Friday, December 17, 2010

Cash in Housing

I zip over to occasionally and read stories and comments. A year and more ago there were a few very noisy gold supporters. They seem mostly to have vanished (having some gold is not a bad idea, but buying it when prices are sky high and dollar value is down is...also a gold standard is a horrible idea).

I do still read quite a few comments in the "cash is king" strain. I don't deny that cash has advantages in some places in society. Mostly, in housing, however, it doesn't. There are two exceptions. One is competitive bidding when TIME is critical to the seller. The other is auctions--whether for bank foreclosure or tax lien. There are a lot of the latter happening now and for the foreseeable future, but even still, the vast majority of purchases are mortgages, and that is because you are NOT typically advantaged by having cash.

There are two reasons for this. One is that the seller generally doesn't give a damn how the money gets there. If they can sell a house to someone getting a mortgage for $225k and a cash buyer offers them $175k, they are just giving up nearly $50k by going with the cash buyer (not quite because of various fees the seller may be responsible for). The other is that cash buying is not generally a good idea unless you are getting a steep discount (like at auction) because houses are not often very good investments.

Buying a house that you live in is an excellent hedge against inflation, and so makes good sense to do as soon as feasible...which means mortgage. Buying a house to rent out can make sense in some places, but there are several factors to consider, it is neither easy nor cheap to do and there is a good chance that someone who just invested the same money in the market will do as well or better. Buying a house that you live in with some expectation of selling it for a profit in a few years is generally pretty stupid. It can pay off, but so did Madoff for some folks. Didn't mean they were smart.

Wednesday, December 15, 2010

Bad Theories...

I don't like inequality, and there is certainly an apparent parallel between how much inequality we have in this country and how messed up the financial sector is. Maximum levels of inequality in the US happened just before the Great Depression and the current really bad recession.

However, this theory as to why that may be is pretty weak. This article (from which the first takes cues) is more detailed and more sound, but still misses a few things that seem pretty critical.

Rising inequality is a symptom of a political problem, a circular one. Rich people support politicians who will cut their taxes making them more rich, and more politically powerful. Meanwhile the shortfalls of lower tax revenue tend to most hurt the poor and further weaken their already small political power (until we have publicly financed elections, money = political power). It doesn't matter that a large majority of people in this country would be supportive of a hike in the taxes for the top earners, those top earners have more real say in how the politics shake out and their will is more strongly represented in congress (and in the least the last 3 and at least 4 of the last 5).

That rising inequality would coincide with a rise in finance is perfectly sensible. After all, at some point you run out of things to do with money other than hoard it or give it away. Most rich people opt to hoard it; that means finding someplace to park it, and since they are clearly greedy they want to make more money with that money so finance is the way to go. This will, naturally, make finance people extra wealthy as well, and will do relatively little to help the bulk of people in this nation.

The fix is political: higher taxes for the wealthy and higher capital gains taxes in particular. This first means more money for the government that can be used to improve the lives of all citizens but particularly the poor and middle classes. This also means less money poured into investments, which means better, smarter resulting investments and less runaway craziness like the housing bubble, and less productivity drain by the finance sector on the rest of our society.

Wednesday, December 08, 2010

Tuesday, December 07, 2010

Don't Ask the Obvious...

Ezra Klein is a decent blogger for the Washington Post. He has scored several very good interviews including this latest with Glenn Hubbard. Unfortunately, even though he starts toward it with the high income vs. low income tax cut for growth question he still fails to ask meaningful question of this conservative economist, namely: "Why would giving a tax cut to an employer cause them to hire when they otherwise wouldn't?"

If hiring is the right economic decision then it is the right decision no matter what. If hiring is the wrong economic decision then it is wrong. Now, I realize that reduced taxes in some areas do affect how much it costs to hire a worker and that will shift whether or not hiring is the correct economic decision in a small subset of cases, and that even a small subset creates positive feedback (i.e. consumption) that will lead to more jobs at other places. But the areas of taxation that provide that benefit are NOT INCOME!!! Business side payroll tax deductions could do it, conversion to a single payer healthcare system could do it, and maybe some other business/corporate tax code cleanup/reduction could help, but personal income isn't it.

A reduction in income taxes to a small business owner does not reduce the cost of hiring an employee or the level at which that hire becomes economically justified. It only gives the already well off individual more money. That's it.

Further complaint about Ezra's interview, and that question and response in particular: Hubbard's theory requires that there is lots of demand, that companies want to hire but can't because, despite all this demand which should bring them more money, they don't have enough money. But since the problem is low demand, which means that no matter how much money a company has on hand, hiring may not be justified because...there is insufficient demand, then why is increasing demand the wrong choice?

The real answer is: Hubbard wants rich people to have more money, and sees the tax code as an easier way to do that than real economic stimulus.

Friday, December 03, 2010

Education Pondering

We seem to have a real problem with education in this country. Specifically we seem to have a problem of lots of people saying that there is a problem, then coming up with some complex "solution" that fits in nicely with their point of view. Different methods of teaching, ways to evaluate teachers/schools, charter and/or private schools, vouchers, punishment, reward, ...

There are good and bad teachers. There are good and bad schools. There are good and bad parents. There are easier and harder students.

We can't fix parents. But people love trying to deal with the other three.

Personally, I think that one thing that has been happening over the past few decades is that women have had increasing opportunities outside of schoolhouses. There are still plenty of good teachers, but we tend, as a society, to see teaching as a career of last resort, and we further see teaching as being less...glamorous? the students get younger. I'm not sure that we can really offset that, largely because the knowledge/education necessary to teach college is much greater than it is to teach kindergarten.

This isn't to say that teaching college is harder. It requires more knowledge but less patience and less of other things. College instructors don't (need to) care if a student doesn't show up to class or fails a test, or even understands the material. Kindergarten teachers are instrumental in developing not so much knowledge, but behavior. But we tend to compensate people based on their level of education more than their level of skill or talent (pro athletes withstanding). And we tend to see prestige in a profession as parallel to how much people in that profession get paid.

I think my best solution would be to dramatically increase the pay of teachers, say 50% across the board, with special incentives for under-served communities. Yes, that would reward some current teachers that are not as good, but it would mean more coveted positions and more resulting candidate competition going forward.

Wednesday, December 01, 2010


The guy is a bit out there in terms of views, and I'm not sure that the WikiLeaks dumps are entirely productive--lots of useless crap, and potentially some things that could endanger "field agents" though evidence that that is really the case seems to keep NOT coming up--but our own news media has become so horrible over the past 30 years that WikiLeaks is about the only game in town that is willing to hold the feet of the powerful to the fire.

Granted sometimes it isn't powerful that are grabbed, and it's possible they are a little to eager to burn and not so much to improve, but right now it's the closest thing out there to journalism that speaks truth to power. If the media would do their job better, then WikiLeaks would disappear.