Showing posts with label political economy. Show all posts
Showing posts with label political economy. Show all posts

April 14, 2014

Germany, U.S., Spain: Unemployment and Immigration

Economist Scott Sumner offers some learned macroeconomic theorizing on 
Germany's mysterious recovery 
Scott Sumner 
In the past 10 years Germany as gone from being the "sick man of Europe" to the star of the eurozone. This partly reflects the strong job creation that preceded the recession, perhaps due to the labor market reforms of 2003. However the post-2007 performance is even more amazing. There was almost no increase in unemployment during the recession, and the unemployment rate has fallen to relatively low levels during the recovery.

Why has Germany's unemployment rate fallen 3 points since the end of 2007, while America's is still 2 points higher?

I would suggest that one straightforward clue can be deduced from looking at population changes from 2000 to 2008 (assuming Google's handy time charts can be trusted)

Germany's population fell by about 100,000 (-0.1%) from 2000 to 2008. Germany used to have a lot of immigration from Turkey, but the country has been quietly cutting back on that as it turned out that the Turks quickly stopped working and went on welfare. Ironically, some of the denunciations of Thilo Sarrazin's bestseller against mass immigration, Germany Abolishes Itself, no doubt came from insiders who agreed with it but didn't want to draw attention to the fact that they'd been implementing some of it avant la lettre.

In contrast, the population of the U.S. grew by about 21,800,000 from 2000 to 2008 (+7.8% in just 8 years).

Even more strikingly, Spain's population grew from by 5,200,000 (+13.1%).

During the 2000 to 2008 period, in contrast to tightening-up Germany, the U.S. and Spain both had similar immigration policies focused on importing large numbers of Latin Americans. The Spanish theory was that they would get better Latin Americans than the Americans because the Latin immigrants already spoke the national language of Spain so they would be more economically productive faster. Also, because it's more expensive to get to Spain from Latin America, Spain expected to get a higher class of Latin American immigrant.

These Spanish immigration ideas actually seem pretty sensible compared to the lowbrow, emotional American views, as enunciated by President Bush in a Presidential Debate in 2004:
"... you're going to come here if you're worth your salt ..."

But, being slightly smarter about immigration than George W. Bush hasn't saved Spain from catastrophe. Currently, the unemployment rate in Germany is 5.1% and in Spain it's 25.8%.

Obviously, there are a lot of other things going on in these comparisons, such as the Euro.

But, just looking at these very simple numbers explains a lot.
     

April 12, 2014

Great moments in marketing research: WaMu's focus groups

From the 2011 book Lost Bank by Kirsten Grind about Washington Mutual, which collapsed spectacularly in 2008: In mid-2003, a market researcher named Kevin Jenne is sent to Orange County and Illinois to conduct focus groups on WaMu customers who had recently acquired Option Adjustable Rate Mortgages. These allowed borrowers to choose anything from 15 year fixed repayment to letting them pay only 1% interest for five years while the principal "negatively amortized" (and then the hammer would come down around 2008 when the interest rate reset to the current index and the principal left to be paid off was larger than when they started). Jenne's assignment was to study these Option ARM borrowers to learn how to persuade more people to get Option ARM mortgages.
The 31 people who attended the dual sessions had two things in common: all of them held Option ARM loans, and few, if any understood what that meant.  
Jenne listened patiently, as, over and over again, the borrowers described what they believed to be their loan terms. They had gleaned startlingly few details about their loans from the mortgage broker or the WaMu loan consultant who had helped them through the process. Most of them knew they held adjustable-rate loans. They also thought the loan was cheaper than a regular mortgage, because they didn't have to pay as much each month. Approval hadn't been a hassle, the customers said -- WaMu had required little paperwork or income documentation. That's where their knowledge stopped. "From their perspective, it was a low payment loan, and that's all it was," Jenne said. "No one understood the option thing." 
Some of the borrowers in the focus groups were first-time homebuyers, still awed by their new ability to capture the American Dream. Recently, President George W. Bush had announced plans to increase minority homeownership by 5.5 million people, piggybacking on the goals of his predecessor, President Bill Clinton. "We want people owning something in America," Bush declared at an expo in New Mexico. "That's what we want. The great dream about America is, I can own my own home, people say."

In reading Bush's minority mortgage speeches denouncing redlining, downpayment requirements, and onerous paperwork requirements such as pay stubs, a recurrent phenomenon is Bush's Yoda-like reverse syntax. Did Bush always sound like this, or just on the topic of minority mortgages?
The focus group borrowers, some of them members of minorities, were effusive about their buying power. "They had been told by so many people that they couldn't afford one," Jenne said. Now they could. 

According to the federal Home Mortgage Disclosure Act database that exists to make sure minorities get enough loans, over half of the dollars lent in Orange County in 2003 by Washington Mutual's subsidiary Long Beach Mortgage went to Hispanics.
Few of them understood what negative amortization meant, or that it could make their debt grow in the long run. ...  
Half an hour into the first session with borrowers in Orange County, Jenne could tell that quizzing these people on their loan terms was futile -- they didn't know their loan terms. He got up, excused himself, and left the room. ... Jenne walked into another room at the sterile interrogation facility, behind a two-way mirror, where two mortgage production employees from the Home Loans Group had been observing the discussion. ... "I don't think we're asking the right questions," Jenne told them. The questions he had put together seemed useless. But the mortgage employees disagreed. They wanted him to ask about indexing, even though the customers barely understood interest rates. "Find out what the index means to them," they instructed Jenne. 
... He asked the group of borrowers: "How does your interest rate change?" 
No one responded. 
"It changes, right?" Jenne probed. 
The borrowers looked around the table at one another. Finally one said, "Yeah, it changes." 
"I think it's indexed," offered one woman. 
"Yeah, yeah, indexed!" agreed another. They had answered a question correctly! 
"Well, what's it indexed to?" Jenne asked. 
Another long awkward pause ensued. 
"My loan is indexed to the Nikkei," proclaimed one borrower. 
Another long, awkward pause ensued. 
"Your mortgage is based on the Japanese stock market?!" Jenne thought to himself. "Of course I didn't say that, he said later. "But I'm going, 'Oh, my heavens.'" Strangely, in another focus group, in Illinois, another borrower also believed his loan was indexed to the Nikkei. Jenned never discovered where borrowers had received that information. "I don't think they were being told this by someone," said Jenne. "I think that the only index they had heard of, like on TV or something, was the Nikkei. It was just bizarre.
The borrowers did seem worried about the loan terms. One of them said, "It's really scary to me what's going to happen in five years." Another echoed the same sense of foreboding with a slightly more compressed time frame. "Something terrible happens in three years." Said a third borrower: "I'm a little nervous about it. I have this feeling of impending doom. It's almost too good to be true."
On the other hand, the borrowers seemed comfortable in their ignorance. "Despite their lack of understanding, participants were almost universally happy with their loan choice," the report noted. ...
The Home Loans Group wanted Jenne to recommend ways to market the Option ARM. So, Jenne and his team noted in their follow-up report that the best way to off-load the product onto customers was to tell them little about it. That avoided the problem of complicated loan terms and words that no one understood. "Focusing on the right 'need to know' information is critical to developing more Option ARM sales. Participants seemed easily overwhelmed by the product details," the report concluded.
... Jenne came to believe that the Option ARM wasn't just a bad idea -- it might be evil. "After awhile, I lost that feeling," Jenne said. "Then I came back to it later on. And then I thought, 'No, no, this product is definitely evil.'" 
Whether or not [CEO] Kerry Killinger saw Jenne's research on America's hot new mortgage product -- and it's likely that he didn't se it -- WaMu doubled its annual Option ARM production to $68 billion in one year. By early 2005, WaMu promoted its loan as its "signature mortgage." It made up more than 25% of all the mortgages WaMu made or purchased.

A few observations:

The vast Mexican surge into places like Orange County over the last few generations represented basically Fresh Meat to exploit for Newport Beach MBAs with spreadsheets. When you hear the Donor Class of the GOP talking about the need for "immigration reform," that's what they mean: more Fresh Meat.

These dialogues capture quite well the happy-go-lucky agreeableness combined with an aversion to hard mental effort that are a trademark of Mexican-Americans in Southern California (and perhaps elsewhere). When Michael Barone talks about Mexicans as the New Italians, he misses a key distinction: Italian-Americans tend to be suspicious and pessimistic. They put a lot of cognitive effort into trying to understand why this too good to be true offer is too good to be true. They save a lot because they expect the worst.

Mexican-Americans tend to spend a lot because they expect the worst, but it would also be too much work to figure out what might happen, so why not have a good time now?
         

February 3, 2014

Here we go again ...

From the New York Times:
Race Gap on Conventional Loans

African-American and Hispanic borrowers have been largely shut out of the conventional mortgage market, according to a new report from Zillow and the National Urban League. Citing 2012 loan data reported under the Home Mortgage Disclosure Act, along with results from a Zillow poll of 700 mortgage applicants in December, the analysis found that whites accounted for about 69 percent of all conventional mortgage applications. The share of applications filed by blacks was under 3 percent; Hispanics represented only 5 percent.

100 - 69 - 3 - 5 = 23% of new conventional mortgages going to whom?
Black and Hispanic borrowers are far more likely to apply for low-down-payment loans insured by the Federal Housing Administration. About 57 percent of black applicants and 60 percent of Hispanic applicants applied for F.H.A. loans, compared with 30 percent of white applicants. 
Access to financing that requires as little as 3.5 percent down is key for minority applicants, who on average have lower incomes and credit scores than whites, said Stan Humphries, Zillow’s chief economist. They also have far lower rates of homeownership, which makes it harder to accumulate wealth over time and across generations. “Higher down-payment requirements have had the biggest impact on minority applicants for conventional mortgages,” Mr. Humphries said. “They just don’t have the savings nonminority groups have.” 
And their conventional mortgage applications are more likely to be denied. One in four black applicants were turned down, compared with one in 10 white applicants, the report said. 
As conventional lending standards have tightened, F.H.A.-backed loans have become crucial to maintaining credit access in minority communities. But at the same time, Mr. Humphries said, F.H.A.’s dominance among such borrowers hints at a problematic trend: “a different path to financing based on your race and ethnic group.” 
And the F.H.A. path can be costly. Although F.H.A.-backed loans offer the initial advantage of less money down, their mortgage insurance premiums are considerably higher than premiums on conventional loans. 
Julia Gordon, the director of housing finance and policy at the Center for American Progress, a liberal research group, has concerns about what she calls “the dual housing market,” and says she believes the conventional market ought to be making lower-down-payment loans more widely available. “Like all the other separate-but-equal arrangements,” she said, “this is not good for consumers or the market or for taxpayers. We are seeing creditworthy people who should be able to get loans in the conventional market but can’t.” 
Ongoing discussions in Washington about how to wind down Fannie Mae and Freddie Mac should include a commitment to ensure that lenders make credit available equitably, she added. 

With apologies to Wordsworth and Milton:

                     Las Vegas, 2014
MOZILO! thou shouldst be lending at this hour:
    Exurbs have need of thee: they are a fen
    Of prudent finance: kitchen, bath, and den,
Fireplace, the heroic wealth of marble shower,
Have forfeited their late-lost subprime dower
    Of higher leverage. We are low-debt men;
    O raise us up, return to us again,
And give us zero down liar loan power!
Thy face was like an Orange, and golfed a lot;
    Thou hadst a voice whose sound was like TV:
    Pure flapdoodle, correct politically,
    So didst thou at Sherwood Country Club play,
In devout PCness; and yet thy stock
    The lowest return on investment did pay.
 
Here's the original:

                     London, 1802
MILTON! thou shouldst be living at this hour:
    England hath need of thee: she is a fen
    Of stagnant waters: altar, sword, and pen,
Fireside, the heroic wealth of hall and bower,
Have forfeited their ancient English dower
    Of inward happiness. We are selfish men;
    O raise us up, return to us again,
And give us manners, virtue, freedom, power!
Thy soul was like a Star, and dwelt apart;
    Thou hadst a voice whose sound was like the sea:
    Pure as the naked heavens, majestic, free,
    So didst thou travel on life's common way,
In cheerful godliness; and yet thy heart
    The lowliest duties on herself did lay.
         

April 8, 2013

The mysterious epidemic of worker disabilty


Via Kevin Drum, the Wall Street Journal says:
Michael Feroli, chief U.S. economist for J.P. Morgan, estimates that since the recession, the worker flight to the Social Security Disability Insurance program accounts for as much as a quarter of the puzzling drop in participation rates, a labor exodus with far-reaching economic consequences.

Thank goodness we let in all those illegal immigrants to do the jobs Americans are just too disabled these days to do. Who knew that working class Americans would suffer an epidemic of vague back pain and balky knees after decades of business, political, and economist elites conspiring to hammer down their wages through non-enforcement of immigration laws? Fortunately, our political, economic, intellectual, and moral betters somehow sensed that their fellow citizens would be getting more disabled in the future (apparently, arthroscopic surgery has been disinvented, or something), so our leaders brilliantly took action ahead of time to make sure America had an ample supply of unskilled foreign laborers to replace the Americans overwhelmed by this mysterious epidemic of disability. 

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 3, 2012

Jared Diamond's frustration with his intellectual heirs

In the New York Review of Books, celebrity economists Daron Acemoglu and James Robinson write in to complain that reviewer Jared Diamond wasn't quite rapturous enough about their new book attributing virtually all differences in national wealth to their unfalsifiable theory that it's all caused by the White Man hogging the good institutions: rich countries, by definition, have good institutions and poor countries have bad institutions, which is the fault of European colonialists, so all that poor countries need to do is get themselves some of those good institutions.

In response, Diamond patiently explains once again what ought to be obvious concepts, such as that geographic differences, including the prevalence of tropical diseases, actually do play a role:
Even while they are still alive, workers in the tropics are often sick and unable to work. Women in the tropics face big obstacles in entering the workforce, because of having to care for their sick babies, or being pregnant with or nursing babies to replace previous babies likely to die or already dead.

While I appreciate Diamond fighting the good fight here, I have to reflect that he helped bring Acemogluism on himself with his impressive but disingenuous Guns, Germs, and Steel. When you think to yourself, "I'm going to shade the truth a little to make some money, but surely future generations will rectify the misleading impression that political correctness persuaded me to make," it may well turn out that instead you just motivate a new generation like Acemoglu to try to make lots of money like you not by putting forward more accurate theories, but instead trying to top you by putting forward far more stupid theories.

July 12, 2012

Cue Dr. Evil: "175 Mmmmmmillion Dollars!"

For the longest time we've been hearing about how racism caused the subprime mortgage meltdown by causing financial companies to charge blacks and Hispanics more fees and interest. And that's why they couldn't pay back their loans: not because they didn't have enough money but because they were being charged too much for their loans. This is in contrast to the more realistic view [i.e., mine] that the main cause was imprudent financiers like Angelo Mozilo using the War on Redlining as an excuse to get out from under traditional regulations on mortgages, like requiring documentation of income.

But when the Obama Administration settles on these discrimination charges, it's always for a pittance compared to the hundreds of billions involved.

From the New York Times:
Wells Fargo, the nation’s largest home mortgage lender, has agreed to pay at least $175 million to settle accusations that its independent brokers discriminated against black and Hispanic borrowers during the housing boom, the Justice Department announced on Thursday. If approved by a federal judge, it would be the second largest residential fair-lending settlement in the department’s history.
An investigation by the department’s civil rights division found that mortgage brokers working with Wells Fargo had charged higher fees and rates to more than 30,000 minority borrowers across the country than they had to white borrowers who posed the same credit risk, according to a complaint filed on Thursday along with the proposed settlement.
Wells Fargo brokers also steered more than 4,000 minority borrowers into costlier subprime mortgages when white borrowers with similar credit risk profiles had received regular loans, a Justice Department complaint found. The deal covers the subprime bubble years of 2004 to 2009. ...
Thomas Perez, the assistant attorney general for the civil rights division, said the practices amounted to a “racial surtax,” adding: “All too frequently, Wells Fargo’s African-American and Latino borrowers had no idea they could have gotten a better deal — no idea that white borrowers with similar credit would pay less.”

I don't see any mention of the race of the mortgage brokers who were getting bad deals for minorities. The financial industry had, in cooperation with the government, made a huge effort to bring in more minority brokers and salesmen. This giant Minority Outreach wasn't just to please the politicians, of course. As with buying cars, where salesmen notoriously exploit the insecurities and lack of financial acumen of black and Latino customers, NAMs tend to be easy meat for mortgage brokers of their own race. The problem is that they are also less likely to pay off their loans.
... The Justice Department estimated that the minority borrowers who had been steered into costly subprime loans would receive an average of $15,000, while the victims who had been charged more costly fees would receive $1,000 to $3,500. In addition, the bank has agreed to give $50 million to a program that assists people in making down payments or improving their homes in eight metropolitan areas: Baltimore, Chicago, Cleveland, an area east of Los Angeles, New York, Oakland/San Francisco Bay Area, Philadelphia and Washington. 
Lending data showed, for example, that in 2007 customers in the Chicago area who borrowed $300,000 from Wells Fargo through an independent broker had paid an average of $2,937 more in broker fees if African-American, and $2,187 more if Hispanic, compared with white borrowers with a similar credit risk, the complaint said. 
Similarly, it said, the data showed that nationwide, an African-American borrower who had qualified for a regular loan was 2.9 times more likely to be steered into a subprime loan, and a Hispanic borrower was 1.8 times more likely, than were similarly creditworthy white borrowers. Subprime loans, which are intended for riskier borrowers, carry higher interest rates.

Of course, the article doesn't mention the default rates by race.
Wells Fargo was also facing lawsuits by several entities beyond the Justice Department, including the city of Baltimore, the state of Illinois and the Pennsylvania Human Rights Commission. It settled with all of them as part of the deal, putting to rest its fair-lending cases from the bubble years. 
The focus of the settlement is Wells Fargo’s failure to police the behavior of its independent loan brokers. The complaint said that the bank had set basic credit guidelines but then had allowed the brokers discretion to charge higher rates or steer people into less attractive loans without ensuring there was no discrimination based on race or national origin 
Wells Fargo and the Justice Department were unable to agree on whether the data had showed any evidence of discrimination in the lending practices of the bank’s in-house “retail” mortgage agents. Instead, they agreed to a methodology to evaluate that data further. If it finds evidence of discrimination, the victims would receive similar compensation on top of the $175 million Wells Fargo has already agreed to pay. 
Under federal civil rights laws, a lending practice is illegal if it has a disparate impact on minority borrowers, even without evidence of discriminatory intent.

Allow me to make a prediction. Financial firms will cut back on their Minority Outreach for awhile, until such point as the Good Times are rolling again, at which point politicians will demand it and we'll go through the whole cycle all over again.
... In December, the division settled a similar lawsuit with Bank of America for $335 million over loan discrimination by its Countrywide Financial unit. In May, SunTrust Mortgage agreed to pay $21 million in a similar case.

Countrywide was the biggest mortgage lender in the country, so that puts some perspective on the Discrimination Caused the Meltdown theory.

June 20, 2012

California v. Texas: U2 property rights

From my new column in Taki's Magazine:
The struggles of even the best-connected California celebrities to nail down every last one of the permits they need to build on their own property helps demonstrate why differences in topography drive Californians toward voting for environmentalist Democrats and Texans toward pro-business Republicans. ... 
In Southern California, U2 guitarist The Edge (born David Evans) has been battling for a half-dozen years to build five mansions on his 156 acres of ridgeline overlooking Malibu’s Surfrider Beach, an average of one home per 31 acres. His well-heeled neighbors have gone to war to prevent him from taking such liberties with their view. 
California and Texas are the two largest states in the Electoral College, so it’s worth considering the bedrock reasons they vote the way they do. Having lived in both California and Texas, my guess is that their divergent politics are shaped by the shape of their land.

Read the whole thing there.

June 12, 2012

"Obama’s early Chicago rise brought African-Americans foreclosures, bankruptcies"

A few weeks ago I posted the analysis by Robert Fitch, an old white power-to-the-proles lefty, of Obama's role in Chicago's real estate wars.

Now in the Daily Caller, Neil Munro has a long article shedding light on President Obama's role in Chicago's real estate disaster, using as a focal point the one case in which Obama ever spoke up in court (according to a 2008 Chicago Sun-Times article), a disparate impact discrimination lawsuit against Citibank to get more mortgages for minorities.
President Barack Obama wants his 2012 re-election campaign to focus on Gov. Mitt Romney’s private-sector record, but his own private-sector history shows that he promoted and profited from the nation’s disastrous real-estate bubble. 
One striking example comes from the president’s 1995 housing-discrimination class action lawsuit: It provided him with legal fees, greased his political donations and boosted his role in Chicago politics. 
While he made personal gains, his lead African-American client, Selma Buycks-Roberson, declared bankruptcy in 2001 — and again in 2008 as she received a home foreclosure notice, according to unpublicized federal and city records obtained by The Daily Caller.

Read the whole thing there.

June 9, 2012

Casey Martin, Slippery Slopes, and Boiling Frogs

Three years ago, I blogged about how the culture of the bond rating companies, such as Warren Buffett's Moody's, had been very slowly corrupted by the logic of the conflict of interest that went back to the 1970s by which they stopped being paid by buyers of securities and started being paid by issuers. This logical problem didn't become a terrible real world problem until the 2000s with the mortgage-backed securities disaster. I drew an example from golf:
Casey Martin, who was born with a terrible birth defect that crippled one of his legs, leaving him in recurrent pain, starred on Stanford's famous mid-1990s college golf team along with the full-blooded Navajo Notah Begay, who went on to win four times on the PGA tour before alcohol brought him down, and with Eldrick Woods Jr., who, last time I heard, remains employed in a golfing capacity. 
Despite his disability, Martin enjoyed enough success on the minor league Nike tour to qualify for the PGA tour in 2000. His lawsuit under the Americans with Disability Act to be allowed to use a golf cart on the PGA tour went all the way to the Supreme Court, where he won in 2001. 
Martin's was not a popular victory with players, with both Jack Nicklaus and Arnold Palmer protesting that it would open the door to other players getting a note from their doctor to be chauffeured about the course. 
It was easy to imagine a player with a bad back like Fred Couples trying to get permission for a cart, and then the whole thing descending into carts everywhere.
And yet, eight years later, the PGA Tour hasn't slid down the slippery slope. So far, as far as I can tell, a cart has only been used once by somebody other than the severely unlucky Martin: Erik Compton rode in one tournament last fall because he had gotten his second heart transplant only a few months before. 
Essentially, golf has a fairly healthy culture of sportsmanship where top players don't want to be seen as abusing loopholes. So, it hasn't been hard so far to restrict cart-riding to rare human-interest stories like Martin and Compton.

As dearieme commented at the time:
This accords with my observation that conservatives are very shrewd at seeing the direction of social change but prone to overestimating its speed. That's because they overlook how conservative people can be, which is pleasingly paradoxical.

Golf has a highly conservative culture, basically one of "What would Old Tom Morris do?" 

It was fortunate that its origin culture was Scottish rather than English because it avoided most of the hypocrisy and cheating over amateurism that plagued tennis up to 1968 (when Wimbledon finally admitted professionals) and the Olympics even later. The Scots had a somewhat less classbound society than the English, so if a man wanted to make his living from golf, as Morris did at St. Andrews in the mid-19th Century, that was honorable. It was more honorable to be an amateur, like Bobby Jones in the 1920s, and they had their own Amateur tournaments, but the amateurs did not see themselves as tainted by striving against the professionals in the Open tournaments. 

By the way, the partially crippled Casey Martin, unsurprisingly, couldn't play well enough to stay on the PGA tour. Six years ago, he retired and became the golf coach at the U. of Oregon. A week ago, at age 40, he qualified for next week's U.S. Open at Olympic in San Francisco.

May 30, 2012

Economists v. Child Labor and Immigration Laws

Over at Marginal Revolution, Tyler Cowen links to a study of why child labor expanded so much during the laissez-faire era of the industrial revolution. The comments are mostly the usual libertarian chest-pounding, leading up to Roy Swanson's:
I got my first job when I was nine. Worked at a sheet metal factory. In two weeks, I was running the floor. Child labor laws are ruining this country.

Well played, sir. 

On second reading, I've come to believe this is a pitch-perfect parody of 21st Century libertarianism. Having never worked in a sheet metal factory, I couldn't say for sure, but I would guess that there are a lot of opportunities for sheet metal workers to lose fingers or even heads without adequate adult supervision.

[Update: Commenters have pointed out that Rob Swanson is the libertarian Tea Party government bureaucrat (the one who looks like Teddy Roosevelt) on the TV sitcom Parks and Recreation. Sorry about ham-handedly explaining the entire joke. But, at least, I did recognize it was supposed to be funny.]

When I was majoring in economics, history (especially of Britain), and business at Rice in the 1970s, child labor in Dickensian England was a major intellectual sore spot. 

The libertarians were just beginning their ascendance in the academy. Rice, a science / engineering-focused college in the booming oil capital of Houston, was unusual among elite universities because its faculty averaged less to the left than was the norm in the 1970s. While the economics department was increasingly libertarian, it was striking at the time that even the history department had two star converts to pro-market ideas in Allen Matusow and Martin J. Wiener, who is obscure in America but subsequently became hugely controversial in England in the early 1980s because of his influence on Thatcherism via Keith Joseph.

A major PR problem for laissez-faire ideas back then, however, was the extremely well documented history of a previous era when laissez-faire ideas had been dominant: in England in the first 3/4ths of the 19th Century. In particular, nobody who read about the era wanted to go back to not regulating child labor.

Since then, the Dickensian Era has become less of a problem for intellectual libertarians. People don't read Dickens as much. Nobody watches Oliver! the 1968 Best Picture winner (I played Oliver Twist's grandfather, Mr. Brownlow, in the St. Francis De Sales elementary school's 1970 production of Oliver!). Time passes and less and less is remembered.

Over the centuries, laissez-faire argumentation for low wages has shifted from insisting upon the iron necessity of child labor to the wonderfulness of open borders. But the combination of monetary interest driving intellectual arguments remains very similar. 

Perhaps the best critique of the ideological rigidity of laissez-faire England comes from Paul Johnson's 1972 A History of the English People. This preceded his famous conversion to neoconservatism in the brilliant Modern Times of 1983. But in 1972, Johnson was the last heir of Orwell in his English patriotic democratic socialism. In VDARE.com in 2007, I explained how Johnson's analysis could be applied to current debates over immigration:
We don't think of the British as being terribly ideological. But during the second quarter of the 19th Century, their justifiable national pride in developing economics for once overwhelmed the vaunted British common sense. A dogma based on a crude interpretation of the works of Malthus and Ricardo presumed that low wages were crucial to profits, just like the sophomoric economics of today's open borders crowd. 
Back then, the ruling class didn't fulminate over plucking chickens but over sweeping chimneys. 
Consider the fates of the little boys, from age four on up, who were widely employed by master chimney sweeps to clamber up inside long flues and knock down the soot, at horrific cost to their health. Paul Johnson writes in A History of the English People (p.285), “often they were forced up by the use of long pricks, and by applying wisps of flaming straw to their feet. They suffered from a variety of occupational diseases and many died from suffocation.” 
The ruling ideology of the age assumed that, as regrettable as this might be, the laws of economics required it. 
After all, how else would chimneys ever get swept? 
The first bill banning the employment of children under eight from chimney sweeping passed Parliament in 1788. But, like many immigration laws in America today, it was ignored. So was the 1834 act. 
Then, the greatest reformer of the Victorian Era, Anthony Ashley Cooper, the seventh Earl of Shaftesbury, began his almost endless crusade to abolish child labor inside chimneys. Like William Wilberforce, the victor over the slave trade, Shaftesbury was a Tory, an evangelical Anglican, and a relentless parliamentarian.
In 1840, Shaftesbury carried a bill to regulate child chimney sweeps over ”resistance that can only be called fanatical”, in Johnson’s words. 
It also was not enforced. 
Three more of Shaftesbury’s bills failed in Parliament in the 1850s. He succeeded in 1864, but the legislation proved ineffective “due to a general conspiracy of local authorities, magistrates, police, judges, juries, and the public to frustrate the law. Boys continued to die…” including a seven-year-old who suffocated in a flue in 1873. 
Shaftesbury finally succeeded in passing effective legislation in 1875. 
And, of course, that winter everyone in Britain froze to death due to clogged chimneys. 
Oh, wait … sorry, that was in Bizarro Britain, where the reigning interpretations of economics actually applied. Rather like in Senator Kennedy’s Abnormal America, where nobody will be able to afford to eat chicken without the Liberal Lion’s amnesty and guest worker programs. 
In the real Britain, however, the master chimney sweeps quickly found other ways to clean chimneys. 
What we’ve learned since the early Victorian Era is that the world works in ways more responsive to intelligent effort than was imagined by Thomas Malthus: 
- High wages can often spur technological advances that more than make up for their costs. 
- The key to economic prosperity is not low wages but high human capital.
In contrast to Dickensian England, with its Scrooge-like obsession with cheap labor, Americans traditionally enjoyed high wages because the country was underpopulated relative to its natural resources. This inspired American entrepreneurs to invest in labor-saving innovations, which, in a virtuous cycle, allowed even higher wages to be paid. 
The most famous example: Henry Ford doubling his workers’ salaries in 1914 after inventing the moving assembly line. 
In the long run, the cheap labor obsession debilitated the English economy. After the brilliant innovations of the early Industrial Revolution, the English textile industry tended to stagnate. Paul Johnson explains: 
“Factories paid higher wages than domestic industries; all the same, they were very low, chiefly because most of the factory hands were women and children. Low wages kept home consumer demand down; worse still, they removed the chief incentive to replace primitive machinery by the systematic adoption of new technology.” 
And then there was the long run impact on Britain’s economic culture. Johnson writes: 
“State limitations of human exploitation came too late, and were too ineffective, to make the quest for productivity a virtue; the English did not discover it until the twentieth century, by which time the trade union movement had constructed powerful defenses against it.” 
Victorian Scroogeonomics helped engender its own nemesis. It drove the British working class far to the left of the American working class, leading to both the nationalization of major industries in the 1940s and a hatred of productivity improvements among unions, exemplified in the 1959 Peter Sellers’ movie I’m All Right, Jack.

May 27, 2012

An old white lefty's view of where Obama is coming from

The late Robert Fitch, a veteran critic of New York real estate insiders, gave a speech to the Harlem Tenants Association on November 14, 2008 applying his brand of analysis to the history of Obama's rise in Chicago. 
In fact, as Obama knows very well, for most of the last two decades in Chicago there’s been in place a very specific economic development plan. The plan was to make the South Side like the North Side. Which is the same kind of project as making the land north of Central Park [i.e., Harlem] like the land south of Central Park. The North Side is the area north of the Loop—Chicago’s midtown central business district—where rich white people live; they root for the Cubs. Their neighborhood is called the Gold Coast. For almost a hundred years in Chicago, blacks have lived on the South Side ...
And in the 1980s, the argument began to be made that the public housing needed to be demolished and the people moved back into private housing. For a while, the election of the city’s first black Mayor, Harold Washington, blocked the demolition. But Washington died of a heart attack while in office, and after a brief interregnum, the Mayor’s office was filled in 1989 by Richard M. Daley—whose father had carried out the first urban renewal. Daley was his father’s son in many ways. By 1993, with subsidies from the Clinton Administration’s HOPE VI program, the public housing units began to be destroyed. And by 2000 he’d put in place something called The Plan for Transformation. It targeted tens of thousands of remaining units. 
With this proviso: That African Americans had to get 50% of the action—white developers had to have black partners; there had to be black contractors. And Daley chose African Americans—as his top administrators and planners for the clearances, demolition and re-settlement. African Americans were prominent in developing and rehabbing the new housing for the refugees from the demolished projects—who were re-settled in communities to the south like Englewood, Roseland and Harvey. Altogether the Plan for Transformation involved the largest demolition of public housing in American history, affecting about 45,000 people—in neighborhoods where eight of the 20 poorest census tracts in the U.S. were located. 
But what does this all have to do with Obama? Just this: the area demolished included the communities that Obama represented as a state senator; and the top black administrators, developers and planners were people like Valerie Jarrett—who served as a member of the Chicago Planning Commission. And Martin Nesbitt who became head of the CHA. Nesbitt serves as Obama campaign finance treasurer; Jarrett as co-chair of the Transition Team. The other co-chair is William Daley, the Mayor’s brother and the Midwest chair of JP Morgan Chase—an institution deeply involved in the transformation of inner-city neighborhoods thorough its support for—what financial institutions call “neighborhood revitalization” and neighborhood activists call gentrification. 

William Daley went on to serve as Obama's second chief of staff, following Rahm Emmanuel, who is now mayor of Chicago.
If we examine more carefully the interests that Obama represents; if we look at his core financial supporters; as well as his inmost circle of advisors, we’ll see that they represent the primary activists in the demolition movement and the primary real estate beneficiaries of this transformation of public housing projects into condos and townhouses: the profitable creep of the Central Business District and elite residential neighborhoods southward; and the shifting of the pile of human misery about three miles further into the South Side and the south suburbs. 
Obama’s political base comes primarily from Chicago FIRE—the finance, insurance and real estate industry. And the wealthiest families—the Pritzkers, the Crowns and the Levins. But it’s more than just Chicago FIRE. Also within Obama’s inner core of support are allies from the non-profit sector: the liberal foundations, the elite universities, the non-profit community developers and the real estate reverends who produce market rate housing with tax breaks from the city and who have been known to shout from the pulpit “give us this day our Daley, Richard Daley bread.” Aggregate them and what emerges is a constellation of interests around Obama that I call “Friendly FIRE.” Fire power disguised by the camouflage of community uplift; augmented by the authority of academia; greased by billions in foundation grants; and wired to conventional FIRE by the terms of the Community Reinvestment Act of 1995. …
Yes, Obama worked with Ayers, but not the Ayers who blew up buildings; but the Ayers who was able to bring down $50 million from the Walter Annenberg foundation, leveraging it to create a $120 million a non-profit organization with Obama as its head. Annenberg was a billionaire friend of Ronald Reagan and Margaret Thatcher. Why would he give mega-millions to a terrorist? Perhaps because he liked Ayers’ new politics. Ayer’s initiative grew out of the backlash against the 1985 Chicago teachers’ strike; his plan promoted “the community” as a third force in education politics between the union and the city administration. Friendly FIRE [i.e., liberal, multiracial Finance, Insurance, and Real Estate interests] wants the same kind of education reform as FIRE: the forces that brought about welfare reform have now moved onto education reform and for the same reason: crippling the power of the union will reduce teachers’ salaries, which will cut real estate taxes which will raise land values. 
Is Obama a minion of Richie Daley? It’s true that Obama has never denounced Daley. He actually endorsed him for Mayor in 2007. Even after federal convictions of Daley’s top aides. After the minority hiring scandals. And after the Hired Truck scandal which showed that the Daley machine shared its favors with The Outfit. But the Daley dynasty has expanded far beyond wiseguy industries. The Mayor’s brother, William Daley, who served on Obama’s transition team, also serves now as a top executive of J.P. Morgan Chase. He heads the Midwest region. And chairs J.P. Morgan Chase Foundation, the core of friendly FIRE. Here’s an excerpt from a recent report: "…[we] achieved significant progress toward our 10-year pledge to invest $800 billion in low- and moderate income communities in the U.S.—the largest commitment by any bank focused on mortgages, small-business lending and community development. In 2006, we committed $87 billion, with total investment to date of $241 billion in the third year of the program. Played a leadership role in the creation of The New York Acquisition Fund, along with 15 lenders and in conjunction with six foundations and the City of New York. The Fund is a $230 million initiative to finance the acquisition of land and buildings to be developed and/or preserved for affordable housing.“ 
It’s also true that key Black members of the Obama inner circle are Daley Administration alumnae—but they’ve moved up—now they’re part of Chicago FIRE. Like Martin Nesbitt. Obama is Nesbitt’s son’s godfather. He’s the African American chairman of the CHA. But his principal occupation is the vice presidency of the Pritzker Realty group. Although they’re not well known outside of Chicago, the Pritzkers rank among the richest families in the U.S. There are ten Pritzkers among the Forbes 400: Thomas is the richest at2.3 billion. Anthony and J.B. are next at $2.2 billion; Penny in fourth, at $2.1 billion—Daniel, James, Gigi, John, Karen, and Linda weigh in with $1.9 billion. Penny is finance chair of the Obama campaign. Martin is the treasurer. 

Daley saw Obama as a potential rival for the mayor's office. After Daley brushed aside Rep. Bobby Rush's challenge for his job in 1999, Daley turned around and provided some quiet aid to Rush in 2000 to help turn back Obama's challenge to Rush. Daley saw Rush, a former Black Panther, as easy to beat, but saw Obama as potentially a greater long term challenge.
Penny Pritzker herself has had a rocky career as a commercial banker. In 1991, she founded something called the Superior Bank of Chicago which pioneered in sub-prime lending to minorities. Superior was an early casualty of the sub-prime meltdown, though, crashing in 2001 when it was seized by the FDIC. Depositors filed a civil suit against Penny charging that Superior was a racketeering organization. The government charged that Superior paid out hundreds of millions of dividends to the Pritzkers and another family while the bank was essentially broke. There was a complex settlement in which the Pritzkers were forced to pay hundreds of millions in penalties; but the agreement contained provisions that may enable the Pritzkers to earn hundreds of millions. Notwithstanding the Superior bank disaster, Penny is being touted as Obama’s next Secretary of Commerce. 
Valerie Jarrett is another black real estate executive. Described as “the other side of Barack’s brain,” she also served as finance chair during his successful 2004 U.S. Senate campaign. Jarrett was Daley’s deputy chief of staff – that was her job when she hired Michelle Obama. Eventually Daley made her the head of city planning. But Jarrett doesn’t work for Daley anymore. She’s CEO of David Levin’s Habitat—one of the largest property managers in Chicago—and the court-appointed overseer of CHA projects. Habitat also managed Grove Parc, the scandal-ridden project in Englewood that left Section 8 tenants, mostly refugees from demolished public housing projects, without heat in the winter but inundated with rats. Grove Parc was developed by Tony Rezko, who’s white. And his long-time partner Allison Davis, who’s black. 
Let’s look at Rezko and then Davis. It was Rezko’s ability to exploit relationships with influential blacks—including Muhammad Ali—that enabled him to become one of Chicago’s preeminent cockroach capitalists.

Rezko was Ali's business manager in the 1980s because he was the business manager for the Muhammad family behind the Nation of Islam.
Altogether, Rezko wound up developing over 1,000 apartments with state and city money. There was more to the Obama-Rezko relationship than the empty lot in Kenwood. Rezko raised over $250,000 for Obama’s state senate campaign. While Obama was a state senator he wrote letters in support of Rezko’s applications for development funds. But Obama ignored the plight of Rezko’s tenants who complained to Obama’s office. Rezko’s Grove Parc partner, Allison Davis, was a witness in the Rezko trial, he’s pretty radioactive too. But you could see why Rezko wanted to hook up with him. 
Davis was the senior partner in Davis Miner Barnhill & Galland, a small, black law firm, where Obama worked for nearly a decade. As the editor of the Harvard Law Review, Obama could have worked anywhere. Why did he choose the Davis firm? Davis had been a noted civil rights attorney and a progressive critic of the first Daley machine. But in 1980 Davis got a call from the Ford Foundation’s poorly known, but immensely influential, affiliate LISC—the Local Initiatives Support Corporation—that had just been founded. LISC, whose present chair is Citigroup’s Robert Rubin, connects small, mainly minority community non-profits with big foundation grants and especially with bank loans and tax credit-driven equity. LISC wanted to co-opt Davis in their ghetto redevelopment program. He agreed and the Davis firm came to specialize in handling legal work for non-profit community development firms. Eventually Davis left the firm to go into partnership with Tony Rezko. Meanwhile, Obama did legal work for the Rezko-Davis partnership. And for Community Development Organizations like Woodlawn Organization. 
In 1994, the LA Times reports, Obama appeared in Cook County court on behalf of Woodlawnn Preservation & Investment Corp., defending it against a suit by the city, which alleged that the company failed to provide heat for low-income tenants on the South Side during the winter. There were several cases of this type, but as the Times observes, Obama doesn’t mention them in Dreams from My Father. In the 1960s, under the leadership of Arthur M. Brazier, Bishop of the Apostolic Church of God, Woodlawn gained a reputation as Chicago’s outstanding Saul Alinsky-stylec ommunity organization. Mainly, TWO [The Woodlawn Organization] battled the University of Chicago’s urban renewal program. But gradually, Brazier’s political direction changed. Now TWO is partnering with UC in efforts to gentrify Woodlawn. When Barack Obama left Jeremiah Wright’s church, he switched to Brazier’s Apostolic Church of God.

I don't believe that's fully true.
Brazier is typical of a much larger group—real estate reverends—who play the Community Development game and in the process have acquired huge real estate portfolios. But it’s really a national phenomenon. Here in New York we have Rev. Calvin Butts whose church has a subsidiary, the Abyssinian Development Corp. In partnership with LISC, the ADC now boasts a portfolio of $500 million in Harlem property alone. Rev. Floyd Flake of the Allen African Methodist Episcopal Church in Jamaica, Queens has a sizeable portfolio of commercial property too. Chicago’s disciples of development include Wilbur Daniel. He’s the Pastor of Antioch Missionary Baptist Church in Englewood who really did exclaim “Give us this day our Daley bread,” meaning free land and free capital for real estate development. Daniel’s prayers were answered in 2001, when with Daley’s help, Antioch was chosen to be the lead church in Fannie Mae’s $55 billion House Chicago plan for the redevelopment of the South Side. How has Obama earned the support and allegiance of friendly FIRE? Where does he stand on the Plan for Transformation? 
Generally speaking, he’s been careful not to leave too many footprints. If you google Obama and public housing, nothing comes up. But in 1995, a year before he ran successfully for state senate seat from South Side, in Dreams from My Father he wrote about his encounters with Rev. Jeremiah Wright. Obama says he was impressed by Wright’s emphasis on the unity of the black community. But he’s a little skeptical of too broad a unity; of achieving unity without conflict. He says, “Would the interest in maintaining such unity allow Reverend Wright to take a forceful stand on the latest proposals to reform public housing?” Here he’s referring to Clinton’s Hope VI—that provided matching federal money for the demolition of public housing. And the corresponding local initiatives, which culminated in the Plan for Transformation. “And if men like Reverend Wright failed to take a stand, if churches like Trinity refused to engage with real power and risk genuine conflict, then what chance would there be in holding the larger community intact?” 
I have to stop now and put Karnak’s envelope to my forehead. What we see is that the Chicago core of the Obama coalition is made up of blacks who’ve moved up by moving poor blacks out of the community. And very wealthy whites who’ve advanced their community development agenda by hiring blacks. Will this be the pattern for the future in an Obama administration? I can’t read the envelope. But I do believe that if we want to disrupt the pattern of the past we have to make some distinctions: between the change they believe in and the change we believe in; between our interests and theirs; between a notion of community that scapegoats the poor and one that respects their human rights—one of which is not to be the object of ethnic cleaning. Between Hope VI and genuine human hope.

Putting this in a larger perspective, it's reasonable to believe that Obama was drawn to Chicago in 1985 by the excitement of the Council Wars racial struggle between Mayor Harold Washington and the retrograde white leader Fast Eddie Vrodolyak in what seemed like a zero sum racial battle. But Obama found, when he finally got to know real life poor blacks in 1985-1988, that they weren't as uplifting as he had assumed from watching PBS fund-raising documentaries about the Civil Rights era. But he slowly started to realize that who he really liked were affluent, well-educated blacks. So, he bailed for Harvard Law School, intending to come back and lead blacks back to power in the mayor's office.

Over time, however, Richie Daley became mayor and he was more than happy to cut reasonable blacks in on the profits that could be made by clearing out Cabrini Green and the like, just as long as they'd play ball with Friendly FIRE. Michelle Obama had a wealth of contacts -- she'd been Jesse Jackson's babysitter, she worked for Daley's deputy Valerie Jarrett, and she liked money -- and Barack Obama was naturally drawn into this little world centered around Jarrett and Penny Pritzker.

On the other hand, let me point out a subtle distinction. I suspect that the secret end game envisioned by the more hardheaded liberal white leaders (I'm looking at you, Mayor Emmanuel) is likely not just to yuppify the Near South Side and move poor blacks to the Far South Side of Chicago where they can still vote in Chicago elections. Instead, the hard men want to use Section 8 rental vouchers to send poor blacks packing clear out of Chicago to hickvilles like Champaign-Urbana, while middle class blacks move themselves to inner ring suburbs, leaving only Obama-like upscale blacks in Chicago. This would slowly destroy black political power in Chicago, leaving behind only token affluent blacks and pockets of black poverty around the worst toxic waste sites in the industrial deep South Side.

For example, last year, Mayor Emmanuel's Chicago Police Department sent a 40-man SWAT team into just about the last two ungentrified houses in Lincoln Park, only seven blocks from Penny Pritzker's new mansion, to find pretexts for evicting the owners, an extended family of poor blacks.

Assume you are Mayor Emmanuel, and assume you want two decades or so in office like both Daleys got. Your job is going to be a lot more fun in 20 years if Chicago follows Manhattan and D.C. in whitifying rather than go down the path of Detroit and Cleveland.

But, as of 1995, Obama and his spiritual adviser, Jeremiah Wright, objected to what was looming on the horizon as a remote possibility: the more massive economic cleansing of blacks from not just the good parts of Chicago like Cabrini Green and the South Lakefront, but from the inland parts, where Wright's church was and where Obama had done his rather feckless community organizing.

Wright is quoted in Dreams, and Obama echoed Wright's argument in a 1995 Chicago Reader interview, that middle class blacks shouldn't flee to the suburbs to keep their sons from being gunned down. They should make a stand in Chicago (at least farther south than the potentially immensely valuable land around the loop and lakefront). Obama said in 1995:
"The right wing talks about this but they keep appealing to that old individualistic bootstrap myth: get a job, get rich, and get out." ... 

So, Obama here is agreeing with Wright's stance against black flight to the suburbs, which in Dreams from My Father is symbolized by Wright telling his secretary not to move to the suburbs to keep her son safe. But, as Fitch suggests, Obama's opaque statement in Dreams -- “And if men like Reverend Wright failed to take a stand, if churches like Trinity refused to engage with real power and risk genuine conflict, then what chance would there be in holding the larger community intact?” -- can be interpreted to mean that Obama wants to play a dual game that Rev. Wright is too stubborn even though it would be in his own interests: Obama wants to play palsy-walsy with people like the Pritzkers, but also to make sure that public housing project blacks are only relocated as far as the South Side, where they can still vote and still attend Rev. Wright's church, not all the way to exurban hickvilles like Round Lake Beach.

Obama told the Reader in 1995:
"I want to do this as much as I can from the grass-roots level, raising as much money for the campaign as possible at coffees, connecting directly with voters," said Obama. "But to organize this district I must get known. And this costs money. I admit that in this transitional period, before I'm known in the district, I'm going to have to rely on some contributions from wealthy people—people who like my ideas but who won't attach strings. This is not ideal, but it is a problem encountered by everyone in their first campaign.
"Once elected, once I'm known, I won't need that kind of money, just as Harold Washington, once he was elected and known, did not need to raise and spend money to get the black vote."
Obama took time off from attending campaign coffees to attend October's Million Man March in Washington, D.C. His experiences there only reinforced his reasons for jumping into politics.
"What I saw was a powerful demonstration of an impulse and need for African-American men to come together to recognize each other and affirm our rightful place in the society," he said. "There was a profound sense that African-American men were ready to make a commitment to bring about change in our communities and lives.
"But what was lacking among march organizers was a positive agenda, a coherent agenda for change. ... 
"But cursing out white folks is not going to get the job done. Anti-Semitic and anti-Asian statements are not going to lift us up. We've got some hard nuts-and-bolts organizing and planning to do. We've got communities to build."

But, of course, in 2000, Obama's plan to follow Harold Washington's career path to the mayor's office by first getting elected to the House of Representatives was derailed by the whupping he got from ex-Black Panther Bobby Rush in black districts. When he recovered from his depression, he gerrymandered his district to include the rich white Gold Coast north of the Loop that, culturally, is his natural base. When Michelle threatened to leave him unless he came up with a workable career strategy, he gave up on winning major power in the callous world of Chicago politics, where voters expect their politicians to be more than just elegant symbols of the electorate's own refinement, but instead to deliver the goods. Obama thus reworked his goals to winning statewide and even national office by taking his ethereal everything-to-everybody act on the road to the more naive parts of white America.

One big question is what precisely was Obama's role in real estate driven changes in Chicago that Fitch outlines. The answer appears to be: eh, not that much. He was there, he looked dignified, he uttered sonorous speeches, he was friends with the players, he tried to foster compromises that would advance the interests of the rich, white and black, without damaging the interests of demagogues like Rev. Wright by driving blacks all the way out of Chicago.

But, as far as I can tell, he doesn't appear to have been a major player himself. He doesn't seem to have been a driving force in the dealmaking. Was this out of scrupulousness (ethical, racial, or careerist)? Or is Obama, on the whole, just more decorative than dynamic?

Postscript:

To flesh out this subtle point about black flight to the suburbs, it's worth quoting from Dreams from My Father at length about Obama's first meeting with Rev. Jeremiah Wright:
Eventually a pretty woman with a brisk, cheerful manner came up and introduced herself as Tracy, one of Reverend Wright’s assistants. She said that the reverend was running a few minutes late and asked if I wanted some coffee. As I followed her back into a kitchen toward the rear of the church, we began to chat, about the church mostly, but also a little about her. It had been a difficult year, she said: Her husband had recently died, and in just a few weeks she’d be moving out to the suburbs. She had wrestled long and hard with the decision, for she had lived most of her life in the city. But she had decided the move would be best for her teenage son. She began to explain how there were a lot more black families in the suburbs these days; how her son would be free to walk down the street without getting harassed; how the school he’d be attending had music courses, a full band, free instruments and uniforms. 
“He’s always wanted to be in a band,” she said softly. 
As we were talking, I noticed a man in his late forties walking toward us. He had silver hair, a silver mustache and goatee; he was dressed in a gray three-piece suit. He moved slowly, methodically, as if conserving energy, sorting through his mail as he walked, humming a simple tune to himself. 
“Barack,” he said as if we were old friends, “let’s see if Tracy here will let me have a minute of your time." ...
“Some people say,” I interrupted, “that the church is too upwardly mobile." 
The reverend’s smile faded. “That’s a lot of bull,” he said sharply. “People who talk that mess reflect their own confusion. They’ve bought into the whole business of class that keeps us from working together. Half of ’em think that the former gang-banger or the former Muslim got no business in a Christian church. Other half think any black man with an education or a job, or any church that respects scholarship, is somehow suspect. 
“We don’t buy into these false divisions here. It’s not about income, Barack. Cops don’t check my bank account when they pull me over and make me spread-eagle against the car. These miseducated brothers, like that sociologist at the University of Chicago [William Julius Wilson], talking about ‘the declining significance of race.’ Now, what country is he living in?” 
But wasn’t there a reality to the class divisions, I wondered? I mentioned the conversation I’d had with his assistant, the tendency of those with means to move out of the line of fire. He took off his glasses and rubbed what I now saw to be a pair of tired eyes. 
“I’ve given Tracy my opinion about moving out of the city,” he said quietly. “That boy of hers is gonna get out there and won’t have a clue about where, or who, he is." 
“It’s tough to take chances with your child’s safety." 
“Life’s not safe for a black man in this country, Barack. Never has been. Probably never will be." 
A secretary buzzed, reminding Reverend Wright of his next appointment. We shook hands, and he agreed to have Tracy prepare a list of members for me to meet. Afterward, in the parking lot, I sat in my car and thumbed through a silver brochure that I’d picked up in the reception area. It contained a set of guiding principles-a “Black Value System”-that the congregation had adopted in 1979. ... There was one particular passage in Trinity’s brochure that stood out, though, a commandment more self-conscious in its tone, requiring greater elaboration. “A Disavowal of the Pursuit of Middleclassness,” the heading read. “While it is permissible to chase ‘middleincomeness’ with all our might,” the text stated, those blessed with the talent or good fortune to achieve success in the American mainstream must avoid the “psychological entrapment of Black ‘middleclassness’ that hypnotizes the successful brother or sister into believing they are better than the rest and teaches them to think in terms of ‘we’ and ‘they’ instead of ‘US’!”

It's informative to quote that "value" in full from Trinity's website, much of which Obama left of Dreams:
8. Disavowal of the Pursuit of “Middleclassness.” Classic methodology on control of captives teaches that captors must be able to identify the “talented tenth” of those subjugated, especially those who show promise of providing the kind of leadership that might threaten the captor’s control. 
Those so identified are separated from the rest of the people by: 
Killing them off directly, and/or fostering a social system that encourages them to kill off one another. 
Placing them in concentration camps, and/or structuring an economic environment that induces captive youth to fill the jails and prisons. 
Seducing them into a socioeconomic class system which, while training them to earn more dollars, hypnotizes them into believing they are better than others and teaches them to think in terms of “we” and “they” instead of “us.” 
So, while it is permissible to chase “middleclassness” with all our might, we must avoid the third separation method – the psychological entrapment of Black “middleclassness.” If we avoid this snare, we will also diminish our “voluntary” contributions to methods A and B. And more importantly, Black people no longer will be deprived of their birthright: the leadership, resourcefulness and example of their own talented persons.

Keep in mind that Senator Barack Obama donated $26,770 to Jeremiah Wright's church in 2007, according to his tax return. That's while he was running for President.

How do we make sense of all of this seemingly conflicting information about Obama? I suspect the simplest answer is that Obama never quite made sense out of it all either.

May 8, 2012

Foote: 12 reasons why the Mortgage Meltdown wasn't an Inside Job

Economist Christopher Foote of the Boston Fed, who debunked the Freakonomics abortion-cut-crime theory in late 2005 by pointing out that Steven D. Levitt's results stemmed from a couple of dumb mistakes in his programming, and two colleagues have a paper arguing against the mortgage meltdown being, in the words of the Oscar-winning documentary, an Inside Job (or, at least, of misaligned incentives):
Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis 
Christopher L. Foote, Kristopher S. Gerardi, and Paul S. Willen 
Abstract: 
This paper presents 12 facts about the mortgage market. The authors argue that the facts refute the popular story that the crisis resulted from financial industry insiders deceiving uninformed mortgage borrowers and investors. Instead, they argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. The authors then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those  distorted  beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly.

Foote et al presents 12 "myths" about the mortgage meltdown that they say don't hold up to scrutiny. While I find this to be an excellent framework for thinking about causes of the mortgage disaster, personally, I find some of the myths seems pretty reasonable even after reviewing Foote's graphs. 
For a concrete example, consider the size of required downpayments. Morgenson and Rosner (2011) write that because of the Clinton Administration’s emphasis on homeownership:
[I]n just a few short years, all of the venerable rules governing the relationship between borrower and lender went out the window, starting with the elimination of the requirements that a borrower put down a substantial amount of cash in a property (Morgenson and Rosner 2011, p. 3).
It is true that large downpayments were once required to purchase homes in the United States. It is also true that the federal government was instrumental in reducing required downpayments in an effort to expand homeownership. The problem for the bad government theory is that the timing of government involvement is almost exactly 50 years off. The key event was the Servicemen’s Readjustment Act of 1944, better known as the GI Bill, in which the federal government promised to take a first-loss position equal to 50 percent of the mortgage balance, up to $2,000, on mortgages originated to returning veterans. The limits on the Veteran’s Administration (VA) loans were subsequently and repeatedly raised, while similar guarantees were later added to loans originated through the Federal Housing Administration (FHA). 

Okay, but here's the graph they use to document this assertion, showing Loan to Value percentages in Massachusetts over the years. Notice anything?
Yes, the aqua LTV 100 (i.e., zero down or even cash back) spiked from about 8 percent in 2002 to 24 percent in 2006 at the peak of the bubble.  

Here's a graph from USA Today that I found at Dr. Housing Bubble, showing California's similar spike in zero down home-buying:
The First-Time Buyers (41% in 2006) are especially important because that's mostly where new demand comes from, and incremental demand is much of what drives up prices.

In general, Foote et al frequently argue that because various policies or conditions existed well before the crisis, such as less than 20% downpayments, then loosening downpayments didn't contribute much to the bubble and bust. But, that's overlooking the famous Boiling Frog problem: turning up the heat gradually might not cause a noticeable problem for the frogs in the pot for awhile, but eventually it does. 

Moreover, in the case of lower and lower downpayments, there appears to have been a phase shift when requirements hit zero down. A 3.5% downpayment required for a VA or FHA loan might not sound like much, but cash on the barrel-head scares off the total riff-raff and conmen, plus the government regulations lessened fraud in appraisals and the like. The zero down loans that George W. Bush greenlighted to federal regulators in his October 15, 2002 speech at the White House Conference on Increasing Minority Homeownership were a not insignificant cause of the Bubble.

Still, I would agree with Foote that Tulip Mania-style overoptimism is a big part of the explanation. But where did this over-optimism come from? 

I woud argue that a host of evidence, such as the biggest appreciation and biggest losses happening in the four Sand States of California, Nevada, Arizona, and Florida, that "diversity" played a huge role, especially in the ban on critical thinking about diversity that has been inculcated in the U.S. An immigration bubble preceded and then egged on a housing bubble, and nobody was supposed to say anything bad about it, especially not in internal company documents that could get your firm in trouble for a discrimination lawsuit.

It's really asking a lot of people to tell them over and over that only evil ignorant racist losers notice patterns and then expect them to notice the patterns and respond intelligently.

May 7, 2012

Another theory of corporate lust for immigration

Jack Strocchi offers another theory of why corporate elites favor immigration besides keeping labor costs down and labor unions weak:
There is no doubt something to the theory that the New Right wanted to Open Borders to crush wages. On the flip ideological side It's clear that the New Left supported Open Borders to "elect a new people" and pad welfare rolls.  
But the most pressing reason to Open Borders is to boost retail turnover, particularly in household formation goods (including houses), particularly in the era of declining birth rates. The easiest way to turn a profit and amortize the cost of capital is to increase turnover, extra sales go right onto the bottom line.

Say you are the head of the American division of a big, fairly capital intensive toilet paper company with major operations in the U.S. You want sales to grow so you can run your already-built factories closer to full capacity. But demand per capita for toilet paper is flat. So, your best hope for growth is to add some capitas in the U.S. to buy more of your product: e.g., via immigration.

Now, the downside of immigration from your perspective would be if some of the immigrants started their own big toilet paper companies to increase competition against you. But, there are a lot of industries where this isn't that big of a threat. 

Moreover, there are a lot of sources of immigrants where this isn't that big of a threat. For example, importing into America the fraction of ambitious Swedes who are fed up with Sweden's restrictions on their entrepreneurial energies could be a problem for established American corporate interests in the long run. On the other hand, importing unambitious Mexicans is not likely to produce much additional competition for the Fortune 500.

So, what's not to like about immigration from the point of view of the Toilet Paper Barons?

Immigration and 1970s inflation

A commenter writes:
Jeff W. said... 
I have finally figured out why The Powers That Be hate immigration restriction so much. I'm sure there are a number of reasons. But one big reason is this: 
Western governments for years have been trying to maximize the resources they obtain from money printing. All Western governments have been continually running deficits and financing them with newly-created fiat. 
One thing that derails money printing is a wage-price spiral. That's what got going in the 1970's. Around 1979-80, Paul Volcker had to jack up interest rates very high to get inflation back under control. 
In the 1980's, The Powers That Be decided that they would continue money printing, but they would also take action to head off a wage-price spiral. So... 
- Continuing pressure to add women to the workforce
- Open door import policy to force down U.S. wages
- Open borders. 
They succeeded. You never hear about a wage-price spiral anymore.  
A protectionist trade policy and immigration restriction would get wages rising, which would make conditions difficult for the money printers. They would have to slow down or even halt their operation. That would be bad for big banks, the military-industrial complex, Social Security, and Medicare.  
All of the biggest and most powerful interest groups in America support continued money printing, and that necessitates open borders to keep wages low.

You can see this in all the newspaper articles where reporters (not just pundits) say things like "low wages are good for the economy." Nobody ever talks about this, but it's stuck in people's heads. It's sort of 1970s Folk Wisdom for subscribers to The Economist.

One interesting question is whether wage-price spirals and/or cost-push inflation actually happened in the 1970s. It was endlessly debated during the 1970s whether unions were causing inflation. Interestingly, the ideological lines in the debate were often reversed in the U.S., with Milton Friedman's monetarist school absolving the AFL-CIO (because inflation had to be the fault of the Fed), while neoliberals tended to blame the unions.

Was this controversy ever resolved? 

Back in the 1970s, I spent a huge amount of time thinking about macroeconomics, but I don't believe I got much return on my investment. So, I don't have much opinion on macroeconomic controversies anymore. 

Perhaps America and Britain had different experiences, with Britain having stronger union power. The Labour Party was founded as a third party explicitly for the good of the trade unions. A half century later, it became the ruling party and nationalized the commanding heights of industry. This caused a subsequent conflict of interest in wage negotiations in nationalized industries: Labour as both the instrument of the unions and Her Majesty's Government, was sitting on both sides of the table, not just in effect but by definition. This led to a lot of people in Britain feeling jobbed by the Labour Party. Eventually, that led to Labour's spell in the wilderness and its reformulation as New Labour, a broad-based party.

April 3, 2012

Clintons' Chappaqua segregating minorities

There's nothing like thinking about local real estate to turn the most liberal into race realists:
Despite 2009 Deal, Affordable Housing Roils Westchester 
By PETER APPLEBOME 
WHITE PLAINS — When Westchester County agreed to a far-reaching affordable housing agreement in 2009, federal officials heralded a new era for desegregation in communities around the country. 
“This is consistent with the president’s desire to see a fully integrated society,” said Ron Sims, then the deputy secretary with the Department of Housing and Urban Development. “Until now, we tended to lay dormant. This is historic, because we are going to hold people’s feet to the fire.” 
But rather than signaling a transformative moment, the settlement has led to an often rancorous tug of war, complicated by politics and real estate prices in one of the nation’s wealthiest areas, where the residents include notables like Bill and Hillary Rodham Clinton and Gov. Andrew M. Cuomo. The result is raising questions about Westchester’s commitment to complying with the agreement and just what a “fully integrated society” might mean, cost and look like in a largely developed suburban county. ...  
Westchester is ahead of schedule in building the 750 affordable residences required by the settlement, but there are complaints that rather than representing true economic and racial integration, many of the housing units are far from the heart of affluent white communities. Westchester and HUD remain at a testy impasse over the county’s responsibility to ensure that its towns and villages end exclusionary zoning practices.

The deal was that Westchester County took $52 million in federal funds for affordable housing, spent them in low rent parts of the county, and now the feds want to use that to force the high rent municipalities within the County to diversify.
After a federal judge ruled that the county had “utterly failed” to meet its obligations, it agreed to the settlement. The deal required the county to spend $51.6 million to build 750 units of affordable housing in 31 overwhelmingly white communities within seven years, and to market those units to nonwhites aggressively. ... The settlement also required the county to “use all available means as appropriate” to promote nondiscriminatory housing, including pushing towns and villages to alter zoning rules that discouraged the construction of apartments. Pound Ridge, for example, covers 23.5 square miles, but no land is zoned for multifamily use.

... The monitor and HUD had argued that Mr. Astorino violated the settlement when he vetoed the bill, which would have prohibited landlords from discriminating against tenants who receive housing subsidies. ... 
Craig Gurian, executive director of the group that sued the county, said much of the housing that had been approved or proposed was adjacent to low-income communities in neighboring towns or otherwise isolated from the rest of the wealthier community. 
The proposal for Chappaqua, home of the Clintons, calls for what would be the tallest building in the town, dropped into a no-man’s land between railroad tracks, a highway and a bridge. New housing completed in Rye hugs the border of largely minority Port Chester, across two busy highways from the rest of Rye. Forty-six units scheduled for Larchmont sit in a virtually unpopulated block behind a strip mall, squeezed in against railroad tracks and Interstate 95.

Not surprisingly, New York Times readers have a lot to say on this article. One liberal reader even has started to get a clue about the high-low squeeze play against the middle in the name of diversity:

RMC 
NYC 
I live in Chappaqua, and will take bets that the "tallest building in town" will never get built. First, the NYT article neglects to mention that the railroad tracks run through the center of town. Residents of the proposed building would not be isolated from others in Chappaqua, since people live on both sides of the bridge that runs over the tracks. The building, however, would be a hideous eyesore that would blight what is in reality a small hamlet, not a "town." "Town" is three blocks long and one block wide. To build the proposed development would be like erecting a Levittown in Greenwich Village. 
Nor is Chappaqua opposed to racial diversity; on the contrary, this is a town of Democrats, and people welcome diversity. The problem is that the HUD settlement -- and I never thought I'd side with a Republican -- has brought every avaricious developer within 100 miles running into Westchester, shouting "racist" at anyone who opposes his or her aesthetically insensitive, environmentally unsafe, shoddy development plan. The Chappaqua proposal purports to comply with federal and state environmental regulations but, in a letter to our local online newsletter, newcastlenow.org, several local architects and lawyers pointed out numerous ways in which it does not. 
The HUD deal is a clumsy way of achieving social equality that has not promoted diversity, but rather left residents helpless in the face of greedy developers. It should be thrown out.


And here's a useful suggestion ...
Rich 
Reston, VA 
Or better yet, chop a couple of acres off the Clinton's estate in Chappaqua and put either 24 townhouses or an eight-story apartment on that site for affordable housing. With the Secret Service already there, there's even no need to burden Chappaqua with having to fund extra police. 
And it's all legal, thanks to the 2005 Supreme Court ruling in Kelo vs. City of New London that the government can seize private property when it benefits the public. 
A win-win for everyone -- problem solved!