'fair share' go up?

Look at the price of gas. This is happening right now! Adam Smith > Jeffrey Sachs!

Travis|7.15.08 @ 2:45PM|#

"If consumption is a zero-sum game, yes. It isn't."

There's always Soylient Green.

No Name Guy|7.15.08 @ 2:46PM|#

Dr. Noisewater-

The problem with your gas tax is that it would wreck the average suburban family that has to drive even to buy food! 50 years of bad urban planning are coming back to haunt us.

Jennifer|7.15.08 @ 2:47PM|#

My use of the phrase "fair share" was not meant to imply that everything should be equally divided. But if India and China had identical standards of living, it would be "India and China have one-third of the world population and consume five-thirds of the world's resources." Not possible.

Nigel Watt|7.15.08 @ 2:48PM|#

Jennifer: The world would have to produce more resources, ie, we would have to utilize more renewable resources. There isn't a finite amount of awesome in the world.

Jennifer|7.15.08 @ 2:52PM|#

There isn't a finite amount of awesome in the world.

Nor is there an infinite amount of material resources.

Travis|7.15.08 @ 2:53PM|#

"My use of the phrase "fair share" was not meant to imply that everything should be equally divided. But if India and China had identical standards of living, it would be "India and China have one-third of the world population and consume five-thirds of the world's resources." Not possible."

You are assuming that the production of consumptionn goods will stagnate where it is now & not increase in the future. You might be right, but in recent history production has always increased to meet demand.

Nigel Watt|7.15.08 @ 2:56PM|#

Nor is there an infinite amount of material resources.

No, which is why more renewable resources will need to be used, as I said.

Jennifer|7.15.08 @ 2:57PM|#

in recent history production has always increased to meet demand.

But that doesn't mean recent history is some sort of natural law, nor that "How things were is how things forever shall be."

|7.15.08 @ 2:57PM|#

The problem with your gas tax is that it would wreck the average suburban family that has to drive even to buy food! 50 years of bad urban planning are coming back to haunt us.

Let 'em eat hybrid. Or shopping-pool with their neighbors, if they even know their neighbors. Or buy from a supermarket that does home-delivery (several do here in northern DE).

The one hope I'd have for a democratic monopoly on the levers of power would be to see petroleum-based gasoline get abused pretty hard with taxes, exempting fuels derived from 'waste' cellulose or atmospheric CO2 reclamation, and diesel (which is priced into every product you buy). I tend to find that hope a bit 'cut off your nose to spite your face' though.

No Name Guy|7.15.08 @ 2:59PM|#

Noisewater-

I live in the city so I would be impacted hardly at all. But I just don't think its the fault of people in rural and suburban areas that some pointy-headed beaurocrats banned high density development that led to sprawl.

|7.15.08 @ 3:01PM|#

But I just don't think its the fault of people in rural and suburban areas that some pointy-headed beaurocrats banned high density development that led to sprawl.

Who voted for 'em?

No Name Guy|7.15.08 @ 3:03PM|#

"Who voted for 'em?"

Their "Greatest Generation" parents and grandparents who are dead or dying voted for the people who appointed them.

But that leads to another point--high density development should be the future. The suburbs must die.

|7.15.08 @ 3:05PM|#

# Ray Butler | July 15, 2008, 1:31pm | #

# Jeez. The silence of the reasonoids
# and Ayn Rand cult followers is deafening.
# You People (tm) should be loudly insisting
# that the government do nothing about the
# mortgage lending crisis. Bueller? Bueller?

Hey Ray, check this out: http://www.lp.org/news/press-releases/let-them-fail

I include the Libertarian Party amongst your classification of "Ayn Rand cult followers" because I have heard LP Presidential candidate Bob Barr reference Rand and recommend "Atlas Shrugged" several times in recent TV interviews.

This year, if you want to take a stand against government intervention in the economy and corporate welfare, your main choice seems to be LP.

No Name Guy|7.15.08 @ 3:05PM|#

|7.15.08 @ 3:13PM|#

"But that leads to another point--high density development should be the future. The suburbs must die."

The future should be people should live wherever the hell they want to and can afford to. IF oil is truly running out then the market will account for that through price and people will adjust their behavior according to their means and tastes. The last thing anyone needs is people like you and Noisewater living out your totalitarian fantasies and controling how they live.

Jennifer|7.15.08 @ 3:14PM|#

of course, it also would have helped if people weren't so scared of sending their children to school with black people in the 60s that the middle class never moved out of the cities in the first place.

Oooh, yes, this discussion was definitely lacking the all-important race card. I don't suppose it's possible that some of those people went to suburbia because they thought "Wouldn't it be nice if my kids could play in a big back yard rather than an urban fire escape?" or "Gee, I sure wish I could have a flower garden rather than a window box?" No, no, the only reason any white person would want to leave the city is because he's racist. And the only black people who want to leave the cities are Uncle Toms. And suburban Hispanics are all undercover agents for the "give the US back to Mexico" forces.

I haven't figured out why East Asians live in suburbs, but I'm sure it's something equally insidious.

No Name Guy|7.15.08 @ 3:15PM|#

John-

Its the government that forbid high density development, not the market.

|7.15.08 @ 3:15PM|#

"of course, it also would have helped if people weren't so scared of sending their children to school with black people in the 60s that the middle class never moved out of the cities in the first place."

No it would have helped if bureaucratic ineptitude and academic fads hadn't destroyed big city schools in the 1970s. The generation that has kids now doesn't care about their kids going to school with black kids. But they won't move to the cities because the schools there suck. Fix the schools and they would return.

No Name Guy|7.15.08 @ 3:16PM|#

". The generation that has kids now doesn't care about their kids going to school with black kids. But they won't move to the cities because the schools there suck. Fix the schools and they would return."

No argument there at all.

|7.15.08 @ 3:16PM|#

"John-

Its the government that forbid high density development, not the market."

Bullshit. Like it or not but people in post war America were tired of high density and wanted out of the cities and a house and some space of their own. That wasn't government that was the market. Most people, once they have kids and get out of their 20s don't want to live in high density areas. Just because you don't like that preference, doesn't mean that you should force your preference down people's throats.

No Name Guy|7.15.08 @ 3:19PM|#

Really John? Try building a high-rise apartment in a suburb of a metro area.

Hell try building a structure taller than 11 stories in downtown Washington. You can't, because the zoning forbids it.

No Name Guy|7.15.08 @ 3:21PM|#

Laws mandating that the only residential structure that can be built in a given area are single family detatched homes on a 1/2 acre or bigger lot isn't the market, its big government.

|7.15.08 @ 3:24PM|#

"Laws mandating that the only residential structure that can be built in a given area are single family detatched homes on a 1/2 acre or bigger lot isn't the market, its big government."

So you are saying there are all these people out living in houses because they can't find highrise appartments to live in? I don't buy that. If those laws didn't exist, we would have appartments in different places but not neccessarily more appartments or fewer people living in homes.

|7.15.08 @ 3:26PM|#

Imperious teachers' unions = bad schools (youtube John Stossel and schools, see how they work in the Netherlands with vouchers). I was hoping to see more progress after Bloomberg smashed the Board of Ed, but alas not so much yet.

Sprawl was subsidized by the redlining of loans to inner cities, but even with that suburbanization and the chance to 'homestead' cheaper tract housing and taking advantage of 'cheap' gas and highways makes sense, until it doesn't.

It doesn't anymore because the world has changed. Adapt or die. It's not my job to make your life easier, nor is it yours mine.

No Name Guy|7.15.08 @ 3:28PM|#

"
So you are saying there are all these people out living in houses because they can't find highrise appartments to live in?"

There are a lot of people who wouldn't mind living in a 2-bedroom condo or three bedroom townhome so they could be closer to work and have less of a commute.

But since theres no affordable housing near their work in a decent school district thanks to government-mandated low density sprawl in the suburbs, they live 50 minutes out from where they work because thats the only place they can afford.

"If those laws didn't exist, we would have appartments in different places"

Thats the idea. Mixed development instead of "one area low density only, another area high density only" etc.

Jennifer|7.15.08 @ 3:28PM|#

John, why are you falling into the false "all or nothing" dichotomy? Yes, there are many people who sincerely prefer detached single-family homes to high-rise apartments. And there are many, MANY places where detached single-family homes are the only ones you can legally build. Most of the towns in my area require homes to be a minimum size AND be on a minimum-sized lot.

As a member of a two adults/no children household, if I want to buy a house in my area, my only two choices are: buy a house at least twice as large as what I want, or buy a house that's over 60 years old. I can't buy a new house of a size I'm looking for, because it's illegal to build one.

|7.15.08 @ 3:33PM|#

Did you just discover an unlimited source of cheap energy RC Dean? Please share.

Yes, I have. It's called "science and technology". It hasn't failed us yet, despite centuries of doomsaying.

Nor is there an infinite amount of material resources.

There is, practically speaking, you know. Just not here on this planet.

Russ 2000|7.15.08 @ 3:37PM|#

things that would do stuff like delete all backups after 12/31/99 since they used the C 2-digit year lazily instead of using it as intended

In the 80's I worked on a system that used 1-digit years, a system built back when disk space was more expensive than programmers. Every 5 years the programs had to have logic flip-flopped to handle the change in decade, first to handle new invoices, then to handle old stragglers. So I had my Y2K experience back in 1988.

|7.15.08 @ 3:38PM|#

Jennifer,

Why not buy a house that is 60 years old? Mine was built in 1937 and has a hell of a lot more character and charm than the oversized dollhouse craftsman they keep throwing together. Further, the condo market all over America is tanking. Here in DC you can buy a condo cheaper than you can rent and the Condos are right by metros and right near where the jobs are. Further, many of them are in areas like Bethesda where the schools are very good.

As far as your situation, how many people are actually in your situation? How many people would actually buy a condo in your area? More importantly, the lack of condos hasn't seemed to have stopped you from living in the area. How would building them change where you live or the amount of gas you use? Where do you work? Do you currently live where you work? Are there a lot of people who work in your area but live elsewhere and commute because they can't find affordable housing?

Maybe there are but if there are, your area is rare. The places where there are restrictions on condo and apartment building tend to be bedroom communities where people live and commute to work. If you allowed high-rises and more people to live there, you would just have more people commuting and not necessarily save any energy use.

Tim Cavanaugh|7.15.08 @ 3:41PM|#

Oh foul, sir!

Using the old wrongheaded-chestnut-that-sounds-like-it-was-ripped-from-today's-headlines trick?

And against Walter Russell Mead, a genius so magnificent he has three names?

Well played!

I mean, have you no sense of decency, sir, at long last?

|7.15.08 @ 3:42PM|#

if I want to buy a house in my area, my only two choices are: buy a house at least twice as large as what I want, or buy a house that's over 60 years old. I can't buy a new house of a size I'm looking for, because it's illegal to build one.

Sounds like it's time to strap on those voting shoes...

(spoken as someone who did about 2 years ago... Xenu bless America...)

Invisible Finger|7.15.08 @ 3:44PM|#

I live in the city so I would be impacted hardly at all.

When the city raises taxes to pay for pensions it can't fund, you'll be impacted.

Jennifer|7.15.08 @ 3:45PM|#

Why not buy a house that is 60 years old?

You're missing the point, John: it is against the law to build a new house of a size that I want.

|7.15.08 @ 3:45PM|#

And against Walter Russell Mead, a genius so magnificent he has three names?

Genius.. Or LONE GUNMAN?

TallDave|7.15.08 @ 3:47PM|#

You're missing the point, John: it is against the law to build a new house of a size that I want.

Then build it somewhere else that has different laws. I wouldn't want smaller homes by me.

Jennifer|7.15.08 @ 3:49PM|#

Then build it somewhere else that has different laws. I wouldn't want smaller homes by me.

Ah, yes, and let's not forget the libertarian view of legitimate purposes of government: to pass laws regulating the size of your neighbor's house.

|7.15.08 @ 3:49PM|#

When the city raises taxes to pay for pensions it can't fund, you'll be impacted.

Attention CalPERS shoppers: the Orange County fiasco will be as like a sneeze compared to the coming bubonic plague... Death of Prop 13 in 5.. 4.. 3..

http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=aW5vEJn3LpVw

And how much development has CalPERS backed in the outlying areas of CA, for political/patronage/corruption reasons as much as any expectation of profit...

|7.15.08 @ 3:50PM|#

I wonder: if single family homes were banned in 90% of the land area of John's state, the way multi-family homes are banned in most of the country, would he be telling us that the regulation has only moved around the number of SFHs, rather than reducing it?

|7.15.08 @ 3:55PM|#

Ah, yes, and let's not forget the libertarian view of legitimate purposes of government: to pass laws regulating the size of your neighbor's house.

But when 51% of your neighbors know what's best for you, you're SOL.. If it were me I would (and did) find new neighbors, but at this point in my life I just don't have the heart to go tilting at windmills alone..

My parents voted against every raise in school taxes for the last 15 years they lived in Westchester NY, then they finally ended up moving, their prop taxes went from $21k/yr to $6k... Shoulda done it the day after my brother graduated high school (and judging by the way he was treated, they should have moved somewhere and transferred him years before that!)..

Maynard G. Krebs|7.15.08 @ 3:56PM|#

Do you understand what it means if the dollar falls another 50%? "and you get to work and make stuff again?!?" that means you won't be dorking around on the internet with some cushy job anymore...you'll have to go do work at a factory to pay for food and electricity

WORK?! aaaaaaaaagggggggghhhhhhhhhh

No Name Guy|7.15.08 @ 3:57PM|#

So I, the one with "totalitarian fantasies" am advocating the removal of government restrictions, while it seems like John wants to keep them in place.

Yeah, that sure makes sense!

TallDave|7.15.08 @ 3:57PM|#

Ah, yes, and let's not forget the libertarian view of legitimate purposes of government: to pass laws regulating the size of your neighbor's house.

Yes, that's called "protecting my property rights." No one's saying my neighbor can't go build a house where it doesn't hurt my property values.

Episiarch|7.15.08 @ 3:57PM|#

There are plenty of condos in East Windsor, Manchester, and Glastonbury, Jennifer. And you can always buy a small shitty house in East Hartford.

No Name Guy|7.15.08 @ 3:59PM|#

Uh, Dave, New York City has the highest property values in the world, and Manhattan is not an island of sprawling, sing family homes on 1/2 acre lots.

Episiarch|7.15.08 @ 4:00PM|#

My parents voted against every raise in school taxes for the last 15 years they lived in Westchester NY

My property taxes in Orange County, NY were $10,000 per year after they decided to build a new $30 million school. The vote failed, so they...just kept holding it until it passed.

I moved.

TallDave|7.15.08 @ 4:05PM|#

My property taxes in Orange County, NY were $10,000 per year after they decided to build a new $30 million school. The vote failed, so they...just kept holding it until it passed.

Heh, same tax situation here... and on top of that, they send kids around crying poor, claiming they need donations to pay for books. It's obscene.

They really are building schools mostly for the benefit of the educracy now. Students and education are an afterthought. Only vouchers will fix this.

Russ 2000|7.15.08 @ 4:07PM|#

You're missing the point, John: it is against the law to build a new house of a size that I want.

Let me channel lonewacko...

The smaller the house, the less likely 5 Mexican families will move into it. Blame the Mexicans for these insane zoning laws.

|7.15.08 @ 4:09PM|#

My property taxes in Orange County, NY were $10,000 per year after they decided to build a new $30 million school. The vote failed, so they...just kept holding it until it passed.

That's the MO they had where my folks lived as well. And my dad was a volunteer vote worker (would set up and put away voting machines at the local elementary school stage) even.. But they moved to Columbia County and now they have a fertile victory garden, well water, and a rural (for NY) tax bill. The NYT keeps trying to push the Berkshires as the Next Big Thing, the swines.. At some point the locusts will come up year-round and start demanding everything and everyone pay for it..

(and they're not terribly fond of warm weather, and NY doesn't tax income from NY civil service pensions... If property taxes end up pushing $10k then it'd make more sense to come down here and pay income tax but have like $1k property tax..)

For the record I am against building restrictions for the most part. There are cases where there are externalities. For example, if you build a high-rise, the developer ought to be on the hook for funding infrastructure upgrades that come along with it. For example, where my parents used to live in a bedroom community, the developers came in and bought off the city council and built one new addition after another but did nothing to upgrade the roads and created a traffic mess ruining the quality of living for the people living. If you want to get rich selling condos, fine, but cough up some money to upgrade the roads and the infrastructure to go with it.

My main point is that getting rid of these restrictions is not going to change people's living habits that much. Most people do not want to live in an apartment and want a home of their own. Other restrictions such as lot size restrictions do create sprawl. But, the fact remains that we have sprawl because people like to live that way, not because they were forced to by government regulation. That is hard for some cosmopolitans out there to understand because the suburbs are a strange and alien culture to them. But, if you get out there in them, you find that most people live there as opposed to the center city and live in homes as opposed to high density developments because that is what they like. No amount of changes in government regulations is going to change that.

|7.15.08 @ 4:10PM|#

The smaller the house, the less likely 5 Mexican families will move into it. Blame the Mexicans for these insane zoning laws.

The bigger the house, the more likely 10 Mexican families will move into it. I'm looking at YOU, Temecula...

|7.15.08 @ 4:13PM|#

"Heh, same tax situation here... and on top of that, they send kids around crying poor, claiming they need donations to pay for books. It's obscene."

One of my best friends is a teacher in Katy, Texas, which is a very rich bedroom community outside of Houston. The schools there are obscene. They have basketball gyms that are nicer than most college gyms were back in the day. They have full audio TV studios where you could edit Star Wars if you wanted to or re-record Dark Side of the Moon. There isn't a school in that district that is under 20 years old. The superintendent and top administrators all make six figure salaries. There is a whole racket of consulting contracts that goes to former employees. Yet, they cry poverty everytime there is a new tax assessment.

Jennifer|7.15.08 @ 4:14PM|#

There are plenty of condos in East Windsor, Manchester, and Glastonbury, Jennifer.

I don't WANT to buy a condo. If I'm going to share a wall with my neighbor and pay regular monthly "maintenance" fees, I'll just keep living in an apartment where I don't have to pay property taxes and am not responsible for upkeep and repairs.

Russ 2000|7.15.08 @ 4:16PM|#

If you want to get rich selling condos, fine, but cough up some money to upgrade the roads and the infrastructure to go with it.

Why can't the people buying the condos cough up the money? I mean, they will anyway.

Episiarch|7.15.08 @ 4:17PM|#

I don't WANT to buy a condo

I realize that, I was being snarky and busting your balls. That's why I suggested getting the house in East Hartford.

Property Developer|7.15.08 @ 4:17PM|#

I think the real problem here is free riders.

Lots of people would love to build a tiny, inexpensive home in a wealthy suburban neighborhood for the obvious benefits of better-funded schools and low crime. The people already living there would understandably be less happy about the idea.

The other option is...

I am proud to announce the grand opening of Jennifer Heights, a community of small, cozy, affordable houses!

Tired of being told you can't build your 1000 sq ft home next to the McMansions? Then Jennifer Heights is for you!

Of course, most people don't want to live there.

TallDave|7.15.08 @ 4:18PM|#

John,

Shame on you. Clearly, you are not thinking of the children.

|7.15.08 @ 4:19PM|#

Jennifer,

Do you live close to where you work? If not why not? Also, if you don't want to live in a condo or an appartment, then how are the restrictions against building them hurting you? Are there zoning restrictions against small yards or homes below a certain size? If there are, then that is hurting you. But honestly, if those restrictions were not there, is there a place in your community where a developer would put in a large number of small size, small lot homes? Maybe there is, but if there is not, the zoning restrictions such as they are, are zoning against something that probably wouldn't occur under the market.

|7.15.08 @ 4:23PM|#

"Tired of being told you can't build your 1000 sq ft home next to the McMansions? Then Jennifer Heights is for you!"

In my neighborhood there are lots of cute small homes that fit Jennifer's needs and they are being bought up by rich people, torn down and replaced with McMansions. The big reason is the schools in my town are the best in the area. Rich people would rather buy a small home in my town and tear it down and build a new one and get to send their kids to the schools, than buy a big house somewhere else. It ends up pricing every average person out of the market. Frankly, I am not really sure what you do about it. It is also wasteful and just kind of gross to buy someone's family home and tear it down to build some tacky mcmansion. I know it is freedom and property ownership and all but it really bugs me.

Jennifer|7.15.08 @ 4:23PM|#

Are there zoning restrictions against small yards or homes below a certain size?

I've only said "yes" to that question about three or four times on this thread, John. And yet you missed them all.

stuartl|7.15.08 @ 4:27PM|#

Nor is there an infinite amount of material resources.

There is, practically speaking, you know. Just not here on this planet.

Practically speaking there are an infinite number of resources ON this planet. In the long term the price of resources goes down. In the extremely unlikely case we run out of oil, there will plenty of alternative energy sources. I can't prove it, but I have history on my side.

|7.15.08 @ 4:28PM|#

I mean, sure seems like we should not be growing at all; but unemployment is around 5% and we're posting really weak positive numbers in growth. So its far from GOOD, but it ain't all that horrible either.

There is no arguing with the "world is going to end" crowd. Right now we have an economy with 5% unemployment and moderate growth. There have been better times for sure, but to call this bad times, is pretty stupid.

I had been looking for this earlier and finally found it.

Anyone who believes that unemployment is really at around 5% should read this.

http://bigpicture.typepad.com/comments/2008/06/unemployment-re.html

Most publications only report what's called the U3 measure. That number ignores people who are considered "discouraged" and people who are under-employed (want full time, but can only get part time)

To get a more complete picture of the labor market you have to look at the rest of the measures as well.

|7.15.08 @ 4:29PM|#

and NY doesn't tax income from NY civil service pensions...

What? Tax the American version of an hereditary aristocracy? But that would be an outrage, sir! Why, the very idea....

|7.15.08 @ 4:30PM|#

"I've only said "yes" to that question about three or four times on this thread, John. And yet you missed them all."

See above the example of my neighborhood. There is no gaurentee the market would provide you with a house. I call it the "Aspen problem". The "Aspen problem" is where a place is so desireable to live that the wealthy completely price ordinary people out of the market. In my neighborhood, if you built a small house new, some rich person would out bid you for it, and then tear it down and use the land to build what they want, even if that meant using the whole lot.

|7.15.08 @ 4:34PM|#

It ends up pricing every average person out of the market.

Unless these uber-rich were paying for this with cash, then a good if not great portion of the blame for this is loose lending spurred on by artificially low interest rates and bogus securitization of debt... _THAT_ is what has priced people out of the market.

If an "average" house costs more than 3x the annual income of an "average" family, then historically it is overpriced. If an "average" family cannot afford 20% down and a 30 year fixed-rate mortgage on 25%-33% of gross income, they can't afford the house. If a house costs more than 120x than the monthly rent of comparable houses in the area, it's overpriced. These are the values that housing around the country are going to come back down to in the coming years, either quickly or (like in Japan) slowly. Housing was converted into a casino game like the NASDAQ circa 1999, and its correction will range from bad to catastrophe-of-biblical-proportions (NV, FL, Inland Empire), depending on how bubbly it ended up.

Houses are depreciating assets requiring constant maintenance and upkeep, it's the LAND that has value.

Neu Mejican|7.15.08 @ 4:36PM|#

Ah, yes, and let's not forget the libertarian view of legitimate purposes of government: to pass laws regulating the size of your neighbor's house.

Yes, that's called "protecting my property rights." No one's saying my neighbor can't go build a house where it doesn't hurt my property values.

TallDave doesn't understand property rights.

Invisible Finger|7.15.08 @ 4:36PM|#

I think the real problem here is free riders.

Lots of people would love to build a tiny, inexpensive home in a wealthy suburban neighborhood for the obvious benefits of better-funded schools and low crime. The people already living there would understandably be less happy about the idea.

It's not that they're free riders - split the lots in half and that problem goes away, heck the recenue might actually be a little higher. The problem is if you build smaller homes then scum of the earth are apt to move in. The whole point of being exclusive is to exclude people.

|7.15.08 @ 4:36PM|#

"Most publications only report what's called the U3 measure. That number ignores people who are considered "discouraged" and people who are under-employed (want full time, but can only get part time)"

I am well aware of the difference between the unemployment rate and the labor participation rate. You can't just add in those who don't participate in the labor market as unemployed. Some people are retired and have no desire to hold a job. Some people are sick and unable to hold a job. Some are homeless and won't hold a job. There are any number of reasons. It is true that some people are "discouraged" and won't look anymore and drop out of the labor force. But it is more complex than that. Sometimes a lower participation rate can indicate good economic times. For example, better wages enable more parents to stay home with their children. Good returns on the stock market enable people to retire early and so forth. It is a really complex picture. Lastly, the UE rate has been measured the same way for a number of years. Even if it is not the absolutely accurate rate, it is accurate relative to past UE rates, since those were measuring the same thing. Bill Clinton ran for re-election on a "booming economy" that had an unemployment rate of over 5%. I am sorry, the economy is not historically bad by any objective measure.

|7.15.08 @ 4:43PM|#

"If an "average" house costs more than 3x the annual income of an "average" family, then historically it is overpriced. If an "average" family cannot afford 20% down and a 30 year fixed-rate mortgage on 25%-33% of gross income, they can't afford the house. If a house costs more than 120x than the monthly rent of comparable houses in the area, it's overpriced. These are the values that housing around the country are going to come back down to in the coming years, either quickly or (like in Japan) slowly. Housing was converted into a casino game like the NASDAQ circa 1999, and its correction will range from bad to catastrophe-of-biblical-proportions (NV, FL, Inland Empire), depending on how bubbly it ended up."

That would all be true, if we did not have the home mortgage interest deduction and the government did not go to great lengths to prop up the value of voters' homes. For example, the tax break on my house, if I bought rather than rented, amounts to about $15,000 a year savings versus the standard deduction. That means that I am willing to pay over $1,200 a month more in mortgage payments than I could otherwise afford, which translates, at government subsidized interest rates, to about $150,000 in extra purchase price.

No Name Guy|7.15.08 @ 4:45PM|#

"Bill Clinton ran for re-election on a "booming economy" that had an unemployment rate of over 5%."

But the economy was growing at a healthy 3-4% clip at that time with no inflation (commodities included), with gas around $1.25/gallon.

|7.15.08 @ 4:48PM|#

"But the economy was growing at a healthy 3-4% clip at that time with no inflation (commodities included), with gas around $1.25/gallon."

True. My point was only that things are not bad by any historic standard, not that they couldn't be better.

George Bailey|7.15.08 @ 4:50PM|#

Now, we can lick this thing if we all just stick together!

|7.15.08 @ 4:54PM|#

Now, we can lick this thing if we all just stick together

Yeah! We just all need to sacrifice! (you first)

Russ 2000|7.15.08 @ 4:56PM|#

if we did not have the home mortgage interest deduction

That's been around for 80-some-odd years. Try again.

|7.15.08 @ 5:05PM|#

"if we did not have the home mortgage interest deduction

That's been around for 80-some-odd years. Try again."

So what? That just means we have had artificially high housing prices for 80 years.

Russ 2000|7.15.08 @ 5:06PM|#

amounts to about $15,000 a year savings versus the standard deduction.

WTF difference does it make WHO you pay? Paying 15K dollars to Party A (the govt.) or paying 15K dollars to party B (a lender) means you are STILL out X dollars. The reduction in taxes is about 4K, so you're still out 11K. Unless you sold you're massively appreciatung house at the peak of the market and moved into an apartment, the interest deduction gets you nothing but a nice chunk of mortgage debt.

Russ 2000|7.15.08 @ 5:11PM|#

So what? That just means we have had artificially high housing prices for 80 years.

So any benefit in interest deduction would be offset by the overpricing of the house!

|7.15.08 @ 5:14PM|#

"WTF difference does it make WHO you pay? Paying 15K dollars to Party A (the govt.) or paying 15K dollars to party B (a lender) means you are STILL out X dollars. The reduction in taxes is about 4K, so you're still out 11K. Unless you sold you're massively appreciatung house at the peak of the market and moved into an apartment, the interest deduction gets you nothing but a nice chunk of mortgage debt."

That is true. The mortgage deduction is a con. It doesn't get you a damn thing. But it does prop up the price of houses.

Russ 2000|7.15.08 @ 5:31PM|#

It isn't propping up prices now.

|7.15.08 @ 5:35PM|#

"It isn't propping up prices now."

Bullshit it isn't. Get rid of that deduction and see how much faster home prices fall.

|7.15.08 @ 6:41PM|#

Bullshit it isn't. Get rid of that deduction and see how much faster home prices fall.

Cheap and easy loans have done far more damage than the mortgage interest deduction this time around.. No-doc loans, Alt-A, NINJA, etc. with zero money down, instant 2nd mortgages to avoid private mortgage insurance (PMI), and then once you get the mortgage, instant HELOCs to buy those Hummers, Jetskis, Plasma TVs, boob jobs, additional houses, etc..

Let there be no doubt, gravity WILL pull housing prices down to their historical average, it's just a matter of how fast you want to tear off the band-aid. Japan chose the long, slow way, and some of us think it'd be better to just tear the damn thing off quickly and get it over with before the cost compounds further.

I will say this though, if homeowners get a mortgage interest deduction, then renters should get a similar tax deduction based on rent paid (say, using the interest rate for a 30 year fixed), to be fair. Otherwise, renters subsidize homeowners. And IIRC you don't get interest deduction on second/investment properties, so AFAIK it's not double non-taxation..

Ben Rast|7.15.08 @ 7:35PM|#

The building that did not burn down never makes news.

Paul|7.15.08 @ 7:41PM|#

Do you understand what it means if the dollar falls another 50%? "and you get to work and make stuff again?!?" that means you won't be dorking around on the internet with some cushy job anymore...you'll have to go do work at a factory to pay for food and electricity.

But NPR said that's a good thing. A regular reporting segment throughout the years has been the need to retain and rebuild our manufacturing sector with "high paying manufacturing jobs".

Paul|7.15.08 @ 7:46PM|#

Got my fingers crossed for Bussard electric fusion, but in the meantime, I'd say nucular/nanosolar/wind in that order, with a $4/gal federal tax on petroleum-based gasoline to subsidize them,

If they're viable forms of energy, they won't need a subsidy. Period. If it takes more energy input than they can output, then they need a subsidy.

|7.15.08 @ 9:31PM|#

If they're viable forms of energy, they won't need a subsidy. Period.

In and of themselves they may not, but converting a century's worth of petroleum-product processing and distribution infrastructure very well may. Plus, considering the headstart that oil has had thanks to decades of prior government subsidy, I think it's fair to take some of that money back with interest, even if it just goes to pay down the debt.

And I would _definitely_ like to see a gas tax pay to subsidize the establishment of capabilities in this country to build the reactor vessels required to nuclearize this country to a French level. We simply do not yet possess the infrastructure to do it, even if we standardized on a single PBMR design. Most if not all reactor vessels are manufactured in Japan by a company that still manufactures samurai swords (Japan Steel) since America allowed its ability to atrophy:

http://bloomberg.com/apps/news?pid=20601109&sid=aaVMzCTMz3ms&refer=home

*|7.15.08 @ 10:01PM|#

instant HELOCs to buy those Hummers, Jetskis, Plasma TVs, boob jobs, additional houses, etc..

Hey. The boob jobs were worth it...to hell with the economy.

|7.15.08 @ 11:36PM|#

Jennifer - There's plenty of 1000-1500 sq. ft. houses here in Southington for reasonable prices. Sure, they aren't new, but the only new construction going on anywhere is McMansions because they drive up tax revenues.

I got a 1100 sq ft ranch for under 200 a year and a half ago. Although its a bit more crowded than I'd like (and a pox on those who advocate for urban living - how anyone can stand to be that close to that many people is beyond me), but it's suitable.

|7.16.08 @ 1:26AM|#

Tim Cavanaugh wote, "And against Walter Russell Mead, a genius so magnificent he has three names?"

"I don't think so, Tim." Some of us use three names to distinguish our own opinions from those of people who have the same names as ourselves, unless the middle is used.

There is, for instance, a James C. Merritt (NO RELATION!) here in Santa Cruz County CA, not to mention numerous James Merritts (including at least one James A. Merritt, again, no relation) spread across the country. I use my middle name not to aggrandize myself, but to make clear that I am not any of those other James Merritts. It protects them (And me, as at least one of those other James Merritts was passing bad checks in the 1980s, and I got called about them!)

I expect there may be quite a few Russell Meads around, too. So who knows WHY the middle name is used?

Don't always assume the worst, Tim. Unless Hillary Rodham Clinton is the topic. ;-)

|7.16.08 @ 1:28AM|#

And even HRC voted against the FISA Amendments Act, so nobody is all bad.

SLO|7.16.08 @ 3:30AM|#

What new technology will have a higher EROEI than oil?

|7.16.08 @ 9:12AM|#

I will say this though, if homeowners get a mortgage interest deduction, then renters should get a similar tax deduction based on rent paid...

I think one can argue that renters already do since the landlord gets to deduct interest as a business expense. In much the same way renters pay property taxes since the landlord passes on the expense of his taxes to them.

The mortgage interest deduction is a relic of the time when all interest was deductable. When the first tax codes were written in the days before consumer credit it was assumed that all interest was a business expense. When the codr was reformed in the eighties it was decided to exclude interest on loans for personal use. The realtor/homebuilder lobbies mobilized and got the new code to keep the mortgage interest deduction.

|7.16.08 @ 9:20AM|#

Oh, I forgot to include.

Good luck on getting rid of the mortgage interest deduction or doing anything else (eliminating snob zoning, revising building codes that restrict innovative building materials) that will restore anything like sane pricing to housing.

As the example of TallDave shows people have made their dwellings the primary storehouse of their wealth in this country.

The house has value for them far beyond the utility of shelter and they will fight tooth and nail to preserve it. Newcomers be damned.

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