Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts

September 24, 2012

Charter Cities Setback: Who could have imagined?

The econosphere has been abuzz for several years with NYU professor Paul Romer's plan to bring the benefit of Good Institutions to Central America by building "charter cities" in the banana republic of Honduras. (Here's Romer's 2011 TED talk.) As economist Daron Acemoglu has explained, the only thing that differentiates a rich country from a poor country is that the former has Good Institutions. So, what the Third World needs is for American economists to plan for them private chartered cities with world class Good Institutions. It's a no-brainer.

Thus, Romer worked out a deal with the government of Honduras to turn state of the art development economics theorizing into reality by building three private cities in Honduras.

What could possibly go wrong? Who could object to such a high-minded, altruistic initiative? 

Well, there are always petty carpers everywhere. For example, a Honduran peasants rights lawyer named Antonio Trejo Cabrera disliked Romer's proposal. The Montreal Gazzette reported yesterday:
Trejo had also helped prepare motions declaring unconstitutional a proposal to build three privately run cities with their own police, laws and tax systems.

In Honduras, however, they have time-honored ways of cutting through red tape and nuisance lawsuits:
Antonio Trejo Cabrera, 41, was shot five times while attending a wedding in the capital, Tegucigalpa, the Peasant Movement of the Valley of Bajo Aguan said in a statement. 
Trejo was a lawyer from three peasant co-operatives in the Bajo Aguan, a fertile farming area plagued by violent conflicts between agrarian organizations and land owners. More than 60 people have been killed in such disputes over the past two years. The lawyer had recently helped farmers gain legal rights to several plantations.... 
Just hours before his murder, Trejo had participated in a televised debate in which he accused congressional leaders of using the private city projects to raise campaign funds.

Meanwhile, Professor Romer has announced (see Marginal Revolution) that he has been frozen out of his oversight role by the government of Honduras, so he's washing his hands of the whole deal.

An earlier American intellectual who had had big plans for Honduras, the filibuster William Walker, who wanted to add Central American countries to the United States as slave states, died by firing squad in Honduras in 1859. Professor Romer should be glad he's out of there without enduring the fate of Walker and Trejo. 

It almost seems as if land ownership in Central America is very serious stuff. (Remember the Death Squads of the 1980s?) Maybe it's hard for American theoreticians to figure out what's really going on in places like Honduras because the truth is only whispered about among locals for fear of ending up like the brave Attorney Trejo.

Perhaps political power does come out of the barrel of a gun.

This fiasco resembles a miniature version of how the Harvard econ department helped provide intellectual air cover for budding oligarchs stealing much of the assets of Russia in the 1990s. Isn't it about time for economists to do some soul-searching and collective self-criticism?

August 4, 2012

"Was Milton Friedman a Secret Admirer of Keynes?"

Asks Don Boudreau in the WSJ.

My impression was that Friedman was a public admirer of Keynes. (Here's a brief video of Friedman saying nice things about Keynes.) John Maynard Keynes was, obviously, a genius. Bertrand Russell, who didn't like Keynes, said of him:
Keynes's intellect was the sharpest and clearest that I have ever known. When I argued with him, I felt that I took my own life in my hands, and I seldom emerged without feeling something of a fool. I was sometimes inclined to think that so much cleverness must be incompatible with depth, but I do not think this feeling was justified.

None of this means that Keynes was necessarily right in his macroeconomics or that Keynes' self-proclaimed followers are right about what to do in novel situations two-thirds of a century after his death, just that it's silly to treat Keynes as less than a heavyweight.

July 18, 2012

"Race, IQ, and Wealth"

Ron Unz has a big article in The American Conservative on a perennially interesting and important subject:
Race, IQ, and Wealth 
What the facts tell us about a taboo subject 
By RON UNZ • July 18, 2012 
At the end of April, Charles Kenny, a former World Bank economist specializing in international development, published a blistering attack in Foreign Policy entitled “Dumb and Dumber,” with the accusatory subtitle “Are development experts becoming racists?” Kenny charged that a growing number of development economists were turning towards genetic and other intrinsic human traits as a central explanation of national economic progress, often elevating these above the investment and regulatory issues that have long been the focus of international agencies. 
Although Kenny suggested that many of his targets had been circumspect in how they raised these highly controversial ideas, he singled out IQ and the Wealth of Nations, published in 2001 by Richard Lynn and Tatu Vanhanen, as a particularly extreme and hateful example of this trend. These authors explicitly argue that IQ scores for different populations are largely fixed and hereditary, and that these—rather than economic or governmental structures—tend to determine the long-term wealth of a given country. 
Kenny claimed that such IQ theories were not merely racist and deeply offensive but had also long been debunked by scientific experts—notably the prominent biologist Stephen Jay Gould in his 1980 book The Mismeasure of Man.

Read the whole thing there.

June 12, 2012

Elinor Ostrom, RIP: Averting the tragedy of the commons

Political scientist Elinor Ostrom has died. In 2009, she became the first woman winner in the four decades of the Economics quasi-Nobel Prize. She worked on the question of the various ways people arrange to avoid "the tragedy of the commons" of over-exploitation of common resources, such as fisheries.

Jared Diamond notes that there are three possible solutions to what Garrett Hardin called "the tragedy of the commons," or the tendency for individuals to over-consume resources and under-invest in responsibilities held in common, leading to ecological collapse.

Government diktat.

Privatization and property rights -- but that's often impractical with some resources, such as ocean fish.

Diamond writes: "The remaining solution to the tragedy of the commons is for the consumers to recognize their common interests and to design, obey, and enforce prudent harvesting quotas themselves. That is likely to happen only if a whole series of conditions is met: the consumers form a homogeneous group; they have learned to trust and communicate with each other; they expect to share a common future and to pass on the resource to their heirs; they are capable of and permitted to organize and police themselves; and the boundaries of the resource and of its pool of consumers are well defined." 

A classic supporting case that that Diamond doesn't bring up: American shrimp fishermen in Texas were universally denounced as racists in the late 1970s when they resisted the government's efforts to encourage Vietnamese refugees to become shrimpers in their waters. French director Louis Malle made a movie, Alamo Bay, denouncing ugly Americans fighting hardworking immigrants.

What got lost in all the tsk-tsking is that fishing communities always resist newcomers, especially hardworking ones, because of the sizable chance that the outsiders who don't know the local rules or don't care about them will ruin the ecological balance and wipe out the stocks of fish.

The evidence Diamond assembles indicates, although of course he never dares to state it bluntly, that the fundamental requirement for dealing effectively with environmental danger is: start with a population that's limited in number, cohesive, educated, and affluent.

A quick Google search finds Nobel Laureate Ostrom also cautiously expressing Doubts About Diversity in her book The Drama of the Commons.
... Alesina et al. (1999) find that ethnic diversity is associated with lower public goods funding across the U.S. municipalities because different ethnic groups have different preferences over the type of public good ... In the kind of rural societies considered in this chapter ... the effectiveness of social sanctions weakens as they cross ethnic reference groups. In this vein, Miguel (2000) constructs a theoretical model where the defining characteristics of ethnic groups are the ability to impose social sanctions within the community against deviant individuals and the ability to coordinate on efficient equilibria in settings of multiple equilibria. With data from the activities of primary school committees in rural western Kenya, Miguel then shows that higher levels of ethnic diversity are associated with significantly lower parent participation in parent meetings, worse attendance at school committee meetings, and sharply lower teacher attendance and motivation. 
If social groups (not solely ethnic groups) are defined as those whose boundaries coincide with the effective monitoring and enforcement of shared social norms ... this is one way of understanding the notion cited earlier of cultural homogeneity, a variant of what many authors have called social capital or social cohesion. ... Irrigation organizations that cross village boundaries can rely less on social sanctions and norms to enforce cooperative behavior ...

There are basically two ways to get people to play nice with a common resource such as shrimp or irrigation water: violence or ostracism. The latter works most effectively regarding marriage -- if you don't play by the rules, nobody respectable will let your kid marry his daughter. But when newcomers who don't ever want their children to marry your children arrive and start exploiting your irrigation system or fishery (or whatever), then the old non-violent traditions break down, and people start turning to violence or its threat, whether anarchic or government-based (e.g., socialism and property rights are based on the threat of the government's monopoly on violence). 

May 15, 2011

Whatever happened to antitrust?

One century ago today, May 15, 1911, the Supreme Court upheld the federal government's lawsuit under the heretofore unused 1890 Sherman Anti-Trust Act against the Standard Oil near-monopoly in refining. The company founded in 1870 by John D. Rockefeller was broken up into 34 companies, including ones that eventually became Exxon and Mobil.

Of course, today they are back together again as ExxonMobil.

One of the less expected changes in public life over the last third of a century has been the growing apathy over the subject of antitrust (known outside of America as "competition law"). For example, the proposed merger of AT&T and T-Mobile, reducing the number of national cell phone network competitors from four to three, isn't popular in the Senate, but it doesn't seem to be a big news story with the public.

The last time I can recall anybody trying to make a big deal out of antitrust was in the mid-1990s when Pearl Jam, the most popular rock band of the period, sick of the absurd fees that Ticketmaster adds to concert ticket prices, tried to run a successful national tour without venues dominated by Ticketmaster.

Pearl Jam failed. People seemed to take away the message that, well, sure, Pearl Jam might have seemed cool and their crusade public-spirited. But their economic failure just shows that, deep down, they are losers. What's really cool is having a monopoly.

It's hard to explain to today's youth what a big deal trust-busting was just a third of a century ago. Alternatively, it's hard to figure out why nobody cares much anymore about cartelization.

When I was majoring in economics at Rice in the late 1970s, monopoly was a massive topic. I took a semester-long course devoted to propounding the emerging libertarian line that there was very little to worry about. Competition would tend to rapidly eliminate monopolies. This popular idea of businessmen getting together in smoke filled rooms to agree to keep prices up was a stereotype. I got a very good grade in that course. I believed. 

The young professor making these arguments against antitrust law in the late 1970s saw himself as a rebel against orthodoxy. Today, though, his free market ideas seems to have become conventional wisdom, or at least nobody cares that much to argue against them.

The funny thing was that when I got a job with a young company, however, it turned out that competition, from the perspective of owners and employees holding stock options, was awful. It's like Adam Smith said, in a genuinely competitive market, it's hard for a business to make more than the risk-adjusted cost of capital, which is not much fun at all. Why go through the immense amount of hard work to invent a new, better way of doing business if that's all you'll end up with? To make good money, the kind of money the stock market demands you make, you need some kind of quasi-monopolistic edge. 

The founder of the company, as strong a competitive personality as you could want, looked at the high fixed cost economics of this submarket of marketing research and quickly sold the firm to our chief competitor for a lot of money. But the Reagan Justice Department shot the deal down because our clients whined so much. That began a price war that quickly drove the third firm in the industry out of business, and kept the two survivors from making decent profits all through the prosperous '90s. As I had jobs over time with both competitors, I came up with various novel ways to reduce competition, but top management, knowing the government was keeping an eye on them from their earlier merger attempt, was unenthusiastic. So, years of minimal profits rolled on.

This dreary fate did not befall most other industries, though. The Dow Jones average is about an order of magnitude higher than when I started to work in late 1982, because profits are vastly higher. It's easy to understand the high profits of, say, Apple, but why does Procter & Gamble make so much off toothpaste and detergent these days?

One difference is that in the inflationary 1970s, it was common for members of the public to suspect that rising prices were caused by monopolistic practices. With the prices of manufactured goods stable or even falling in much of the time since the 1970s, however, it's common to assume that anticompetitive activities can't be a problem because, say, cell phones or TVs keep getting awesomer. Psychologically, it's hard to worry much about whether prices should be falling even faster.

April 28, 2011

Aspie Economists

Here's a long article by Benjamin Wallace-Wells on Paul Krugman's personality, such as it is. Economists have been called "worldly philosophers," but a lot of them come across as being awfully out of touch. For example, this article uses Krugman's long relationship with Larry Summers to help explain Krugman. By contrast to Krugman, when it comes to being a people person, Summers is practically Oprah. Yet, Summers was a notorious failure in the fairly easy job of being president of Harvard. 

Wallace-Wells does do a good job of zeroing in on Krugman's best piece of writing:
Back in 2006, when he was writing The Conscience of a Liberal, Krugman found himself searching for a way to describe his own political Eden, his vision of America before the Fall. He knew the moment that he wanted to describe: the fifties and early sixties, when prosperity was not only broad but broadly shared. Wells, looking over a draft, thought his account was too numerical, too cold. She suggested that he describe his own childhood, in the ­middle-class suburb of Merrick, Long Island. And so Krugman began writing with an almost choking nostalgia, the sort of feeling that he usually despises: “The political and economic environment of my youth stands revealed as a paradise lost, an exceptional moment in our nation’s history …” 
Krugman remembers Merrick in these terms, as a place that provoked in him “amazingly little alienation.” “All the mothers waiting to pick up the fathers at the train station in the evening,” he says, remembering. “You were in an area where there were a lot of quiet streets, and it was possible to take bike rides all over Long Island. We used to ride up to Sagamore Hill, the old Teddy Roosevelt estate.” The Krugmans lived in a less lush part of Merrick, full of small ranch ­houses each containing the promise of social ascent. “I remember there was often a typical conversational thing about how well the plumbers—basically the unionized blue-collar occupations—were doing, as opposed to white-collar middle managers like my father.”

This starting point, which is awfully similar to where I'm coming from (see my post above about Mildred Pierce's L.A., in which Benjamin Schwarz eloquently describes our shared appreciation of the Paradise for the Common Man), potentially opened up for Krugman the opportunity to develop a more wide ranging critique of What Went Wrong. Was it merely tax cuts? At times, he's dipped his toe in the heretical possibility that, say, massive immigration wasn't wholly an unmixed blessing to somebody with his vision of the Good Society, only to quickly run back up on the beach.

Now, obviously, even Paul Krugman is under a lot of career pressures to Not Talk About Unpleasant Topics. But, Wallace-Wells could have pointed out the important effects of Mrs. Krugman, a blue-eyed, long-haired woman who strongly self-identifies as black, has had on keeping Mr. Krugman on the politically correct straight and narrow, and pushing him toward his present view that racism is the root of all Republican evil. There was a period in the 1990s, when Krugman appeared to be developing in an interesting direction intellectually (here's his excellent attack on Stephen Jay Gould). But the advent of Mrs. K. seems to have coincided with putting the kibosh on his tendencies toward crimethink.

October 6, 2009

For this you get a Nobel Prize?

Paul Krugman still can't grasp why years of stupid investments cause inevitable recessions.

Krugman denounces Arnold Kling's quasi-Austrian explanation of why busts occur. The reigning Nobel laureate proceeds to triumphantly zing Kling with what he thinks is a killer question:
And now as then, the whole notion falls apart when you ask why, say, a housing boom — which requires shifting resources into housing — doesn’t produce the same kind of unemployment as a housing bust that shifts resources out of housing.

Yes, that's what Dr. Krugman wrote: Why doesn't a housing boom cause the same kind of unemployment as a housing bust?

A commenter named Scott replies:

You don’t create unemployment by hiring people.

Seriously, Paul basically just asked “Why doesn’t hiring people create the same unemployment that firing does?”

And people take him seriously?

At much greater length, I had reviewed what was wrong with Krugman's thinking about recessions a year ago.

My published articles are archived at iSteve.com -- Steve Sailer

December 4, 2008

The next frontier of economic efficiency

Much of the progress in improved efficiency in the last 50 years has come from reducing inventory. Holding inventory is expensive. You can't earn interest or dividends on goods you own. Plus, you have to pay to store it, keep track of it, find it, etc.

The Just-in-Time manufacturing process made famous by Toyota focuses on cutting work-in-process inventory -- parts get delivered to assembly line stations just before they're needed. Similarly, containerized shipping has reduced the inventory tied up in transportation because it can be loaded and unloaded faster. At the retail end, Wal-Mart and Costco have radically cut inventory held by retailers through a plethora of techniques, such as using UPC scanners to measure sales and compare them against shipments to keep track of inventory and reorder automatically. (By the way, is "plethora" an inherently comic word and thus should be reserved only for facetious uses?)

The retailers, in fact, have shoved a lot of their old inventory holding costs onto consumers by, for example, selling them cases rather than individual items. Part of the demand for bigger houses and bigger vehicles that has proven so expensive to us as a society comes from consumers taking on more of the burden of storing and transporting goods.

While there has been enormous systematic progress at improving inventory management in the commercial world, there has been very little progress toward Just-in-Time practices in the domestic world. Just as it was fifty years ago, some householders are good at it, some are bad at it. (I'm one of the very, very bad ones, so I notice this lack more). There's just a lot more inventory of household goods to manage today than there was back then, so the need for more advanced household logistics is much greater.

I can't in good conscience advise anybody to make a career in this field because I fear it won't take off for a long time, but it will take off eventually.

My published articles are archived at iSteve.com -- Steve Sailer

October 7, 2008

Nobel Prize in Economics

My first suggestion is that rather than hand out a new Nobel Prize in Economics this year, they instead take away one they gave to some economist in the past who now looks like a prime nitwit.

If that's too radical, how about giving the Nobel to an economist who was actually, like, right? How about Robert Shiller who has been banging the gong about the coming housing crash for years?

My published articles are archived at iSteve.com -- Steve Sailer

May 21, 2008

Russian capitalists -- Doing their best to make Trotsky look prescient

From Bloomberg News:
It was the 26 toilets that triggered alarm among residents of Greenwich, Connecticut. "Who needs that many toilets?'' asked Charles Lee, who lives across the street from where Russian millionaire Valery Kogan proposes building a 54,000-square-foot (5,000-square- meter) mansion with that much plumbing.

Kogan, chairman of East Line Group, which operates Moscow's Domodedovo International Airport, plans to raze the 20,000- square-foot home on the site, which he bought in 2005. Kogan and his wife, Olga, seek to erect a house with two wings and extensive subterranean space, including room to park 12 cars.

``It looks like they want to duplicate the Winter Palace here in Greenwich,'' said Leslie McElwreath, 45, who lives one street over. ``It'll be an eyesore.''

McElwreath, Lee and other opponents are urging the Greenwich Zoning and Planning Commission to deny a permit when it votes this evening on what would be the largest single-family home built since the town began reviewing plans in 2001. A hundred and seventy-five people signed a petition against the project.

Greenwich, 27 miles (43 kilometers) north of New York, is the hedge-fund capital of the U.S. More than 60 funds occupy 80 percent of its commercial property, according to real-estate broker CB Richard Ellis. The Greenwich Association of Realtors puts the average price of a home in the town of 65,000 at $2.8 million.

Here in Los Angeles, the Executive Director of the city's Los Angeles World Airports department, which manages both the vast LAX and the lesser Ontario airports, makes $305,000 annually. I don't think she can afford to build a 54,000 square foot house in a foreign country. And yet, LA's airports somehow continue to operate without the boss being paid enough to build a palace. If only we had privatized LAX, then the owner of the company that would run LAX could be building colossal homes around the world to flee to when angry Angelenos finally come after him with pitchforks and torches.

My published articles are archived at iSteve.com -- Steve Sailer

May 15, 2008

Are we going to have a recession now or later?

I'm reminded of the spring of 1980 when the economy nosedived (nosedove?), but then suddenly pulled out of it into modest prosperity. It didn't save Jimmy Carter in November, and we ended up getting hammered by a major recession in 1981-1982 that painfully wrung the inflation of the 1970s out of the economy.

My published articles are archived at iSteve.com -- Steve Sailer

May 7, 2008

Mama Obamanomics

Barack Obama spent the mid-1980s trying to politically mobilize the black poor in Chicago, giving him, presumably, lots of first-hand insight into their problems. Yet, the 163 pages he devoted to his community organizer years in his 1995 autobiography, published at the height of the debate over welfare, are strikingly lacking in insight.

For example, he only mentions the world "welfare" twice, both times in neutral to positive contexts. Similar terms such as "food stamps" and "Aid to Families with Dependent Children" aren't mentioned at all. The notion that "welfare ... did create some perverse incentives when it came to the work ethic and family stability" (to quote from Obama's 2006 campaign book, The Audacity of Hope, of which he says "This book grew directly out of those conversations on the [2004] campaign trail" -- i.e., he's playing back what he heard from voters) simply never comes up in Dreams from My Father.

So, if welfare wasn't a problem, according to Obama, what was?

I apologize for quoting another slab of Obama's 1995 prose, which was carefully engineered to be unquotable, but it's interesting to see the influence on him of what appears to be his mother's worldview (as exemplified by the title of her 1,067 page anthropology dissertation "Peasant Blacksmithing in Indonesia: Surviving and Thriving Against All Odds"):

As we walked back to the car, we passed a small clothing store full of cheap dresses and brightly colored sweaters, two aging white mannequins now painted black in the window. The store was poorly lit, but toward the back I could make out the figure of a young Korean woman sewing by hand as a child slept beside her.

The scene took me back to my childhood, back to the markets of Indonesia: the hawkers, the leather workers, the old women chewing betelnut and swatting flies off their fruit with whisk brooms. I’d always taken such markets for granted, part of the natural order of things. Now, though, as I thought about Altgeld and Rose-land, Rafiq and Mr. Foster, I saw those Djakarta markets for what they were: fragile, precious things. The people who sold their goods there might have been poor, poorer even than folks out in Altgeld. They hauled fifty pounds of firewood on their backs every day, they ate little, they died young. And yet for all that poverty, there remained in their lives a discernible order, a tapestry of trading routes and middlemen, bribes to pay and customs to observe, the habits of a generation played out every day beneath the bargaining and the noise and the swirling dust. It was the absence of such coherence that made a place like Altgeld so desperate, I thought to myself; it was that loss of order that had made both Rafiq and Mr. Foster, in their own ways, so bitter. For how could we go about stitching a culture back together once it was torn? How long might it take in this land of dollars?

Longer than it took a culture to unravel, I suspected. I tried to imagine the Indonesian workers who were now making their way to the sorts of factories that had once sat along the banks of the Calumet River, joining the ranks of wage labor to assemble the radios and sneakers that sold on Michigan Avenue. I imagined those same Indonesian workers ten, twenty years from now, when their factories would have closed down, a consequence of new technology or lower wages in some other part of the globe. And then the bitter discovery that their markets have vanished; that they no longer remember how to weave their own baskets or carve their own furniture or grow their own food; that even if they remember such craft, the forests that gave them wood are now owned by timber interests, the baskets they once wove have been replaced by more durable plastics. The very existence of the factories, the timber interests, the plastics manufacturer, will have rendered their culture obsolete; the values of hard work and individual initiative turn out to have depended on a system of belief that’s been scrambled by migration and urbanization and imported TV reruns. Some of them would prosper in this new order. Some would move to America. And the others, the millions left behind in Djakarta, or Lagos, or the West Bank, they would settle into their own Altgeld Gardens, into a deeper despair.

If only Andrew Carnegie hadn't put all those black peasant blacksmiths out of business ...

My published articles are archived at iSteve.com -- Steve Sailer

March 18, 2008

"Oh, the World Owes Us a Livin'"

Eamonn Fingleton has a new book coming out entitled In the Jaws of the Dragon: America's Fate in the Coming Era of Chinese Hegemony.

That reminded me that about a dozen years ago, I saw Walt Disney's 1934 Silly Symphony musical cartoon short "The Grasshopper and the Ants." Even though Disney came up with a happy ending for Aesop's fable -- when winter comes, the hardworking ants take in the profligate fiddle-playing grasshopper and let him be their Musician-in-Residence -- it's stuck in my head ever since as a dismaying allegory for the mid-21st Century economy.

The 8-minute cartoon is now on Youtube and it's only gotten more relevant for Americans this month: What are all us grasshoppers who aren't star entertainers going to do for a living in the coming globalized world?

P.S., Ziel has some sharp thinking on the economy at Your Lying Eyes.

My published articles are archived at iSteve.com -- Steve Sailer

March 11, 2008

How Can We Tell?

At this moment, it seems like the most important question is: How can we tell whether the financial markets are merely in an irrational panic from which they can be bailed out; or have we arrived at a rational reckoning where bailouts are just money down the rathole?

Have economists developed some sure fire models for distinguishing between panics and reckonings? I realize that economists have been busy lately studying sumo wrestling, but perhaps a few of them have stuck to their knitting?

Or, are we just flying blind?

And if we promise to bail out irrational behavior, doesn't that just buy more irrationality?

My published articles are archived at iSteve.com -- Steve Sailer

March 9, 2008

More economists making fools out of themselves to promote immigration

Economists devote strikingly little attention to immigration, so they tend to be suckers for the occasional study that comes along supporting their prejudices. For example, recent papers by Ottaviano and Peri claiming that lots of immigrants in California made the natives better off got lots of play.

George Borjas of Harvard couldn't replicate their findings, however, and now he's finally figured out why:

The Ottaviano and Peri data ... classify ... high school juniors and seniors as part of the "high school dropout" workforce. Their finding of immigrant-native complementarity disappears if the analysis excludes these high school juniors and seniors.

Things that seem too good to be true usually aren’t.

My published articles are archived at iSteve.com -- Steve Sailer

February 29, 2008

June $655k --> January $500k

The median price of homes sold in the San Fernando Valley (northern Los Angeles) dropped from $655,000 last June to $500,000 in January. Now, lots of people think that's the worst tragedy ever, but to my mind, half-a-mil is still way too high for the typical SFV house, which is about 35-55 years old, 1600 square feet, on a one-fifth acre lot, and with a lousy school. (But the weather is nice). Who can afford these prices without having Cousin Aram, his wife, three kids, mother-in-law, and her maiden sister move in with you and yours?

Yet, everybody who counts wants to bail out the speculators who drove the prices up to ridiculous levels.

If I were Obama or Clinton, I'd love to have a recession in 2008, so that after I win, prosperity will be back in time for my re-election bid in 2012. The last thing I'd want is to artificially postpone a correction now so that something worse comes along in three or four years.

I guess they all know something I don't know, because this Holman Jenkins column in the WSJ makes a lot of sense to me. What am I missing?

Any debate about a housing bailout can be put aside -- the bailout is underway, even in advance of specific plans being shopped around Washington by Bank of America to prop up home prices with direct subsidies to homeowners whose debt exceeds the value of their houses. No, the perverse effect won't be a replay of the '30s, or even Japan's decade of stagnation in the '90s, but the latter is your model, with a little inflation thrown in. The goal: avoid foreclosures and slow the fall of home prices to market-clearing levels.

Notice that today's bailout will be the opposite of the misnamed S&L bailout of the '80s. Then, only depositors, whose money was guaranteed under federal law, were bailed out. The federal government closed down thrifts, wiped out their shareholders, seized loan collateral and dumped it back on the market, even at firesale prices.

But this time, the liquidationist school has been routed -- so named for Herbert Hoover's Treasury secretary, Andrew Mellon, who said: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. . . . It will purge the rottenness out of the system."

Making the hole even harder to climb out of in tough-love fashion, government policy itself played a big role in creating the bubble, on the bipartisan theory that homeownership begets "social stability."

Like all good things, when converted to a slogan, this idea became our road to perdition. Charles Kindleberger, the late MIT economist who wrote the classic handbook "Manias, Panics, and Crashes," noted as early as 2002 an emerging housing bubble. In an interview with this newspaper, he pointed a finger first of all at Fannie and Freddie, whose channeling of government subsidized capital into the housing market helped turn housing into a leverageable, tradeable asset class.

Result: The minting of new homes and home loans as speculative chits, which in turn has made housing more susceptible to the ups and downs of other speculative markets.

So here's the question: Do the people who would be bailed out want to be bailed out? Do they benefit from being bailed out?

For starters, many homebuyers in the last two years were rank speculators, taking out zero-down subprime loans, then walking away when the bet didn't pay off. A careful study of recent Massachusetts foreclosures by Federal Reserve Bank of Boston economists suggests that the key factor wasn't an inability to pay, but an unwillingness to pay, once falling house prices made homeownership no longer a winning speculation. These people are already skipping out, because that's their best option.

Next up, what about the low-income homeowners who (unlike speculators) were the intended beneficiaries of homeownership expansion policies? Both President Clinton and President Bush championed such initiatives, and now 69% of households own their homes, up from 64% in 1992.

My published articles are archived at iSteve.com -- Steve Sailer

November 16, 2007

The Myth of the Rational Voter

In my VDARE.com review of the Chilton Williamson-edited book Immigration and the American Future from Chronicles Press, I started off with a detour:

Economist Bryan Caplan has been getting a lot of good press for his recent book The Myth of the Rational Voter: Why Democracies Choose Bad Policies, which argues that voters should have less power because they make bad decisions compared to experts, such as (to pick a random example) economists.

Thus, Caplan wrote in the online journal of the libertarian Cato Institute:

"Consider the case of immigration policy. Economists are vastly more optimistic about its economic effects than the general public. The Survey of Americans and Economists on the Economy asks respondents to say whether ‘too many immigrants’ is a major, minor, or non-reason why the economy is not doing better than it is. 47% of non-economists think it is a major reason; 80% of economists think it is not a reason at all." [The Myth of the Rational Voter, November 6th, 2006]

This is a particularly foolish argument—because, of course, immigration is the single political issue on which the American elite most gets its way over the American people.

And Caplan's belief that “experts” should be deferred to on the wisdom of open borders is even more self-contradictory because the vast majority of economists surveyed are not at all experts on immigration. The true expert economists on immigration, such as labor economist George Borjas of Harvard (described by the New York Times last year as "the pre-eminent scholar in his field") tend to be very dubious indeed about the economic benefits of our current policy—much less about the benefits of more unskilled immigration.

Caplan himself has displayed over the years on his blog little awareness of objective facts about immigration. He does, however, possess a formidable dogmatic faith in the theories of the late Julian Simon about how immigration ought to be benefiting us.

I was reminded of this remarkable imbalance in empirical knowledge between the two sides in the immigration debates while reading Immigration and the American Future, edited by long-time VDARE.com contributor Chilton Williamson, Jr., a fact-crammed collection of 14 essays from Chronicles Press, which is affiliated with Chronicles: A Magazine of American Culture of Rockford, Illinois. [VDARE.com note: Chronicles fans will prefer to buy through the magazine].

In this book Professor Borjas is himself represented by a long interview with VDARE.COM editor Peter Brimelow. The two veteran students of economics share a laugh over how the opinion divide on immigration policy between the rich and the rest can be explained by an old economic concept that Dr. Caplan has overlooked: class self-interest.

Borjas: "Who exactly is lobbying for guest workers? Is it you and me? No, it's employers, right? Why would employers tend to go to Washington and expend their resources lobbying for something that doesn't benefit them?

Brimelow: "It can all be explained in rather crass Marxist terms, can't it? The class analysis works.

Borjas: "Of course! Of course! The Marxist analysis works."

In other words, pro-immigration arguments are so shameless and stupid that they are rehabilitating the reputation of Karl Marx.

[Click here for the rest of my review of Immigration and the American Future]

November 7, 2007

The Subprime Meltdown: The NYT finally gets a clue (sort of)

"End of the Housing Bubble: Minorities Hurt Most" reports the New York Times for the umpteenth time:

What's Behind the Race Gap?

Last year, blacks were 2.3 times more likely, and Hispanics twice as likely, to get high-cost loans as whites after adjusting for loan amounts and the income of the borrowers, according to an analysis of loans reported under the federal Home Mortgage Disclosure Act. (Asians are somewhat less likely than whites to take out high-cost loans.)

Researchers and industry officials agree that there is probably no single explanation for the lending patterns, though the history of banks’ avoiding minority neighborhoods, the practice known as “redlining,” is a good place to start.

It's the Original Sin Theory of Race: any time, any where blacks or Hispanics mess up, white people have to be the original cause. Obviously, income is hardly the only factor in creditworthiness: expenditures relative to income and other sources of wealth, such as inheritances, play a role. (It's bizarre that we've become so brain dead from political correctness that nobody dares even point out that white people tend to have wealthier relatives than blacks and Latinos have.)

If you read between the lines of the article, however, you'll see that one cause of NAMs (Non-Asian Minorities) getting hit harder by ridiculous subprime mortgages was the government's long war against redlining:

The biggest home lenders in minority neighborhoods are mortgage companies that provide only subprime loans, not full-service banks that do a range of lending.

It may be that these borrowers do not have access to traditional banks, because there are no branches near them. The Community Reinvestment Act, enacted 30 years ago, was intended to address redlining by forcing banks to make loans in lower-income areas. But the law’s provisions do not apply to banks in neighborhoods where they have no branches.

“You could go into a middle-class area in Queens County that is white and there will be lots of banks on the shopping street,” said Alfred A. DelliBovi, president of the Federal Home Loan Bank of New York and a deputy secretary of the Department of Housing and Urban Development in the first Bush administration. “If you go to an area that is equal income and that is black, you won’t see many.”

Banks typically locate branches where they believe they will get the most deposits. A lower savings rate and a distrust of banks stemming from a legacy of redlining may help explain why there are fewer branches in minority neighborhoods, Mr. DelliBovi said.

Huh?

Let's put it in plain English: a big reason that legitimate banks stay away from NAM neighborhoods is because if they operate in NAM neighborhoods but don't hand out loans to NAMs at the same rate they provide loans to WaAs (Whites and Asians), the government will sue them for racial discrimination. So, they just stay far away, leaving NAM neighborhoods to high pressure boiler room operations.

Finally, toward the end of the article, the reporters toss in an undigested quote that hints at the real story, but still ignores the government's role:

“If we turn the clock back 30 years ago, we had redlining,” said Nicholas Retsinas, director of the Joint Center for Housing Studies at Harvard University. “In the last few years, we have had the opposite — an overextension of credit by lenders and an overextension by borrowers.”

My published articles are archived at iSteve.com -- Steve Sailer

More subprime clues

The NYT prints a handy chart of the ten towns in America with the lowest ratio of subprime mortgages to total mortgages, and it ends up being rich San Francisco and nine classic college towns, such as Ithaca, NY, home to Cornell.

Besides the obvious (college professors are smarter than average), there's the construction boom on ritzy campuses these days, so even construction workers are doing well in college towns And there's typically no dirt shortage around college towns, such as Ames and Iowa City, home to the two big public Iowa universities, which tend to be located in the middle of nowhere in particular.

Contributing to reasonable home prices is the fact that many places on the list are economic oases, surrounded by areas where jobs are dwindling, which helps depress housing demand. Yet the college towns themselves are thriving: The peak years for American births since the baby boom were 1989 to 1993, and college enrollments are swelling as never before. Many communities on the list also have big medical centers or flourishing research operations.

My published articles are archived at iSteve.com -- Steve Sailer