Existing Home Sales Blamed for Stock Market Decrease

Lower existing home sales numbers may have played a role in causing the stock market to decrease two percent yesterday. That's funny to think about. Our economy is partially dependent on people trading existing houses with one another. The houses are durable. They're going to be around for a long time, regardless of who owns them. What the economy needs, though, is for people to trade them with one another frequently. We can't have the same people just continuing to own the same house for a long period of time.

I am not knowledgeable about exactly why some observers see people trading houses as a positive thing. Maybe this is just an idea that the real estate and finance (FIRE) industries have promoted because they get a cut of most residential real estate transactions. If people are voluntarily giving Realtors and banks their money, maybe this bit of GDP is as legitimate as if people were voluntarily giving their money to buy a new toys.

It's more likely related concerns about keeping real estate liquid, which is important for people who own/owe debt collateralized by real estate.

Whatever the reasons, it would be good for our economy not to be dependent on people moving house frequently.

Obama Should Stick to the Message of Hope

You've heard of mental depression; this is a mental recession. We may have a recession; we haven't had one yet. We have sort of become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness, America in decline.

--Phil Gramm

Phil Gramm is right. There is no recession. The economy is growing.

He didn't say this but I guess what he meant was that it's a figment of your imagination, these high gas prices. When people are out there losing their homes and property values are declining, that's not a figment of your imagination and it isn't whining to ask government to step in and give families some relief.

--Barack Obama

If you think GDP has declined over the past few quarters, it is absolutely a figment of your imagination.

What do "these high gas prices" have to do with it? I thought Democrats understood that oil is a non-renewable resource and therefore things made from it must get more expensive as time goes forward until we find alternatives.

What does more affordable property values have to do with it? Prices go up and down. Government stepping in to give relief won't change that.

A hopeful, optimistic candidate would view these developments as opportunities. The spike in gas prices is a reminder that we need to get alternatives in place soon. The lower real estate prices make homes affordable.

If he were explicitly talking about the impact of these things on the poor, I would have a different take. Everyday ups-and-downs of markets are difficult for the poor. That's part of why they call it poor: it means you don't have the money to handle everyday things that come up. I still have hope Obama will become president and institute many difficult-to-dismantle programs that drastically reduce the rate of poverty for generations. But that's not what he's talking about.

Instead his talking about short-term blips the economy: "Why do things have to change? Why can't we have cheap energy? Why can't prices of everything stay the same so we don't have to adapt?"

We are not a nation of whiners; Obama's comments are whining. I can imagine McCain countering with an optimistic response of hope and being adaptive to economic change, and thereby beating Obama at his own game.

Did Greedy Executives Cause the Mortgage Crisis?

From The New York Times article, The Fannie and Freddie Fallout

IT’S dispiriting indeed to watch the United States financial system, supposedly the envy of the world, being taken to its knees. But that’s the show we’re watching, brought to you by somnambulant regulators, greedy bank executives and incompetent corporate directors.
This wasn’t the way the “ownership society” was supposed to work.

Is this true? They're saying our system is based on having responsible bank executives and corporate directors, and their lapse in judgment led to the mortgage problems. If that’s true, we should know that sooner or later a system based on the responsibility of human beings will eventually have problems.

While a system with a small group of individuals charged with doing the right thing would be flawed, our economic system does not even have such a protection. The owners are so divorced from decision making that they end up accidentally encouraging risky and unethical behavior. (Click on the chart to enlarge it.)


It’s a circular org chart with no one in charge. We haven’t appointed one group along the chain to be the guardians of long term stability or even guardians of what’s morally right.

I am not at all against corporate ownership of the means of production. On the contrary, it provides a means for productive ideas to be funded. Although our system of ownership needs improvement, I do not have a plan to improve it. All I’m saying is throwing all the blame on “greedy executives” is empty calories.

CSAs: Sustainable Food

The New York Times ran an article about community supported agriculture (CSA). My wife and I are on our second year as members of Vermont Valley CSA. We have had a very positive experience with it.

• We get organic food for a reasonable price.
• The food is grown locally, so less fuel is needed for transportation. Fuel is cheap, even with today's higher oil prices, but the price doesn't include environmental and political costs. It's better to conserve if you can.
• It helps keep farmland from being paved over by suburban sprawl. Wisconsin has some of the best farmland in the world. Once it's paved over, it's gone forever.
  
• We get whatever they grow. This encourages us to try new foods.
• Weather events such as floods, early/late frosts, and droughts affect how much food we get and remind us how connected we are to nature.
  
• There are events for adults to pick some extra food for their own use and for kids to learn about how a farm works.
  

The freezer fills up in the fall and empties by spring. The season started late this year, but the freezer is starting to fill.

The only downside is that storing and cooking the food takes much more time compared to heating the factory-made food I ate before I got married. I am fortunate my wife enjoys cooking so much.

I just checked her blog about saving money looking for something on frugality and cooking, and I discovered she had almost exactly the same comments. I didn't even know she had seen the same NYT article as I did, but evidently she read it and beat me to it. For pracitcal ideas on saving money using a CSA, check out her article "Get Your Own Farmer".

A Lame Excuse for a Lack of an Energy Policy

“[Measures to conserve energy] will work if you coerce the entire system and if you pretend the American people are Japanese and Europeans,” Mr. Gingrich says. “Our culture favors driving long distances in powerful vehicles and the car as a social expression.”

That’s like saying I will always be 15 pounds overweight because I favor eating good portions of high-fat foods as a form of personal expression. It couldn’t be the simple explanation that I don’t want to go on a diet. It must be a form of social expression. (See the picture of me participating in the social expression going on at Madison's Bratfest this year.)

I thought Republicans were supposed to be for taking personal responsibility for your actions. The social expression excuse is pretty lame. The only way this could get any lamer is if he convinced me that driving long distances truly was his attempt at expressing himself.

Another World Exists - Summer Begins in Madison

A few months ago I noted spring was here, another world is possible, and it exists right here in Madison.

This weekend was the summer solstice, which some people consider the official beginning of summer. My wife and I went to a nice summer solstice (aka Litha) celebration yesterday in Olbrich Park.

There was a bonfire, puppets representing the seasons, organizations with information about things people can do to improve Madison's lakes and streams, and plenty of kids running around playing. Parking contained as many bikes as cars.

If you live in a sprawling community where people commute from homes in one suburb to jobs in another suburb, where people don't know one another and are driven by fear and greed, it's not because of human nature. There are choices about whom you want to live with and how people plan the logistics of their communities. Values of a community reach a critical mass point at which most people go along with them.


Another world is possible, and often you can get to it without a passport.

Debtorship Society Derailed, But Clouded Thinking Persists

The New York Times reports that the percentage of people renting is rising in the wake the of the housing bust.

The article dances around the idea that the bust is reminding people that increasing rates of home debtorship is not a solution to social problems.

Nationally, rents have increased about 11 percent since 2005, when homeownership rates started to decline, though that growth is slowing, according to the Bureau of Labor Statistics.

If these are nominal numbers, it means they've kept pace with inflation. You can go to the Bureau of Labor and Statistics CPI Inflation Calculator and verify this by asking to convert the value of $100 in 2005 into 2008 dollars. It's $111.

That means despite the recent increases in the number of people renting, real rent prices have stayed the same. If there were more people than places to live, we would expect rents to rise. Thanks to the 2000-2006 boom, though, there is a surplus of places to live. That's why the rent price "growth is slowing" while inflation is rising, i.e. real rent prices are falling.

The article mentions a 68 y/o woman with low income, weak credit, and no significant down payment who wanted to buy a house with some friends. She and the non-profit who tried to help her become a homedebtor lament that it was easier to qualify a few years ago. It mentions this after several stories of how going deeply into debt to buy a house destroyed people's lives. The article leaves it to the reader to realize this woman was lucky not be able to get herself into this same situation.

The confluence of factors has largely derailed what Mr. Bush called “the ownership society."

The so-called ownership society is a good idea. A debtorship society is a bad idea. We need to focus on things that help people increase their income and net worth. It's an easier path to get into debt than to improve net worth. The easy path leads to the horror stories in this article. We need to be on the hard path.