What is a liberal? If you read various dictionaries it implies being open to new ideas. Politically, it is a derogatory term. We think of it as meaning someone who believes in socialist policies and tries to undermine Judeo-Christian values. Many economists like to call themselves “Classical Liberals”, because liberal used to mean someone who embraced the free market. The word was later stolen by socialists and the meaning changed.
Ironically, in France, left wing parties deride President Sarkozy as a “liberal”. Sarkozy has been pushing for free market reforms, cracking down on crime, and limits to immigration. This is not exactly the American idea of a liberal, but it does imply someone who is pushing new ideas.
I recently saw an interview with Hillary Clinton saying that she likes to call herself a Progressive, discarding Liberal because it has taken on such an ugly connotation. Well, Sen. Clinton, one woman’s trash is another man’s treasure. I consider myself a “Classical Liberal”, so maybe it’s time to drop the “Classical” part of my label and take the true meaning of the word back.
My friends, I am a Liberal.
If a conservative is someone who wants things to stay the same how can I honestly call myself a conservative when I have proposed so many radical changes in this newsletter? Let’s compare what I support against our so-called “Liberal” political party.
Democrats want to take us to universal health care. A new idea? Universal Health started in Germany in the late 1800’s. Health Savings Accounts were invented by John Goodman in the late 1900’s. They want us to keep doing health care the way it has always been done. I want to rip it out by the roots and start over with Health Savings Accounts. They are the conservatives, I am the liberal.
Democrats want to maintain the same failed education system that has been sliding downhill for 50 years. I want charter schools, vouchers, and home schooling. I want to free the underprivileged and undereducated from the shackles of a system that continues to fail them and keeps them in poverty. They want us to do education the way it has always been done. I am the liberal.
Democrats don’t want to touch social security. I want Swedish-style private accounts, and I want my future benefits to be cut to avoid the fiscal disaster coming down the road. They have buried their heads in the sand and they want us to do things the way they have always been done. I am the liberal.
Democrats scream bloody murder at any proposal to change any of our failed poverty programs. I have proposed Milton Friedman’s reverse income tax to help wean the poor off of government handouts. They want to do things the way they have always been done. I am the liberal.
Democrats promised to clean up earmarks, but got virtually nothing accomplished. I want to ban earmarks. They are doing things the way they have always been done. I am the liberal.
Democrats want us to plan nearly every inch of every building in our cities. This isn’t new, rulers have been indiscriminately bulldozing and rebuilding parts of cities for centuries. I want people, in a free market, to decide what to do with their property to keep home prices down so that every person can hope to achieve the American dream. They want to boss you around the way it has always been done. I am the liberal.
Democrats’ only idea for our tax system in the last 75 years has been to raise them every chance possible. I support a flat tax that eliminates the millions of tax breaks given out to special interest groups. I have supported moving the corporate tax burden onto high income earners so that our businesses don’t waste billions dodging taxes and they can crush their foreign competitors with the tax advantage. They, on the other hand, want to do things the way they have always been done. I am the liberal.
Democrats fight free trade with same arguments the Mercantilists used in 16th century. I support free trade anywhere, anytime, and any place. It increases wealth in the United States and it will bring income to the most desperately poor countries on earth. There is a veritable consensus amongst economists that both countries always win with free trade. Democrats are chained to their union donors and want to do things the way they used to be done hundreds of years ago. I am the liberal.
The word of the year seems to be “Change”. Boldly leading us towards the status quo is not change. Fixing your gaze on the ideas of the past is not change. I want to do what has not been done. I want to do things that have not been tried. I am the liberal, not them.
We have been unjustifiably labeled “conservatives” as if we were the ones holding back progress. We have worn the scarlet C for too long. How long do the policies of the “liberal” party have to fail before we call them old ideas. The intellectual Amish of the Democratic party are not liberal at all. To paraphrase a quote from economist Robert Murphy,
“If [they] ignored advances in other scientific fields as much as they do in economics, we'd see weathermen advising readers to offer sacrifices to the rain gods.”
In the great time span of human history, freedom of the individual and small government are still radically new ideas. They are liberal ideas. I believe in these liberal ideas because I AM A LIBERAL.
Are you a liberal?
As always, tell me what you think.
Thursday, March 27, 2008
Monday, March 17, 2008
Updates on Housing Bubble and Health Care
Friends,
From time to time I feel the need to prove that I am not the only one who believes what I write and that other smart people feel the same way.
Housing Bubble
Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist.
His recent article (March 17th) at Bloomberg.com echoes many of my sentiments that I referenced on my blog a few weeks ago (Feb. 27th) concerning the fact that land regulations are the root of the U.S. housing mess. Excerpts from his article include:
“…a recent study by Cato Institute scholar Randal O'Toole that draws on broad economic literature documents that the price swings are, in fact, not so difficult to understand. Out-of- control government regulation started the mess.”
“When land use is constrained, supply can't respond to higher prices, forcing prices to climb even higher. This is exactly the impetus that can start a catastrophe like the current episode. ``It's a regular cycle,'' O'Toole told me last week. ``States adopted land-use regulations, and then their real estate prices skyrocketed and then crashed. Early movers like California have seen the cycle a number of times.''
“The evidence is clear. Regulations that inhibit the supply response to higher prices are the primary culprit in this mess. “
“For the long term, draconian land-use regulations must be reconsidered by local and state governments. If not, it will only be a matter of time before we experience this all over again.“
I wrote:
“Smart Growth urban planning restricted the supply of houses and drove up prices. A number of economists believe along with a gentleman named Wendall Cox who I was privy to hear speak on Feb. 26, believe that smart growth planning has been the largest contributing factor to the home price spike in many cities around the U.S. Smart Growth limits the supply of new houses and condos, and in a popular city that will lead prices to soar.”
“My concern for the next few years is that the housing bubble will be solely blamed on reckless mortgage companies, and not on smart growth urban planning. If smart growth does not get the blame, this cycle will repeat in just a few years. Excessive urban planning is the main reason why prices have soared and plunged.”
Clearly, I should be charging more for this newsletter :)
Health Care
Shawn Tully, editor-at-large for Fortune magazine wrote a column called “Why McCain has the best health-care plan”
He wrote:
“McCain's main pillar is the elimination of a tax break that employees receive if their employer provides their health care.”
“So what types of policies would they buy? Employees (and their families) with corporate plans - about 150 million Americans - would probably rush toward high-deductible, low-premium insurance, and use what's left over to pay cash for routine procedures. They would couple those high-deductible policies with Health Savings Accounts,”
I wrote several months ago:
“I support ending the tax deduction for companies offering health care plans like HMO and PPO plans and instead create a tax deduction for money placed in an HSA with a high deductible insurance plan.”
Also in the article, he explains that McCain’s plan includes ideas that we should be able to purchase insurance across state lines. On first glance, I agree with this, and I may write something in the future about it.
As always, tell me what you think.
From time to time I feel the need to prove that I am not the only one who believes what I write and that other smart people feel the same way.
Housing Bubble
Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist.
His recent article (March 17th) at Bloomberg.com echoes many of my sentiments that I referenced on my blog a few weeks ago (Feb. 27th) concerning the fact that land regulations are the root of the U.S. housing mess. Excerpts from his article include:
“…a recent study by Cato Institute scholar Randal O'Toole that draws on broad economic literature documents that the price swings are, in fact, not so difficult to understand. Out-of- control government regulation started the mess.”
“When land use is constrained, supply can't respond to higher prices, forcing prices to climb even higher. This is exactly the impetus that can start a catastrophe like the current episode. ``It's a regular cycle,'' O'Toole told me last week. ``States adopted land-use regulations, and then their real estate prices skyrocketed and then crashed. Early movers like California have seen the cycle a number of times.''
“The evidence is clear. Regulations that inhibit the supply response to higher prices are the primary culprit in this mess. “
“For the long term, draconian land-use regulations must be reconsidered by local and state governments. If not, it will only be a matter of time before we experience this all over again.“
I wrote:
“Smart Growth urban planning restricted the supply of houses and drove up prices. A number of economists believe along with a gentleman named Wendall Cox who I was privy to hear speak on Feb. 26, believe that smart growth planning has been the largest contributing factor to the home price spike in many cities around the U.S. Smart Growth limits the supply of new houses and condos, and in a popular city that will lead prices to soar.”
“My concern for the next few years is that the housing bubble will be solely blamed on reckless mortgage companies, and not on smart growth urban planning. If smart growth does not get the blame, this cycle will repeat in just a few years. Excessive urban planning is the main reason why prices have soared and plunged.”
Clearly, I should be charging more for this newsletter :)
Health Care
Shawn Tully, editor-at-large for Fortune magazine wrote a column called “Why McCain has the best health-care plan”
He wrote:
“McCain's main pillar is the elimination of a tax break that employees receive if their employer provides their health care.”
“So what types of policies would they buy? Employees (and their families) with corporate plans - about 150 million Americans - would probably rush toward high-deductible, low-premium insurance, and use what's left over to pay cash for routine procedures. They would couple those high-deductible policies with Health Savings Accounts,”
I wrote several months ago:
“I support ending the tax deduction for companies offering health care plans like HMO and PPO plans and instead create a tax deduction for money placed in an HSA with a high deductible insurance plan.”
Also in the article, he explains that McCain’s plan includes ideas that we should be able to purchase insurance across state lines. On first glance, I agree with this, and I may write something in the future about it.
As always, tell me what you think.
Thursday, March 13, 2008
Apparently, We're All Stupid
Talking about Home Schooling must have hit some nerves because I had the most e-mail feedback I’ve gotten since writing these letters.
Last week I linked to a newspaper article concerning home-schooling and added a quote from the decision that I thought was a little scary. Over the weekend, I was able to read an article in Time Magazine and listen to a radio broadcast from Focus on the Family that discussed the California Appellate ruling. It definitely got me a little furious.
The two most common stereotypes that I hear about home-schooling are that the children are getting an inferior education and that the parents have suffocating religious beliefs. Do children who are home-schooled perform worse than their public school peers? Show me that data! Conjecture is insufficient. I found some data that overwhelmingly shows home-schooling offers superior performance, but I have yet to verify the numbers so I will bring it up at another time. Should we as a society determine which faiths and belief systems to suppress because they aren’t mainstream? If so, please explain to me why freedom of religion has been a failure.
This state appellate court effectively banned home-schooling in California and declared that there exists no constitutional right to home-schooling, which reversed the lower court’s decision upholding that right. The full decision can be found here.
Interestingly enough, the Supreme Court of Michigan in 1993 found in regards to another case also involving a claim that a parent’s religious beliefs allowed them to home school:
“the teacher certification requirement is an unconstitutional violation of the Free Exercise Clause of the First Amendment…”
“When rights under the Free Exercise Clause are combined with the constitutionally protected right of parents to direct the education of their children,…”
It seems that the Supreme Court of Michigan had a radically different viewpoint than California’s appellate court.
Traditionally, when a court is considering a case where constitutional rights are in the balance they allow other interested parties to submit arguments (called an Amicus curiae) on behalf of one side or the other so that the case does not rest solely on the limited abilities of the lawyers involved. However, this case involved child welfare, so no one was allowed to know that the case was going to be heard. So, in a secret hearing the court decided to strip Californians of what was previously described as a constitutional right. To me, this is rather egregious.
I have told people before that I have no intention of owning a gun until it becomes illegal. By the same logic, my belief in the virtue of home schooling has increased dramatically after this court’s attempt to take away the right to do so given their pernicious reasoning.
Quotes from the ruling:
“A primary purpose of the educational system is to train school children in good citizenship, patriotism and loyalty to the state and the nation as a means of protecting the public welfare.” P.5.
Is home schooling a threat to citizenship? Are these subversive radicals?
“…teachers shall be of good moral character and patriotic disposition, that certain studies plainly essential to good citizenship must be taught, and that nothing be taught which is manifestly inimical to the public welfare.’" P. 5
In this age of moral relativism who decides “good moral character”? Is that traditional morals or PC morals?
“[h]ome education, regardless of its worth, is not the legal equivalent of attendance in school in the absence of instruction by qualified private tutors.” P. 9
Regardless of its worth? If this court does not believe that the law needs to be enforced for the sake of quality education, what else could be their motivation? This court believes that consolidating the power to educate into the singular hand of the state is unto itself a desirable end. They do not care whether parents can teach their children adequately. Their sole concern is to ensure that the orthodoxy of the state does not face competition.
It is clear that they are afraid. They are afraid of you and me. They are afraid that if individuals are allowed to teach their own children that this will lessen our good citizenship, lessen our patriotism, and lessen our loyalty to the state. This sort of thinking should be a relic of the past.
For Texas, I am proposing a state constitutional amendment that guarantees the right of parents to determine the education of their child. My first draft of the amendment is this:
All legal guardians of minor children in the State of Texas have the right to determine the venue of education for their child, including their own home or property. Furthermore, the state may not limit the person or persons that provide education to the children of legal guardians, unless this educator has been convicted of significant criminal offense.
Note that the Texas constitution already has over 400 amendments, so this isn’t as dramatic as amending the US constitution.
As always, let me know what you think.
Last week I linked to a newspaper article concerning home-schooling and added a quote from the decision that I thought was a little scary. Over the weekend, I was able to read an article in Time Magazine and listen to a radio broadcast from Focus on the Family that discussed the California Appellate ruling. It definitely got me a little furious.
The two most common stereotypes that I hear about home-schooling are that the children are getting an inferior education and that the parents have suffocating religious beliefs. Do children who are home-schooled perform worse than their public school peers? Show me that data! Conjecture is insufficient. I found some data that overwhelmingly shows home-schooling offers superior performance, but I have yet to verify the numbers so I will bring it up at another time. Should we as a society determine which faiths and belief systems to suppress because they aren’t mainstream? If so, please explain to me why freedom of religion has been a failure.
This state appellate court effectively banned home-schooling in California and declared that there exists no constitutional right to home-schooling, which reversed the lower court’s decision upholding that right. The full decision can be found here.
Interestingly enough, the Supreme Court of Michigan in 1993 found in regards to another case also involving a claim that a parent’s religious beliefs allowed them to home school:
“the teacher certification requirement is an unconstitutional violation of the Free Exercise Clause of the First Amendment…”
“When rights under the Free Exercise Clause are combined with the constitutionally protected right of parents to direct the education of their children,…”
It seems that the Supreme Court of Michigan had a radically different viewpoint than California’s appellate court.
Traditionally, when a court is considering a case where constitutional rights are in the balance they allow other interested parties to submit arguments (called an Amicus curiae) on behalf of one side or the other so that the case does not rest solely on the limited abilities of the lawyers involved. However, this case involved child welfare, so no one was allowed to know that the case was going to be heard. So, in a secret hearing the court decided to strip Californians of what was previously described as a constitutional right. To me, this is rather egregious.
I have told people before that I have no intention of owning a gun until it becomes illegal. By the same logic, my belief in the virtue of home schooling has increased dramatically after this court’s attempt to take away the right to do so given their pernicious reasoning.
Quotes from the ruling:
“A primary purpose of the educational system is to train school children in good citizenship, patriotism and loyalty to the state and the nation as a means of protecting the public welfare.” P.5.
Is home schooling a threat to citizenship? Are these subversive radicals?
“…teachers shall be of good moral character and patriotic disposition, that certain studies plainly essential to good citizenship must be taught, and that nothing be taught which is manifestly inimical to the public welfare.’" P. 5
In this age of moral relativism who decides “good moral character”? Is that traditional morals or PC morals?
“[h]ome education, regardless of its worth, is not the legal equivalent of attendance in school in the absence of instruction by qualified private tutors.” P. 9
Regardless of its worth? If this court does not believe that the law needs to be enforced for the sake of quality education, what else could be their motivation? This court believes that consolidating the power to educate into the singular hand of the state is unto itself a desirable end. They do not care whether parents can teach their children adequately. Their sole concern is to ensure that the orthodoxy of the state does not face competition.
It is clear that they are afraid. They are afraid of you and me. They are afraid that if individuals are allowed to teach their own children that this will lessen our good citizenship, lessen our patriotism, and lessen our loyalty to the state. This sort of thinking should be a relic of the past.
For Texas, I am proposing a state constitutional amendment that guarantees the right of parents to determine the education of their child. My first draft of the amendment is this:
All legal guardians of minor children in the State of Texas have the right to determine the venue of education for their child, including their own home or property. Furthermore, the state may not limit the person or persons that provide education to the children of legal guardians, unless this educator has been convicted of significant criminal offense.
Note that the Texas constitution already has over 400 amendments, so this isn’t as dramatic as amending the US constitution.
As always, let me know what you think.
Friday, March 7, 2008
Elections and Decisions
As most of you know Texas had it’s primary election on Tuesday that 4th. I voted and went back to see what the delegate selection process looked like. Apparently, statewide interest in being a delegate was down this election cycle, which meant that the precinct’s typical 16 slots weren’t even filled. I will be a delegate to the Senatorial District Republican Convention. It will likely be tougher to become a state delegate, but I’ll let you know how it goes.
Only one person who gets this newsletter lives in a state that hasn’t held it’s primary yet (Pennsylvania), but I would recommend being a delegate just for the experience. Also, just as I plan to build a little resume in my head for why I should be selected as a state delegate, I would recommend the same thing for you at your local precinct.
A Note on Homeschooling
My wife knows a woman from her prior working experience who dropped out of high school when she was young and got her GED. Her husband has little to no college either and works at a refinery. This woman decided to home school her three boys. All three have done very well while attending a well-respected private university in Texas with large academic scholarships. What she was able to accomplish for her sons has always impressed me.
In California, as in several states, there are significant barriers to home schooling. In particular California has had a law to require home school teachers be credentialed. According to a recent article in the San Francisco Chronicle it seems that around 166,000 children in California were not being taught by “credentialed” parents according to the state. In a court case filed by the government, a family was home schooling their children under distance learning in conjunction with a private school. The private school would check on the children and learning environment four times a year.
The appeals court of California found that they had no constitutional right to home-schooling and that they were in violation of state truancy laws. What really struck me was not the interpretation of the existing law, but the comments made by the lead judge in the ruling.
Justice H. Walter Croskey wrote "A primary purpose of the educational system is to train school children in good citizenship, patriotism and loyalty to the state and the nation as a means of protecting the public welfare," (emphasis added).
The family is appealing to the California State Supreme Court. Hopefully, the high court will avoid fascist rhetoric in their decision.
What do you think about home schooling? Tell me what you think.
Only one person who gets this newsletter lives in a state that hasn’t held it’s primary yet (Pennsylvania), but I would recommend being a delegate just for the experience. Also, just as I plan to build a little resume in my head for why I should be selected as a state delegate, I would recommend the same thing for you at your local precinct.
A Note on Homeschooling
My wife knows a woman from her prior working experience who dropped out of high school when she was young and got her GED. Her husband has little to no college either and works at a refinery. This woman decided to home school her three boys. All three have done very well while attending a well-respected private university in Texas with large academic scholarships. What she was able to accomplish for her sons has always impressed me.
In California, as in several states, there are significant barriers to home schooling. In particular California has had a law to require home school teachers be credentialed. According to a recent article in the San Francisco Chronicle it seems that around 166,000 children in California were not being taught by “credentialed” parents according to the state. In a court case filed by the government, a family was home schooling their children under distance learning in conjunction with a private school. The private school would check on the children and learning environment four times a year.
The appeals court of California found that they had no constitutional right to home-schooling and that they were in violation of state truancy laws. What really struck me was not the interpretation of the existing law, but the comments made by the lead judge in the ruling.
Justice H. Walter Croskey wrote "A primary purpose of the educational system is to train school children in good citizenship, patriotism and loyalty to the state and the nation as a means of protecting the public welfare," (emphasis added).
The family is appealing to the California State Supreme Court. Hopefully, the high court will avoid fascist rhetoric in their decision.
What do you think about home schooling? Tell me what you think.
Wednesday, February 27, 2008
Housing Crisis Will Get Worse, Much Worse
Home prices in certain cities like L.A. and Miami have dropped quite a bit recently, but I believe that the pain has only begun. When it is all said and done, home prices in these two cities may drop by as much as 41% and 44% respectively. This will financially destroy thousands upon thousands of people.
I don’t usually buy into hysteria, but I think that the data and the logic are there. Also, let me caution those that live outside of the West Coast, Arizona, Las Vegas, Florida, and the urban Northeast. I have found virtually no evidence that any bubble exists at all for you. To explain this bubble, let me start with a little background.
How did the housing bubble happen?
The housing bubble happened for three reasons:
1) The federal reserve has been lowering interest rates for 25 years now and those interest rates trickle down into the mortgage rates. The lower the interest rates, the more house we can all afford. The more house we all can afford, the higher home prices will go.
2) Subprime, no down payments, and adjustable rate mortgages allowed people in high cost cities to overextend themselves. Companies relied on default rates to price the interest rates on these loans. These default rates were masked by continually rising home prices. That is, fewer people walk away from a mortgage when they have rapidly rising equity in their home. They sell quickly instead of foreclosing.
3) Smart Growth urban planning restricted the supply of houses and drove up prices. A number of economists believe along with a gentleman named Wendall Cox who I was privy to hear speak on Feb. 26, believe that smart growth planning has been the largest contributing factor to the home price spike in many cities around the U.S. Smart Growth limits the supply of new houses and condos, and in a popular city that will lead prices to soar.
Why has the bubble burst?
The bubble busted in three different waves, and I think a third fourth is coming. The first wave came when the amount of capital (or money) needed to maintain this upward climb simply started to run out. There is a limit to the amount of resources we put into real estate. Eventually we have to start thinking about other priorities. The second and third waves came with the nature of mortgage lending. Adjustable Rate Mortgage rates suddenly jumped and many people, especially those who intended to flip a house with an ARM, could no longer afford their mortgage and had to default. Those with other exotic loans who could no longer afford them had to default as well because home prices were no longer rising fast enough to avoid foreclosure. The fourth wave is coming, and I will talk about it later.
How did you calculate this?
According to the S&P/ Case Shiller home price index which measures home prices in 20 large metropolitan areas throughtout the U.S., home prices in LA have already dropped almost 15%. In Miami, Phoenix, San Diego, and Tampa the price drops are even more shocking at 18.9%, 17.5%, 17.5% and 15.9% respectively. So, it may be surprising to hear that I believe that prices will continue to fall much further.
First, I looked at the stock market bubbles in the S&P and the NASDAQ in and around 1999. When I graphed the data, I was a little surprised to see that there seemed to be a modest growth trend for many years and then suddenly a sharp upward turn, hitting a peek, and then a sharp slide back to down to where that growth rate pointed before the bubble. It was true for the S&P and the NASDAQ.
I graphed the historical data available for the S&P/Case Shiller home price index as well. It appeared that, so far, home prices in many of these “bubble” markets looked almost exactly like the S&P and NASDAQ bubbles. I then calculated the home price growth rate between 1987 and 2002 (before the bubble). I then projected that growth rate out to Jan. 2008 to see what the home price “should be”. This is what the projection portends for certain markets:
Miami -32%
Los Angeles -31%
Tampa - FL -28%
Las Vegas -28%
Washington -24%
These drops are in addition to the drops that have already occurred.
It won’t be that bad will it?
I have seen several articles claim that home prices won’t fall dramatically, that there will be a “soft-landing”. They claim that as prices fall many people just won’t try to sell their houses. When fewer people try to sell their houses, the supply of homes for sale drops which causes buyers to compete for the remaining supply.
Hopefully, this is true, but I suspect that it will not be enough. Earlier I mentioned how many economists believe that smart growth urban planning have limited the supply of housing which has driven home prices sky high. This is only part of the economic story.
Not only has supply of homes been limited, but the supply curve has become more inelastic. In laymen’s terms, this means that even small changes in demand lead to big price swings. The very nature of the market that lead to rapid price spikes, like when homes in Pheonix and Las Vegas shot up by over 40% in a single year, can lead to rapid price drops.
The other thing working against this “soft-landing” theory are the number of foreclosures. Many people can pull their homes off of the market, but the hoards of foreclosures will limit the ability of the market to absorb all of the homes for sale.
What about this "fourth wave"?
There are two components to the fourth wave. Most of the focus on mortgage borrowing is on initial mortgages, but there are also millions of Americans who have borrowed from their home equity. These people are at risk of foreclosure if prices plummet and they get into a situation where they have to sell their home, like extended unemployment.
The unemployment picture in many states most affected by the housing bubble is growing dramatically worse.
California Unemployment 9 months ago 4.8% Today 6.1%
Nevada 9 months ago 4.3% Today 5.8%
Arizona 3 months ago 3.3% Today 4.7%
Florida 9 months ago 3.3% Today 4.7%
Compared to states where the bubble never hit:
Texas Unemployment 9 months ago 4.3% Today 4.5%
North Carolina 9 months ago 4.5% Today 5.0%
What can we do?
My concern for the next few years is that the housing bubble will be solely blamed on reckless mortgage companies, and not on smart growth urban planning. If smart growth does not get the blame, this cycle will repeat in just a few years. Excessive urban planning is the main reason why prices have soared and plunged.
And, of course, don’t buy houses in any of these bubble markets.
I don’t usually buy into hysteria, but I think that the data and the logic are there. Also, let me caution those that live outside of the West Coast, Arizona, Las Vegas, Florida, and the urban Northeast. I have found virtually no evidence that any bubble exists at all for you. To explain this bubble, let me start with a little background.
How did the housing bubble happen?
The housing bubble happened for three reasons:
1) The federal reserve has been lowering interest rates for 25 years now and those interest rates trickle down into the mortgage rates. The lower the interest rates, the more house we can all afford. The more house we all can afford, the higher home prices will go.
2) Subprime, no down payments, and adjustable rate mortgages allowed people in high cost cities to overextend themselves. Companies relied on default rates to price the interest rates on these loans. These default rates were masked by continually rising home prices. That is, fewer people walk away from a mortgage when they have rapidly rising equity in their home. They sell quickly instead of foreclosing.
3) Smart Growth urban planning restricted the supply of houses and drove up prices. A number of economists believe along with a gentleman named Wendall Cox who I was privy to hear speak on Feb. 26, believe that smart growth planning has been the largest contributing factor to the home price spike in many cities around the U.S. Smart Growth limits the supply of new houses and condos, and in a popular city that will lead prices to soar.
Why has the bubble burst?
The bubble busted in three different waves, and I think a third fourth is coming. The first wave came when the amount of capital (or money) needed to maintain this upward climb simply started to run out. There is a limit to the amount of resources we put into real estate. Eventually we have to start thinking about other priorities. The second and third waves came with the nature of mortgage lending. Adjustable Rate Mortgage rates suddenly jumped and many people, especially those who intended to flip a house with an ARM, could no longer afford their mortgage and had to default. Those with other exotic loans who could no longer afford them had to default as well because home prices were no longer rising fast enough to avoid foreclosure. The fourth wave is coming, and I will talk about it later.
How did you calculate this?
According to the S&P/ Case Shiller home price index which measures home prices in 20 large metropolitan areas throughtout the U.S., home prices in LA have already dropped almost 15%. In Miami, Phoenix, San Diego, and Tampa the price drops are even more shocking at 18.9%, 17.5%, 17.5% and 15.9% respectively. So, it may be surprising to hear that I believe that prices will continue to fall much further.
First, I looked at the stock market bubbles in the S&P and the NASDAQ in and around 1999. When I graphed the data, I was a little surprised to see that there seemed to be a modest growth trend for many years and then suddenly a sharp upward turn, hitting a peek, and then a sharp slide back to down to where that growth rate pointed before the bubble. It was true for the S&P and the NASDAQ.
I graphed the historical data available for the S&P/Case Shiller home price index as well. It appeared that, so far, home prices in many of these “bubble” markets looked almost exactly like the S&P and NASDAQ bubbles. I then calculated the home price growth rate between 1987 and 2002 (before the bubble). I then projected that growth rate out to Jan. 2008 to see what the home price “should be”. This is what the projection portends for certain markets:
Miami -32%
Los Angeles -31%
Tampa - FL -28%
Las Vegas -28%
Washington -24%
These drops are in addition to the drops that have already occurred.
It won’t be that bad will it?
I have seen several articles claim that home prices won’t fall dramatically, that there will be a “soft-landing”. They claim that as prices fall many people just won’t try to sell their houses. When fewer people try to sell their houses, the supply of homes for sale drops which causes buyers to compete for the remaining supply.
Hopefully, this is true, but I suspect that it will not be enough. Earlier I mentioned how many economists believe that smart growth urban planning have limited the supply of housing which has driven home prices sky high. This is only part of the economic story.
Not only has supply of homes been limited, but the supply curve has become more inelastic. In laymen’s terms, this means that even small changes in demand lead to big price swings. The very nature of the market that lead to rapid price spikes, like when homes in Pheonix and Las Vegas shot up by over 40% in a single year, can lead to rapid price drops.
The other thing working against this “soft-landing” theory are the number of foreclosures. Many people can pull their homes off of the market, but the hoards of foreclosures will limit the ability of the market to absorb all of the homes for sale.
What about this "fourth wave"?
There are two components to the fourth wave. Most of the focus on mortgage borrowing is on initial mortgages, but there are also millions of Americans who have borrowed from their home equity. These people are at risk of foreclosure if prices plummet and they get into a situation where they have to sell their home, like extended unemployment.
The unemployment picture in many states most affected by the housing bubble is growing dramatically worse.
California Unemployment 9 months ago 4.8% Today 6.1%
Nevada 9 months ago 4.3% Today 5.8%
Arizona 3 months ago 3.3% Today 4.7%
Florida 9 months ago 3.3% Today 4.7%
Compared to states where the bubble never hit:
Texas Unemployment 9 months ago 4.3% Today 4.5%
North Carolina 9 months ago 4.5% Today 5.0%
What can we do?
My concern for the next few years is that the housing bubble will be solely blamed on reckless mortgage companies, and not on smart growth urban planning. If smart growth does not get the blame, this cycle will repeat in just a few years. Excessive urban planning is the main reason why prices have soared and plunged.
And, of course, don’t buy houses in any of these bubble markets.
Friday, February 22, 2008
Down on the Border
I had another letter-to-the-editor printed in the Houston Chronicle. The text of it is here –
Mexican President Felipe Calderon's recent decision to begin talking about partially privatizing Pemex provides an enormous opportunity for the United States to achieve progress on immigration and oil dependence. Calderon faces an uphill battle in the fight to allow foreign investment that could, coincidentally, help the United States secure more oil from a stable democratic government. We should help push this legislation over the top by offering a bilateral agreement in which we exchange a larger allocation of work visas or citizenships. This is a unique opportunity to get something more in return for opening our borders to immigrants from Mexico. More secure oil, more jobs for Houston companies and a reasonable compromise to face the realities of immigration.
If you recall, this relates back to my position I stated back in October of last year that part of the solution to immigration is to engage Mexico on a path to economic growth.
Mexican President Felipe Calderon's recent decision to begin talking about partially privatizing Pemex provides an enormous opportunity for the United States to achieve progress on immigration and oil dependence. Calderon faces an uphill battle in the fight to allow foreign investment that could, coincidentally, help the United States secure more oil from a stable democratic government. We should help push this legislation over the top by offering a bilateral agreement in which we exchange a larger allocation of work visas or citizenships. This is a unique opportunity to get something more in return for opening our borders to immigrants from Mexico. More secure oil, more jobs for Houston companies and a reasonable compromise to face the realities of immigration.
If you recall, this relates back to my position I stated back in October of last year that part of the solution to immigration is to engage Mexico on a path to economic growth.
Wednesday, February 13, 2008
Why the Free Market II
From the feedback I got, it seems that I was convincing on why not the controllers, but did not explain much in favor of the free market.
As I have stated before, we are the Free Market. It is the sum of all the individual decisions made by each person in society. We also need to be aware that not everyone who says they are in favor of the Free Market understands what they are saying. To merely reject Soviet Communism does not make one a believer in the free market. There are many on the political left who embrace some concepts of the Free Market, but they reject other parts of it and believe in broad limitations to it. Rejecting the truly free market does not make someone a Communist or a Socialist, but it does mean that you believe in control on some level. As I said last week, the Free Market is a rejection of control.
We usually think of the economy in terms of money, but this is the wrong perspective. If we were stuck on a deserted island, a briefcase full of money is worth no more than toilet paper. The real measure of the economy is the amount of goods and services we are able to produce. This is why economists talk about the Gross Domestic Product (or GDP). It is a measure of all the goods and services produced within the United States.
Our economy can grow in three ways.
1) Invention of a new product or service
2) Perfecting an existing product or process of making existing products
3) Discovering a new resource such as new oil deposits, new foods, new water supplies…
The free market is the best at achieving these three things.
Invention – Many dream of that one brilliant idea with which they can make their fortune. If that fortune did not exist, we would spend less time dreaming about new inventions. If we spend less time thinking about invention, fewer things will be invented. Kids dream of flying through the air like a bird, but the laws of physics eventually put this dream to rest. However, many adults still dream about inventions because nothing prevents the hope of making our fortune. We see a little craft we could make, a book we could write, a store we could open, or any of a million other possibilities. It would not just be fun to try; it is that we could make money too.
It is not that no one in other economic systems invents; it is that the reward is less so they think about it less. I showed evidence recently how countries with socialized medicine invent fewer medical breakthroughs. It is because they limit the rewards. No system rewards invention more than the free market.
Perfecting - We all do this every day. When we are at work or home, we figure out time and effort saving techniques. It can range from learning a short cut key in Microsoft’s Excel to a hip bump to shut a drawer. The primary way that we increase the economy, is to figure out how to produce more with the same amount of resources, or to produce the same using fewer resources. Our resources are our time, our labor, and the physical like wood and steel.
In a free market system, employers bidding for your services offer you wages and you take the best offer. If you are consistently discovering better ways to get more with less, employers will value that skill and reward you with higher wages. Sometimes people find new ways of doing things that offer a reward so large they leave their old job to start their own business. The phrase, “I could do it for half that price” has launched thousands and thousands of businesses.
However, the controllers often think that wages do not match their ideas of “fair”, so they try to set wages arbitrarily by a committee or law using some arcane formula. Teachers and government workers suffer under this practice and have less reward for perfecting resource saving techniques. No system gives as large an incentive to work on perfecting production of goods and services than the free market.
Discovery – Heroic figures fill the pages of American history taking enormous risks to make their fortune by setting out into the wilderness. Settlers went west in search of new land to farm. Miners rushed out to the Rockies in search of gold and silver. Wildcatters in Texas would bet their life savings to find oil. All of these people took huge risks to find new resources because the potential for reward was huge. Today we have people on the left who complain about “excess” profits and they want to take that reward away. If there is less reward, there is less incentive for discovery. No system gives as large an incentive to expand discovery as the free market.
The free market creates the largest incentives for invention, perfection, and discovery. Bigger incentives beget bigger ideas. No other system can match the growth of ideas and the growth of production than the free market. The more we embrace it the smarter and wealthier we will all become.
As I have stated before, we are the Free Market. It is the sum of all the individual decisions made by each person in society. We also need to be aware that not everyone who says they are in favor of the Free Market understands what they are saying. To merely reject Soviet Communism does not make one a believer in the free market. There are many on the political left who embrace some concepts of the Free Market, but they reject other parts of it and believe in broad limitations to it. Rejecting the truly free market does not make someone a Communist or a Socialist, but it does mean that you believe in control on some level. As I said last week, the Free Market is a rejection of control.
We usually think of the economy in terms of money, but this is the wrong perspective. If we were stuck on a deserted island, a briefcase full of money is worth no more than toilet paper. The real measure of the economy is the amount of goods and services we are able to produce. This is why economists talk about the Gross Domestic Product (or GDP). It is a measure of all the goods and services produced within the United States.
Our economy can grow in three ways.
1) Invention of a new product or service
2) Perfecting an existing product or process of making existing products
3) Discovering a new resource such as new oil deposits, new foods, new water supplies…
The free market is the best at achieving these three things.
Invention – Many dream of that one brilliant idea with which they can make their fortune. If that fortune did not exist, we would spend less time dreaming about new inventions. If we spend less time thinking about invention, fewer things will be invented. Kids dream of flying through the air like a bird, but the laws of physics eventually put this dream to rest. However, many adults still dream about inventions because nothing prevents the hope of making our fortune. We see a little craft we could make, a book we could write, a store we could open, or any of a million other possibilities. It would not just be fun to try; it is that we could make money too.
It is not that no one in other economic systems invents; it is that the reward is less so they think about it less. I showed evidence recently how countries with socialized medicine invent fewer medical breakthroughs. It is because they limit the rewards. No system rewards invention more than the free market.
Perfecting - We all do this every day. When we are at work or home, we figure out time and effort saving techniques. It can range from learning a short cut key in Microsoft’s Excel to a hip bump to shut a drawer. The primary way that we increase the economy, is to figure out how to produce more with the same amount of resources, or to produce the same using fewer resources. Our resources are our time, our labor, and the physical like wood and steel.
In a free market system, employers bidding for your services offer you wages and you take the best offer. If you are consistently discovering better ways to get more with less, employers will value that skill and reward you with higher wages. Sometimes people find new ways of doing things that offer a reward so large they leave their old job to start their own business. The phrase, “I could do it for half that price” has launched thousands and thousands of businesses.
However, the controllers often think that wages do not match their ideas of “fair”, so they try to set wages arbitrarily by a committee or law using some arcane formula. Teachers and government workers suffer under this practice and have less reward for perfecting resource saving techniques. No system gives as large an incentive to work on perfecting production of goods and services than the free market.
Discovery – Heroic figures fill the pages of American history taking enormous risks to make their fortune by setting out into the wilderness. Settlers went west in search of new land to farm. Miners rushed out to the Rockies in search of gold and silver. Wildcatters in Texas would bet their life savings to find oil. All of these people took huge risks to find new resources because the potential for reward was huge. Today we have people on the left who complain about “excess” profits and they want to take that reward away. If there is less reward, there is less incentive for discovery. No system gives as large an incentive to expand discovery as the free market.
The free market creates the largest incentives for invention, perfection, and discovery. Bigger incentives beget bigger ideas. No other system can match the growth of ideas and the growth of production than the free market. The more we embrace it the smarter and wealthier we will all become.
Friday, February 8, 2008
Why the Free Market
There are two choices on how to run a society. Either you try to control other people’s lives or you don’t. Choosing a free market is choosing not to control the economic affairs of others. The free market relies on few rules to control only those behaviors that cause real harm to your body or your property.
The rejoinder to this argument is that sometimes society needs to be planned. The free choices of individuals do not end up creating the society that we want. Therefore, we vote to correct the poor decisions that individuals make.
The glaring problem is who decides the society that we want. In a Democracy, the majority decides for the minority. In Venezuela, they have voted to allow Chavez to take property from the voting minority and shut down news organizations that disagree with him. In Russia, they vote for leaders who routinely take away rights and freedoms.
There have always been people like Hugo Chavez. They have convinced themselves that destiny has chosen them out of the ether to bring heaven down to Earth. They dream of utopia and work to build a Tower of Babel, vainly believing that control is the pathway to paradise.
For every tyrant who darkens the earth, there are a million others casting the shadow of their will over the choices of others around them. It can be a city councilman, a neighborhood association member, even a parent using their position to needlessly control others. It is one of the frailties of humanity to see things we don’t like and to blame everyone but ourselves. It is through hubris, a lack of humility, that we conceive that we are smarter and wiser than others we know. We think we have all the answers when we mostly don’t have a clue.
There are many times I see a vacant lot and think, “They should build a restaurant there, or a bank, or a hotel.” Should they really? I really have no idea whether it would be worthwhile for any of those things to be built. Usually, it is what I want, not what is best. I see a bad movie and think, “I could make a better movie than that!” Could I? I’ve never been to film school. I’ve never published even a short story. Isn’t it arrogant to think that I would be better than someone who has spent a lifetime in the film industry?
The world is a very complicated place, and in our heads, we hold a tiny fraction of the information needed to run it. It is ridiculous for me to think that I could do your job or your life better than you. How much more ridiculous is it then for me to look at a company or even a whole industry and think that I personally have enough information to set them straight. Unfortunately, this truth hasn’t stopped many from trying.
Throughout the centuries, they have worn different labels and excuses to exert control. Kings of Europe claimed divine right, and more ancient rulers claimed that Oracles and astrological events called them.
Amongst today’s most arrogant are the Socialists. They believe that a handful of people can fix every aspect of our economy by taking control. They believe that we as a people are collectively incompetent to run our affairs. Their utopia requires us to yield our feeble minds to their soaring intellects. Most people equate socialism with atheism, but this is not true. The Socialist must believe in a god, because when he wakes in the morning he sees the Almighty staring back in the mirror.
These controllers come in every stripe and color, but inside they are all the same. They have a dream and they want to force the rest of us to be a part of it. They mob around a new idea of utopia, dismissing defenders of individual freedom like me as out of touch. They lob their invective at the mention of consequences to their plans. I am the grinch, the thieving rich, the tree-killer, and the hard-hearted. It is vivid vitriol to silence dissent.
All of the plans of controllers are the same. They start with “Wouldn’t it be great if…” and end with terror or taxes to prod us to toe the line. Not all are so nightmarish as Nazi Germany or the Khmer Rouge of Cambodia. Many are like the annoyance of a hyper PTA president asking for ridiculously elaborate costumes for the annual play. They are all forms of control, and require your submission.
In our economy today, we see them hard at work to firm their grip. They try to run our health care, run our schools, run our retirement, and run the mail. They want to plan every building in our cities, plan every pill we take, and plan the weather 100 years from now. As Robert Burns would say, “The best-laid plans of mice and men often go awry.” We observe that they have failed our health, failed or schools, failed our cities, and fail our economy.
Belief in the free market is a rejection of control. The free market does not judge that one man’s dream is more valid than another, as long as you behave peacefully towards each other. It is a belief that no individual or group rises even to the level of tolerable incompetence at planning our society. Regardless of whether your name is followed by PhD or GED there is no difference, no one is smart enough to be in control.
The role of government is to allow your choices to find your dreams, not my control to fund my whims.
As always, tell me what you think.
The rejoinder to this argument is that sometimes society needs to be planned. The free choices of individuals do not end up creating the society that we want. Therefore, we vote to correct the poor decisions that individuals make.
The glaring problem is who decides the society that we want. In a Democracy, the majority decides for the minority. In Venezuela, they have voted to allow Chavez to take property from the voting minority and shut down news organizations that disagree with him. In Russia, they vote for leaders who routinely take away rights and freedoms.
There have always been people like Hugo Chavez. They have convinced themselves that destiny has chosen them out of the ether to bring heaven down to Earth. They dream of utopia and work to build a Tower of Babel, vainly believing that control is the pathway to paradise.
For every tyrant who darkens the earth, there are a million others casting the shadow of their will over the choices of others around them. It can be a city councilman, a neighborhood association member, even a parent using their position to needlessly control others. It is one of the frailties of humanity to see things we don’t like and to blame everyone but ourselves. It is through hubris, a lack of humility, that we conceive that we are smarter and wiser than others we know. We think we have all the answers when we mostly don’t have a clue.
There are many times I see a vacant lot and think, “They should build a restaurant there, or a bank, or a hotel.” Should they really? I really have no idea whether it would be worthwhile for any of those things to be built. Usually, it is what I want, not what is best. I see a bad movie and think, “I could make a better movie than that!” Could I? I’ve never been to film school. I’ve never published even a short story. Isn’t it arrogant to think that I would be better than someone who has spent a lifetime in the film industry?
The world is a very complicated place, and in our heads, we hold a tiny fraction of the information needed to run it. It is ridiculous for me to think that I could do your job or your life better than you. How much more ridiculous is it then for me to look at a company or even a whole industry and think that I personally have enough information to set them straight. Unfortunately, this truth hasn’t stopped many from trying.
Throughout the centuries, they have worn different labels and excuses to exert control. Kings of Europe claimed divine right, and more ancient rulers claimed that Oracles and astrological events called them.
Amongst today’s most arrogant are the Socialists. They believe that a handful of people can fix every aspect of our economy by taking control. They believe that we as a people are collectively incompetent to run our affairs. Their utopia requires us to yield our feeble minds to their soaring intellects. Most people equate socialism with atheism, but this is not true. The Socialist must believe in a god, because when he wakes in the morning he sees the Almighty staring back in the mirror.
These controllers come in every stripe and color, but inside they are all the same. They have a dream and they want to force the rest of us to be a part of it. They mob around a new idea of utopia, dismissing defenders of individual freedom like me as out of touch. They lob their invective at the mention of consequences to their plans. I am the grinch, the thieving rich, the tree-killer, and the hard-hearted. It is vivid vitriol to silence dissent.
All of the plans of controllers are the same. They start with “Wouldn’t it be great if…” and end with terror or taxes to prod us to toe the line. Not all are so nightmarish as Nazi Germany or the Khmer Rouge of Cambodia. Many are like the annoyance of a hyper PTA president asking for ridiculously elaborate costumes for the annual play. They are all forms of control, and require your submission.
In our economy today, we see them hard at work to firm their grip. They try to run our health care, run our schools, run our retirement, and run the mail. They want to plan every building in our cities, plan every pill we take, and plan the weather 100 years from now. As Robert Burns would say, “The best-laid plans of mice and men often go awry.” We observe that they have failed our health, failed or schools, failed our cities, and fail our economy.
Belief in the free market is a rejection of control. The free market does not judge that one man’s dream is more valid than another, as long as you behave peacefully towards each other. It is a belief that no individual or group rises even to the level of tolerable incompetence at planning our society. Regardless of whether your name is followed by PhD or GED there is no difference, no one is smart enough to be in control.
The role of government is to allow your choices to find your dreams, not my control to fund my whims.
As always, tell me what you think.
Thursday, January 31, 2008
Update and a Book Review
State of the Union
I was pleased to hear the President continue his support for Health Savings Accounts. He’s a lame duck and the Democratic controlled Congress is likely to do nothing about them, but at least he’s keeping the concept in the public eye. I was also pleased that he made a stand on earmarks. I wrote recently about the corrupting influence of earmarks a few weeks ago. If, like me, you happened to send an e-mail through the link I gave voicing your support to the executive order to ignore the earmarks, take note that you may have made a small difference.
Book Review
I was planning to suggest a few books that I have read since Christmas, but 3 of 4 were not easy reads. For one of them, I have had to wear out dictionary.com and wikipedia to explain all the terms. However, I read Freedomnomics by Economist Dr. John Lott. This book was a pretty easy read and I found some of the information jaw dropping. His specialty is crime and punishment and Chapter 4, which focuses on that, just blew me away. It really showed how conventional wisdom is flat out wrong when you look at the data on crime.
On a personal note, I sent him an e-mail to ask a question about an op-ed he wrote for Foxnews.com. From time to time I write more famous people to ask them a question or send a rebuttal, but I never hear back. Well, Dr. Lott not only e-mailed me back, but took the time to further explain his position. Even more, I sent the e-mail late in the evening and he replied by 6:30 the next morning. Wow! I think it says a lot about Dr. Lott, given that he wrote a top selling book and op-eds to the biggest names in media, but still takes the time to answer questions from average people.
His book is available at Amazon.com, but I checked it out from my local library.
Read the book, and as always, let me know what you think.
I was pleased to hear the President continue his support for Health Savings Accounts. He’s a lame duck and the Democratic controlled Congress is likely to do nothing about them, but at least he’s keeping the concept in the public eye. I was also pleased that he made a stand on earmarks. I wrote recently about the corrupting influence of earmarks a few weeks ago. If, like me, you happened to send an e-mail through the link I gave voicing your support to the executive order to ignore the earmarks, take note that you may have made a small difference.
Book Review
I was planning to suggest a few books that I have read since Christmas, but 3 of 4 were not easy reads. For one of them, I have had to wear out dictionary.com and wikipedia to explain all the terms. However, I read Freedomnomics by Economist Dr. John Lott. This book was a pretty easy read and I found some of the information jaw dropping. His specialty is crime and punishment and Chapter 4, which focuses on that, just blew me away. It really showed how conventional wisdom is flat out wrong when you look at the data on crime.
On a personal note, I sent him an e-mail to ask a question about an op-ed he wrote for Foxnews.com. From time to time I write more famous people to ask them a question or send a rebuttal, but I never hear back. Well, Dr. Lott not only e-mailed me back, but took the time to further explain his position. Even more, I sent the e-mail late in the evening and he replied by 6:30 the next morning. Wow! I think it says a lot about Dr. Lott, given that he wrote a top selling book and op-eds to the biggest names in media, but still takes the time to answer questions from average people.
His book is available at Amazon.com, but I checked it out from my local library.
Read the book, and as always, let me know what you think.
Monday, January 21, 2008
Mail Chauvinist
Last week I asked you to send me suggestions on how we could shrink the size of the government. My father responded and sent me a lengthy list. One of the areas he believes we could rid ourselves caught my eye because I had not thought about it in a while. Privatizing the Post Office.
I occasionally go to the Post Office, but it always seems like a hassle. The line is always long, and it takes forever, so I typically avoid going unless I have an unusually sized letter or box. At work, nobody uses the post office. We send everything via FedEx.
Increasingly, the Post Office is becoming more and more unnecessary. Do we write letters or do we send e-mails? We can pay our bills on-line. Fed-Ex and UPS deliver millions of packages. In my mailbox, it’s 90% junk that I don’t really want anyway.
It strikes me as odd that a government run organization would run directly in competition with private companies. FedEx, UPS, and DHL all have airmail and fast delivery as well as the Post Office. Why do we need a government organization competing with private companies?
It is true that the Post Office is required not to lose money on an on-going basis, but this hides some important facts. According to the National Review Online:
“Few Americans realize that the USPS already has accumulated over $70 billion in unfunded liabilities — mostly money promised to employees in retirement and health benefits. The USPS doesn't have that money. Nobody knows how on earth it's going to meet these liabilities.”
If FedEx owed $70 billion to its employees, do you think the government would bail them out? Not likely. Private companies are required by law to deposit money into an account to maintain a high probability of paying off their pension plan obligations. The government is not required to do the same thing as private companies. I wonder who is going to have to pay this huge debt.
Some might wonder what we would do without a postal service. There are already dozens of shipping companies, local and global, that carry letters and packages. If there are profits to be made, you had better believe that they would be there to ship your letters. If you fear a rise in stamp prices (or mailing prices) because the government can perform this task cheaper than a private company can, please move the magic markers away from your nose.
Some might also wonder what other countries are doing. Well, by 2009 we will be one of the last countries in the industrialized world to have government run mail service. According to the same article, “The European Union aims to privatize all its national postal services by 2009.” According to Forbes, Italy will do it by 2008. Japan has already privatized their postal service in 2005.
Aren’t we always supposed to be like Europe?
As always, tell me what you think.
I occasionally go to the Post Office, but it always seems like a hassle. The line is always long, and it takes forever, so I typically avoid going unless I have an unusually sized letter or box. At work, nobody uses the post office. We send everything via FedEx.
Increasingly, the Post Office is becoming more and more unnecessary. Do we write letters or do we send e-mails? We can pay our bills on-line. Fed-Ex and UPS deliver millions of packages. In my mailbox, it’s 90% junk that I don’t really want anyway.
It strikes me as odd that a government run organization would run directly in competition with private companies. FedEx, UPS, and DHL all have airmail and fast delivery as well as the Post Office. Why do we need a government organization competing with private companies?
It is true that the Post Office is required not to lose money on an on-going basis, but this hides some important facts. According to the National Review Online:
“Few Americans realize that the USPS already has accumulated over $70 billion in unfunded liabilities — mostly money promised to employees in retirement and health benefits. The USPS doesn't have that money. Nobody knows how on earth it's going to meet these liabilities.”
If FedEx owed $70 billion to its employees, do you think the government would bail them out? Not likely. Private companies are required by law to deposit money into an account to maintain a high probability of paying off their pension plan obligations. The government is not required to do the same thing as private companies. I wonder who is going to have to pay this huge debt.
Some might wonder what we would do without a postal service. There are already dozens of shipping companies, local and global, that carry letters and packages. If there are profits to be made, you had better believe that they would be there to ship your letters. If you fear a rise in stamp prices (or mailing prices) because the government can perform this task cheaper than a private company can, please move the magic markers away from your nose.
Some might also wonder what other countries are doing. Well, by 2009 we will be one of the last countries in the industrialized world to have government run mail service. According to the same article, “The European Union aims to privatize all its national postal services by 2009.” According to Forbes, Italy will do it by 2008. Japan has already privatized their postal service in 2005.
Aren’t we always supposed to be like Europe?
As always, tell me what you think.
Wednesday, January 16, 2008
Thoughts and Ideas
Two topics this week.
More thoughts on Health Care
Over the last few months I have written a number of posts concerning the universal health care proposals. My three main criticisms of these plans are:
1. The Universal insurance plans proposed continue the HMO style of health insurance. HMO style insurance encourages over use of medical services by separating us from the actual expense of health care.
2. These Universal HMO plans by Obama, Edwards and Clinton also discourage people from finding the least expensive doctor or treatment. We don’t pay the costs so we don’t bother finding this information
3. HMO style insurance over insures us and leads us to take less care of our health because they don’t face the financial repercussions.
Well, I came up with yet another criticism of these proposed moves towards government run health care systems like those that exist in Canada and Western Europe. To be fair, none of the Universal Insurance plans Democrats have proposed would cause side effects of the size I’m talking about. However, all three have mentioned the “excessive profits” that drug companies are making and their party has been pushing to confiscate these profits or mandate lower prices by law. These moves could easily cause the effects that I fear.
According to the Kenneth Shadlen of Development Studies Institute, between 1996 and 2000 the United States accounted for 63% of all medical patents worldwide even though we make up only 5% of the population. Even when you compare the U.S. to Western Europe we blow them away. On a per capita basis, the U.S. puts out 2 to 2 ½ times the medical advances of the UK, France, Canada, and Germany. Clearly, our medical system, based on profits, outperforms the European countries with socialized medicine. The rest of the world is relying on our free market system because we choose not to exclude them from new medicines and technologies.
All else being equal, if the United States were to switch to a similar system for medicine as the four mentioned, worldwide medical advances would fall by almost 40%. Instead of finding cures and treatments for say 500,000 people next year, it would only be 300,000. That treatment you were hoping for that was only 10 years off could be 18 years off. How much needless suffering and pain would we inflict upon the world if we were to do as others have chosen to do?
Before we barrel down the road towards socialized medicine, we need to appreciate what could be the catastrophic consequences.
It’s a Nice Idea, But It Can’t be Done
Recently, in this newsletter, on my blog, and other blogs I have been defending the idea of Texas dropping the property tax for a sales tax in the spirit of the Fair Tax. I’ve come across general support, but also some doubt that it could ever be accomplished. I'm told that like the flat tax, fair tax, and many of the ideas that I have proposed, these changes are too ambitious to ever occur. I have run across some evidence that these doubt are unfounded.
The state of Utah recently switched from a complicated income tax with lots of loopholes and deductions to a Flat Tax. Read about it here:
http://www.sltrib.com/ci_7766094
The governor of the state of South Carolina recently proposed a budget that includes a flat tax option where citizens can choose whether to pay their state income tax under the existing system of deductions and loopholes or pay a flat tax.
“Under the plan, residents could choose to pay a flat 3.4 percent income tax rate. In exchange, they could claim no tax deductions or credits.”
http://www.thestate.com/local/story/262697.html
When the winds are blowing against the ideas of the free market and small government, it seems like an impossible task to significantly reduce the size of our government. Over the last 20 years, Ireland has shown that it can be done.
In 1985, government spending accounted for 54% of the Irish economy. The Irish made a choice to reduce the size of government and they did. Over the last twenty years, the Irish have cut government spending by 35% as a percentage of GDP. Their country now has a lower overall tax rate than the United States. They have moved from one of the poorest countries in Western Europe to one of the wealthiest. The Heritage Foundation lists them as having a more free economy than the United States. In 1985, the average Irish family made 40% less than their French and German counterparts. Today, because of the massive spending cuts and massive growth from that, the Irish make 40% more than the French and the Germans according to the IMF.
Do you think that we can move to less government in the United States? Tell me yes or no. Tell me what you think is the easiest government spending to get rid of. Send me an e-mail or go out to my blog.
As always, tell me what you think and pass this newsletter along to anyone who might be interested.
More thoughts on Health Care
Over the last few months I have written a number of posts concerning the universal health care proposals. My three main criticisms of these plans are:
1. The Universal insurance plans proposed continue the HMO style of health insurance. HMO style insurance encourages over use of medical services by separating us from the actual expense of health care.
2. These Universal HMO plans by Obama, Edwards and Clinton also discourage people from finding the least expensive doctor or treatment. We don’t pay the costs so we don’t bother finding this information
3. HMO style insurance over insures us and leads us to take less care of our health because they don’t face the financial repercussions.
Well, I came up with yet another criticism of these proposed moves towards government run health care systems like those that exist in Canada and Western Europe. To be fair, none of the Universal Insurance plans Democrats have proposed would cause side effects of the size I’m talking about. However, all three have mentioned the “excessive profits” that drug companies are making and their party has been pushing to confiscate these profits or mandate lower prices by law. These moves could easily cause the effects that I fear.
According to the Kenneth Shadlen of Development Studies Institute, between 1996 and 2000 the United States accounted for 63% of all medical patents worldwide even though we make up only 5% of the population. Even when you compare the U.S. to Western Europe we blow them away. On a per capita basis, the U.S. puts out 2 to 2 ½ times the medical advances of the UK, France, Canada, and Germany. Clearly, our medical system, based on profits, outperforms the European countries with socialized medicine. The rest of the world is relying on our free market system because we choose not to exclude them from new medicines and technologies.
All else being equal, if the United States were to switch to a similar system for medicine as the four mentioned, worldwide medical advances would fall by almost 40%. Instead of finding cures and treatments for say 500,000 people next year, it would only be 300,000. That treatment you were hoping for that was only 10 years off could be 18 years off. How much needless suffering and pain would we inflict upon the world if we were to do as others have chosen to do?
Before we barrel down the road towards socialized medicine, we need to appreciate what could be the catastrophic consequences.
It’s a Nice Idea, But It Can’t be Done
Recently, in this newsletter, on my blog, and other blogs I have been defending the idea of Texas dropping the property tax for a sales tax in the spirit of the Fair Tax. I’ve come across general support, but also some doubt that it could ever be accomplished. I'm told that like the flat tax, fair tax, and many of the ideas that I have proposed, these changes are too ambitious to ever occur. I have run across some evidence that these doubt are unfounded.
The state of Utah recently switched from a complicated income tax with lots of loopholes and deductions to a Flat Tax. Read about it here:
http://www.sltrib.com/ci_7766094
The governor of the state of South Carolina recently proposed a budget that includes a flat tax option where citizens can choose whether to pay their state income tax under the existing system of deductions and loopholes or pay a flat tax.
“Under the plan, residents could choose to pay a flat 3.4 percent income tax rate. In exchange, they could claim no tax deductions or credits.”
http://www.thestate.com/local/story/262697.html
When the winds are blowing against the ideas of the free market and small government, it seems like an impossible task to significantly reduce the size of our government. Over the last 20 years, Ireland has shown that it can be done.
In 1985, government spending accounted for 54% of the Irish economy. The Irish made a choice to reduce the size of government and they did. Over the last twenty years, the Irish have cut government spending by 35% as a percentage of GDP. Their country now has a lower overall tax rate than the United States. They have moved from one of the poorest countries in Western Europe to one of the wealthiest. The Heritage Foundation lists them as having a more free economy than the United States. In 1985, the average Irish family made 40% less than their French and German counterparts. Today, because of the massive spending cuts and massive growth from that, the Irish make 40% more than the French and the Germans according to the IMF.
Do you think that we can move to less government in the United States? Tell me yes or no. Tell me what you think is the easiest government spending to get rid of. Send me an e-mail or go out to my blog.
As always, tell me what you think and pass this newsletter along to anyone who might be interested.
Tuesday, January 8, 2008
Supply Side Corruption
I suspect everyone has heard of Alaska’s “Bridge to Nowhere”. This wonderful piece of pork barrel spending planned $300 million to build a bridge as long as the Golden Gate Bridge and higher than the Brooklyn Bridge to connect a town of 7,400 people in southern Alaska to it’s airport across the bay. More specifically, it was an earmark.
What is an Earmark?
A wordy definition given by the Congressional Research Service is on p.5 of this pdf. An earmark is a small part of a bill inserted by a legislator to direct funds to a specific project or organization, typically within his or her own district. In this case, Congress approved a sum of money for transportation in Alaska, but Sen. Ted Stevens inserted an earmark to dedicate a big chunk towards his bridge. Wisely, Sen. Coburn of Oklahoma successfully fought to remove the earmark.
Sen. Stevens’ defense, made by many, is that he knows his state better than bureaucrats in Washington. Even though the bureaucrats do not live in Alaska, it is hard to believe that any one person could be smart enough to know the best use of funds in a state that covers 500,000 sq. miles. The places and people he knows would certainly get more attention.
If this were the only problem with earmarks, it would not be worth talking about. The real problems are much bigger. Instead of coming up with solutions for big issues, they are sitting in presentations by hat-in-hand organizations listening to pleas for government handouts.
Earmarks also increase total spending. It may be true that a Rep is simply sending a portion of his or her district’s funds to a certain project or organization, but having that earmark gives them a stake in seeing the bill pass. If a Congressman is worried about getting re-elected and can save his neck by building a nice museum in his district by use of an earmark, the temptation is to vote for the entire spending bill regardless of how bloated it gets.
In 1994, Republicans swept to power promising fiscal discipline because the spending habits of Democrats were out of hand. The Republicans held strong for a few years, but soon succumbed to the money game and the number of earmarks and pork barrel projects skyrocketed. In 2006, the Democrats swept to power promising fiscal discipline and earmark reform. They then proceeded to vote down the earmark reforms and started busting the budget with pork-filled bills.
In a letter to House Majority Leader Nancy Pelosi concerning earmarks, Rep. Carolyn Cheeks Kilpatrick is quoted in an article by politico.com.
“There are a few examples of where your help could significantly assist a few members in highly contested races,” she wrote.
Apparently, this Congresswoman is requesting that the party leadership should use public money to help secure the re-election of party members by use of earmarks. This is unbelievable! Let me make it clear: She wants to take YOUR money and give it to lobbyists to help keep her party in power!
In response to this letter Rep. Campbell of California said, “This letter appears to request taxpayer dollars to aid in political campaigns, which is improper and possibly illegal.”
Note: I don’t like to make a big issue out of offhanded quotes, but her quote was in a prepared letter with her signature. This was not a misstatement and was not taken out of context.
Most importantly, there is the very real problem of lobbyists making a campaign donation and the Congressman magically seeing the light and deciding that yes, the road leading to said lobbyist’ proposed development should be expanded. In other words, corruption.
A few years ago, Congress passed the McCain-Feingold bill to limit donations and lobbyist influence. It does not seem to have worked, as there has been no mass exodus by lobbyists out of DC. This year, Congress slipped thousands of earmarks into bills to help special interest groups. The problem with the McCain-Feingold bill is that it was an attempt to reduce demand for government handouts. If you can cure the demand for free money, I’ll nominate you for a Nobel Prize. It is not the demand for free money that can be controlled, it is the supply.
We need to ban earmarks, plain and simple. If a Congressman cannot give funds to a particular project or organization, the lobbyists will stop asking for money. If there is no supply of free money, there is no demand for free money.
This is also one of the reasons I support the flat tax. If there is no supply of tax breaks and loopholes, there will be no demand for tax breaks and loopholes.
To end corruption and the appearance of corruption, we have to cut off the supply of free money handouts. We must ban earmarks.
Right now, an organization called FreedomWorks has a website set up to send an e-mail to the President letting him know you want him to override the earmarks. It was quick and easy. I sent one and I hope you do too. Check it out here.
As always, let me know what you think.
What is an Earmark?
A wordy definition given by the Congressional Research Service is on p.5 of this pdf. An earmark is a small part of a bill inserted by a legislator to direct funds to a specific project or organization, typically within his or her own district. In this case, Congress approved a sum of money for transportation in Alaska, but Sen. Ted Stevens inserted an earmark to dedicate a big chunk towards his bridge. Wisely, Sen. Coburn of Oklahoma successfully fought to remove the earmark.
Sen. Stevens’ defense, made by many, is that he knows his state better than bureaucrats in Washington. Even though the bureaucrats do not live in Alaska, it is hard to believe that any one person could be smart enough to know the best use of funds in a state that covers 500,000 sq. miles. The places and people he knows would certainly get more attention.
If this were the only problem with earmarks, it would not be worth talking about. The real problems are much bigger. Instead of coming up with solutions for big issues, they are sitting in presentations by hat-in-hand organizations listening to pleas for government handouts.
Earmarks also increase total spending. It may be true that a Rep is simply sending a portion of his or her district’s funds to a certain project or organization, but having that earmark gives them a stake in seeing the bill pass. If a Congressman is worried about getting re-elected and can save his neck by building a nice museum in his district by use of an earmark, the temptation is to vote for the entire spending bill regardless of how bloated it gets.
In 1994, Republicans swept to power promising fiscal discipline because the spending habits of Democrats were out of hand. The Republicans held strong for a few years, but soon succumbed to the money game and the number of earmarks and pork barrel projects skyrocketed. In 2006, the Democrats swept to power promising fiscal discipline and earmark reform. They then proceeded to vote down the earmark reforms and started busting the budget with pork-filled bills.
In a letter to House Majority Leader Nancy Pelosi concerning earmarks, Rep. Carolyn Cheeks Kilpatrick is quoted in an article by politico.com.
“There are a few examples of where your help could significantly assist a few members in highly contested races,” she wrote.
Apparently, this Congresswoman is requesting that the party leadership should use public money to help secure the re-election of party members by use of earmarks. This is unbelievable! Let me make it clear: She wants to take YOUR money and give it to lobbyists to help keep her party in power!
In response to this letter Rep. Campbell of California said, “This letter appears to request taxpayer dollars to aid in political campaigns, which is improper and possibly illegal.”
Note: I don’t like to make a big issue out of offhanded quotes, but her quote was in a prepared letter with her signature. This was not a misstatement and was not taken out of context.
Most importantly, there is the very real problem of lobbyists making a campaign donation and the Congressman magically seeing the light and deciding that yes, the road leading to said lobbyist’ proposed development should be expanded. In other words, corruption.
A few years ago, Congress passed the McCain-Feingold bill to limit donations and lobbyist influence. It does not seem to have worked, as there has been no mass exodus by lobbyists out of DC. This year, Congress slipped thousands of earmarks into bills to help special interest groups. The problem with the McCain-Feingold bill is that it was an attempt to reduce demand for government handouts. If you can cure the demand for free money, I’ll nominate you for a Nobel Prize. It is not the demand for free money that can be controlled, it is the supply.
We need to ban earmarks, plain and simple. If a Congressman cannot give funds to a particular project or organization, the lobbyists will stop asking for money. If there is no supply of free money, there is no demand for free money.
This is also one of the reasons I support the flat tax. If there is no supply of tax breaks and loopholes, there will be no demand for tax breaks and loopholes.
To end corruption and the appearance of corruption, we have to cut off the supply of free money handouts. We must ban earmarks.
Right now, an organization called FreedomWorks has a website set up to send an e-mail to the President letting him know you want him to override the earmarks. It was quick and easy. I sent one and I hope you do too. Check it out here.
As always, let me know what you think.
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