Sunday, January 31, 2010

Is High-Speed Rail Good Stimulus?

That depends on your criterion for good stimulus. 

If the only requirement is that the government write checks to people who are nominally employed, then building high-speed rail is great - but so is paying people to dig ditches and fill them up.

If the requirement is also that stimulus projects pass a standard cost-benefit test, then high-speed rail does not appear to measure up:

In the face of high energy prices and concerns about global warming, environmentalists and planners offer high-speed rail as an environmentally friendly alternative to driving and air travel. California, Florida, the Midwest, and other parts of the country are actively considering specific high-speed rail plans.

Close scrutiny of these plans reveals that they do not live up to the hype. As attractive as 110-to 220-mile-per-hour trains might sound, even the most optimistic forecasts predict they will take few cars off the road. At best, they will replace for profit private commuter airlines with heavily subsidized public rail systems that are likely to require continued subsidies far into the future.

Nor are high-speed rail lines particularly environmentally friendly. Planners have predicted that a proposed line in Florida would use more energy and emit more of some pollutants than all of the cars it would take off the road. California planners forecast that high-speed rail would reduce pollution and greenhouse gas emissions by a mere 0.7 to 1.5 percent—but only if ridership reached the high end of projected levels. Lower ridership would nullify energy savings and pollution reductions.
I have nothing against government infrastructure spending in principle.  But since interest groups like construction companies and unions have a strong incentive to oversell the benefits of these projects, while the green lobby has a religious hatred of cars, we should not be surprised if dispassionate analyses finds that the cost-benefit case for these projects is lacking.

Saturday, January 30, 2010

More Subsidy for Nuclear Power?

The Obama administration moved vigorously on two fronts Friday to promote nuclear power, proposing to triple federal loan guarantees for new projects and appointing a high-level panel to study what to do with nuclear waste.
One more example of picking winners and losers among industries; hardly government's strong suit.

Plus, the U.S. already subsidizes nuclear energy via the Price-Anderson Act of 1957, which limits the liability of the nuclear power industry in the case of accidents.

This subsidy means the true costs of nuclear power are much higher than they appear.  Although nuclear produces fewer greenhouse emissions than burning fossil fuel, it is probably not efficient even assuming a large negative effct from emissions.

Friday, January 29, 2010

An Economist Gets Stoned

Listen to a podcast of NPR's David Kestenbaum interviewing yours truly for Planet Money.  Here's the summary:

Fourteen states have adopted medical marijuana laws. We talk to Harvard economist, Jeffrey Miron, about what happens when drugs move from the black market to the open market. Do they get 100 times cheaper? Or instead, more expensive? Miron talks about the economics of prohibition, and reveals his drug of choice (which is legal) and one he would like to try (which is not).

Thursday, January 28, 2010

Will Obama Pull Off a Clinton?

Considerable discussion since Scott Brown's victory in Massachusetts has suggested that Obama might follow Bill Clinton's path: after governing from the left and being rebuked by the voters, he will moderate his message, reconnect with indpendents, and enjoy substantial two-term popularity.

After watching the SOTU address, I do not see that happening.  For whatever reasons, Obama seems more fundamentally tied to the left than Clinton.  He continues to push an agenda that independents do not share, and he castigates those who disagree with him as selfish, mean-spirited, or partisan.  This is not the way to win over moderates.

Obama's presidency is headed for failure unless he abandons the far-left agenda.

Wednesday, January 27, 2010

A 10-Point, Libertarian, SOTU Address

1. Abandon Obamacare

2. Forget Cap and Trade

3. Reject the Card Check Bill

4. Withdraw from Iraq and Afghanistan

4. Legalize Drugs

5. Scrap the Tax Code and replace with a flat tax.

6. Expand free trade and immigration.

7. Stop the bailouts

8. Cut spending

9. Cut spending

10. Cut spending

Tuesday, January 26, 2010

Obama to Propose a Budget Freeze

President Barack Obama intends to propose a three-year freeze in spending that accounts for one-sixth of the federal budget—a move meant to quell rising voter concern over the deficit but whose practical impact will be muted.

To attack the $1.4 trillion deficit, the White House will propose a three-year freeze on discretionary spending unrelated to the military, veterans, homeland security and international affairs, according to senior administration officials. Also untouched are big entitlement programs such as Social Security and Medicare.
Is this proposal a step in the right direction?  Yes, as far as it goes.

But it's a baby step: only $250 billion saved over the coming decade.  To make a real difference, cuts must focus on national defense, social security, and health care.  These three are the largest components of the budget, and health care in particular is growing rapidly.  Unless budget cuts tackle these items, they will have only minor impact.

In addition, most of the affected programs should actually be zeroed out, not just frozen at current levels; that would be a real start on fiscal responsibility.

Still, any restraint in spending is welcome.  We will see if President Obama wields his veto pen if (when) Congress does not play along.

Monday, January 25, 2010

Barney Frank Wants to End Fannie, Freddie

Really:

Representative Barney Frank said Friday that the House Financial Services Committee, which he leads, would push to replace Fannie Mae and Freddie Mac, seized by regulators almost 17 months ago, with a different model for mortgage financing.

“The committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance,” Mr. Frank, a Massachusetts Democrat, said at a hearing in Washington, according to Bloomberg News. “That’s the approach, rather than a piecemeal one.”
Of course, Frank has not explained his "whole new system of housing finance."

Grab your wallet and head for the hills.

Sunday, January 24, 2010

Jury Nullification: A Case Study

This story was written by a staff writer for the Washington Post who ended up on jury duty:

Last week I was a juror in the trial of a man accused of selling a $10 bag of heroin to an undercover police officer. At the end of the two days of testimony, I concluded that the defendant was guilty beyond a reasonable doubt. I also concluded that he should be acquitted.

You can read the whole story here; the bottom line is that police fabricated evidence to make their case stronger, and the jury acquited.   The writer's key insight:

I believe they had the right guy, too. But the willingness to cheat, I think, is a poisonous corruption of a system designed to protect the innocent at the risk of occasionally letting the guilty walk free. It's a good system, fundamental to freedom. I think a police officer willing to cheat is more dangerous than a two-bit drug peddler.

Saturday, January 23, 2010

Should the Senate Confirm Ben Bernanke?

Yes.

You might be suprised by that answer. To be clear, I think the Fed has erred tremendously during Ben's first term, both by supporting the bailouts and by expanding the Fed's actions beyond standard open market operations (e.g., buying up mortgage-backed securities).  In my utopia, the Fed would not exist at all.

But we do not live in that utopia (yet).  If Ben is not confirmed, we will stil have a Fed, and someone will be chairman.  So the following points argue in favor of confirmation:

1. Hindsight is easier than foresight.  The Fed had to act in real time. Many of Ben's current critics supported the Fed's actions as they occurred, even if they disagree now.  And macroeconomists as a group believe Ben has done a good job.

2. Ben took the actions he did because he was convinced they were right for the economy.  He may have been mistaken, but his intentions were always benevolent.

3. Most distinguished candidates to replace him will be horrified if he is not confirmed.  So, his successor may be far less talented.

4. Ben is being made a scapegoat (perhaps by politicos within the White House), to soothe populist rage.

5. Stability in policy is important, even if that policy is not perfect.  If Ben is not confirmed, uncertainty about monetary policy increases dramatically.

So I endorse Ben for a second term, without reservation.

Friday, January 22, 2010

The Supreme Court's Ruling on Campaign Finance Laws

Sweeping aside a century-old understanding and overruling two important precedents, a bitterly divided Supreme Court on Thursday ruled that the government may not ban political spending by corporations in candidate elections.

The ruling was a vindication, the majority said, of the First Amendment’s most basic free speech principle — that the government has no business regulating political speech.
 
So, the Court's view is that campaign finance regulation (at least the part addressed in yesterday's decision) is not constitutional. I am not a lawyer, but that view sounds right to me.  Let's put aside the constitutional issue, however, and ask whether campaign finance regulation would be good policy if it were constitutional?

The standard argument for such regulation rests on four claims:

1. that spending by politicians affects their likelihood of election;

2. that contributions to political campaigns affect the policies a politician supports;

3. that these influences on political outcomes are undesirable;

4. and that regulation successfully limits money’s influence on these outcomes.
Claims 1 and 2 are oft-overstated, but they probably have some validity. 

Claim 3, however, is probably backwards. Money lines up on one side of an issue because a larger economic pie supports that side. Special interests do support bad policies, including corporate welfare, tariffs and quotas, agricultural subsidies, wasteful weapons programs, and pork pork-barrel spending, but money often causes better policies, not worse; free trade is an excellent example.

Claim 4 is even less convincing: politicians and special interests can circumvent most regulation.

So, campaign finance regulation's main goal is not compelling, and the regulation does not achieve that goal anyway.  Instead, the regulation protects incumbents and rewards politicians who exploit loopholes in the law.  The Court's decision is good economics, as well as good law.

Thursday, January 21, 2010

Common Sense and Global Warming

A WARNING that climate change will melt most of the Himalayan glaciers by 2035 is likely to be retracted after a series of scientific blunders by the United Nations body that issued it.

Two years ago the Intergovernmental Panel on Climate Change (IPCC) issued a benchmark report that was claimed to incorporate the latest and most detailed research into the impact of global warming. A central claim was the world's glaciers were melting so fast that those in the Himalayas could vanish by 2035.

In the past few days the scientists behind the warning have admitted that it was based on a news story in the New Scientist, a popular science journal, published eight years before the IPCC's 2007 report.

It has also emerged that the New Scientist report was itself based on a short telephone interview with Syed Hasnain, a little-known Indian scientist then based at Jawaharlal Nehru University in Delhi.

Hasnain has since admitted that the claim was "speculation" and was not supported by any formal research. If confirmed it would be one of the most serious failures yet seen in climate research. The IPCC was set up precisely to ensure that world leaders had the best possible scientific advice on climate change.
The stunning thing about the IPCC's assertion is not that it turns out to be pure speculation; the scary fact is that anyone believed this in the first place.  Just look at a picture: does it make sense that a degree or so of higher temperature could melt this within 30 years?

Wednesday, January 20, 2010

Limits on Lobbying? Don't Tell the Lobbyists

Ellen Miller, co-founder of the Sunlight Foundation, has spent years arguing for rules to force more disclosure of how lobbyists and private interests shape public policy. Until recently, she herself registered as a lobbyist, too, publicly reporting her role in the group’s advocacy of even more reporting. Not anymore.

In light of strict new regulations imposed by Congress over the last two years, Ms. Miller joined a wave of policy advocates who are choosing not to declare themselves as lobbyists.
Read the rest here; it gets better.
 
Should Congress regulate lobbying? In my view, no.  Beyond the enforcement issue, such regulation is not only inconsistent with free speech but counterproductive as well: it lulls voters into thinking the law has constrained special interests, when it has not.

Tuesday, January 19, 2010

Should Libertarians Vote for Scott Brown?

Massachusetts is holding a special election tomorrow for Ted Kennedy's Senate seat. The candidates are Martha Coakley, a Democrat and until recently the presumptive victor; Scott Brown, the Republican and until recently a little known state senator (mine in fact); and Joseph L. Kennedy, a Libertarian and no relation to Ted.

In most Massachusetts elections, I vote for the libertarian or write in my wife (also a libertarian). The Democrats always win, so I can vote my conscience without worrying how my vote might affect the outcome.

This election, however, is different.  If the polls are to be believed, the race is close.  And, having a 41st Republican in the Senate could defeat ObamaCare, which I view as evil. So, what's a libertarian to do? 

I looked into Brown's and Kennedy's views on a range of issues.  Kennedy is definitely libertarian, Brown more conservative. Thus, on economics they are similar and while on social issues they differ, with Kennedy's views closer to my own.  Brown, however, is not ultra-conservative; he is personally opposed to abortion and gay marriage, but he believes abortion should remain legal while gay marriage should be left to each state.

The other factor to consider is that one-party rule is awful; gridlock is great.

So, which way will I vote?

PS: You might think Brown has a chance because of backlash over the economy and Obama excesses.  That is part of the story, but in addition Coakly announced on a local radio show that Curt Schilling is a Yankees fan!

PPS: Brown might do better than the polls indicate because the Kennedy supporters will probably vote for Brown.

PPPS: My home phone rang about 5 times while I was writing this, all automated messages urging me to vote for Brown.

Monday, January 18, 2010

Martin Luther King Quote

An individual who breaks a law that conscience tells him is unjust, and who willingly accepts the penalty of imprisonment in order to arouse the conscience of the community over its injustice, is in reality expressing the highest respect for the law.

Sunday, January 17, 2010

Will France Become Lebanon?

LYON, FRANCE -- France, which regards itself as the cradle of human rights, is moving to impose legal restrictions on Muslim women who wear Afghan-style burqas or other full-face veils.

The restrictions, likely to apply to many public places, come in response to resentment in France and other European countries over the growing visibility of Muslims -- immigrants or locally born -- on a continent with ancient Christian roots. The tensions have long run through European societies but increasingly are coming to the surface as the number of Muslims grows and symbols of their faith, including mosques, are seen as a challenge to European traditions.
Beyond the fact that these restrictions are inconsistent with any notion of free expression, they are counterproductive: by isolating Mulsims they generate resentment, rather than encourage assimilation.

Saturday, January 16, 2010

ObamaCare: Laugh Till It Hurts

From a friend:

Let me get this straight.

The new health care plan will be written by a committee whose Chairman says he doesn't understand it;

Passed by a Congress which hasn't read it;

Signed by a President who smokes;

Funded by a Treasury Chief who did not pay his taxes;

Overseen by a Surgeon General who is obese;

And financed by a country that is nearly broke.

What could possibly go wrong?

Friday, January 15, 2010

Best One-Liner from a Judge This Year

The judge presiding over the first serious challenge in federal court of a state gay-marriage ban has defined his career with an unconventional approach.

Two days into the trial over the constitutionality of California's Proposition 8 gay-marriage ban, Judge Vaughn Walker has upset some opponents of gay marriage by allowing gay couples to testify on the meaning of marriage.

The 65-year-old judge has tried to breach the longtime ban on TV cameras in federal court by ordering the trial to be posted on YouTube -- though the Supreme Court has temporarily stayed that decision.

On Monday, the first day of the trial, he repeatedly asked the lawyers: Why don't states "get out of the marriage business? It would solve the problem."

OK, that's two lines, but right on the money in any case.  Read the rest; Walker is an interesting guy.  How did a libertarian get on the federal bench?

Thursday, January 14, 2010

Maybe Chefs Should Design Anti-Terrorism Tactics

It seems that professional chefs are better than terrorists at getting things past airport security:

The Christmas Day underwear-bombing attempt won't just slow airport-security lines. It probably will also disrupt efforts to provide U.S. carnivores with quality salami, prosciutto and headcheese.

Last week, a federal grand jury indicted Umar Farouk Abdulmutallab, the Nigerian who allegedly tried to set off a bomb hidden in his underpants on a Northwest Airlines flight to Detroit. The bomb didn't explode, but it spurred demand for pat-down searches, body scans and more-meticulous baggage examinations for airline passengers headed for the U.S.

Such measures might discourage terrorists, but they are also likely to catch chefs smuggling meat from Europe. Chefs such as Rey Knight, who once flew from Italy to Miami with a pork shoulder and fennel-pollen salami vacuum-sealed and hidden inside a stainless-steel water bottle. Another time, he says, he hid a 4-pound goose-liver torchon from France inside the belly of a salmon.
 
Increased scrutiny of international travelers means "I'll have to come up with more creative ways" to get charcuterie into the U.S., says Mr. Knight, whose Knight Salumi Co. sells cured meats to San Diego-area restaurants.

Wednesday, January 13, 2010

Cell Phones and Traffic Accidents

I do not dispute that talking or texting on a cell phone can inhibit good driving.

But laws that limit the use of cell phones while driving may still be undesirable.

First, the people who text while driving might be the same people who would otherwise be putting on makeup, fiddling with the radio, trying to eat a sandwich, or yelling at their kids.  Thus, the net amount of bad driving due to cell phones may not be large.

Second, traffic fatalities per vehicle mile have declined steadily and significantly since 1994, even while cell phones and texting have grown enormously.  This does not prove cell phones do not cause bad driving, but it makes you wonder if this effect is large.  Most studies on cell phones and traffic accidents suffer from serious statistical flaws.

Third, any accidents caused by cell phones are only one side of the equation.  Millions of people use cell phones while driving for beneficial purposes, so the net impact may well be positive.

Tuesday, January 12, 2010

Fareed Zakaria on Our Response to the Underwear Bomber

In responding to the attempted bombing of an airliner on Christmas Day, Sen. Dianne Feinstein voiced the feelings of many when she said that to prevent such situations, "I'd rather overreact than underreact." This appears to be the consensus view in Washington, but it is quite wrong. The purpose of terrorism is to provoke an overreaction. Its real aim is not to kill the hundreds of people directly targeted but to sow fear in the rest of the population. Terrorism is an unusual military tactic in that it depends on the response of the onlookers. If we are not terrorized, then the attack didn't work. Alas, this one worked very well.
 I could not agree more.  The rest of Zakaria's piece is dead on as well, this paragraph in particular:

As for the calls to treat the would-be bomber as an enemy combatant, torture him and toss him into Guantanamo, God knows he deserves it. But keep in mind that the crucial intelligence we received was from the boy's father. If that father had believed that the United States was a rogue superpower that would torture and abuse his child without any sense of decency, would he have turned him in? To keep this country safe, we need many more fathers, uncles, friends and colleagues to have enough trust in America that they, too, would turn in the terrorist next door.

Monday, January 11, 2010

NY (Nutrition) Police Strike Again

First New York City required restaurants to cut out trans fat. Then it made restaurant chains post calorie counts on their menus. Now it wants to protect people from another health scourge: salt.

On Monday, the Bloomberg administration plans to unveil a broad new health initiative aimed at encouraging food manufacturers and restaurant chains across the country to curtail the amount of salt in their products.

The new plan is said to be voluntary and involves no new legislation.  Does anyone believe it will stay that way?

Sunday, January 10, 2010

Libertarian Humor

“You libertarians are the types that would allow fornication in public parks!”

"What do you mean, public parks?”

Saturday, January 9, 2010

The Coming California Bailout

SACRAMENTO, Calif. -- Republican Gov. Arnold Schwarzenegger asked for $6.9 billion in federal funds in his state-budget proposal Friday and warned that state health and welfare programs would be threatened without the emergency help.

Mr. Schwarzenegger's proposed $82.9 billion general-fund budget for the 2010-11 fiscal year would close a $19.9 billion gap over 18 months. In addition to the federal aid, he called for $8.5 billion in cuts and $4.5 billion in alternative funding to balance the budget.

"It's time to enact long-term reforms that will change the way the most populous state and the federal government work together," Mr. Schwarzenegger said. He and state legislative leaders plan to visit Washington to lobby for bailout money. White House budget officials weren't available for comment on the governor's request.
Federal bailouts of state governments are insane not just because they reward profligate state spending. These bailouts also come with strings attached - dictates on how states can run education, welfare, transportation, and so on - and thus quickly destory any remnance of federalism in the United States.

Friday, January 8, 2010

A Republican Senator in Massachusetts?

BOSTON — Martha M. Coakley, the Democrat running for Senator Edward M. Kennedy’s seat in Massachusetts, had seemed so certain of winning the special election on Jan. 19 that she barely campaigned last month.

But the dynamic has changed in recent days. ...

And a new poll that showed a competitive race between Ms. Coakley and Mr. Brown has generated buzz on conservative blogs and energized the Brown campaign — though many news organizations dispute its methodology.
Brown is unlikely to win, but if he does, the implications for the health care debate are huge.

Thursday, January 7, 2010

Should Polygamy be Legal?

Well, it still is in some parts of the world:

KUALA LUMPUR — Rohaya Mohamad, 44, is an articulate, bespectacled medical doctor who studied at a university in Wales. Juhaidah Yusof, 41, is a shy Islamic studies teacher and mother of eight. Kartini Maarof, 41, is a divorce lawyer and Rubaizah Rejab, a youthful-looking 30-year-old woman, teaches Arabic at a private college.

The lives of these four women are closely entwined — they take care of each others’ children, cook for each other and share a home on weekends.

They also share a husband.
So, should polygamy be legal?  To address this question, I think it is useful to consider two prior questions:

Should government "supply" and enforce the particular bundle of contracts known as marriage?

If it does so, should it restrict this supply to opposite-sex couples?
My answer to the first question is no: government should establish and enforce default rules about the division of property from communal living arrangements, about inheritances, and about guardianship of children, but it need not and should not bundle these rules into the particular package known as marriage. 

My answer to the second question is also no.  If goverment is going to supply marriage, it should do so in the most neutral way possible.  This means treating same-sex marriage and polygamy just like opposite-sex marriage.   Government should calls these contracts civil unions, leaving marriage to religious institutions.

Wednesday, January 6, 2010

The Fed and the Next Bubble

David Leonhardt has a terrifice piece in today's New York Times on the Fed's quest for more power.   His key point:

The fact that Mr. Bernanke and other regulators still have not explained why they failed to recognize the last bubble is the weakest link in the Fed’s push for more power. It raises the question: Why should Congress, or anyone else, have faith that future Fed officials will recognize the next bubble?
A related point is that, even without additional power, the Fed could have sounded an alarm about the housing bubble rather than chanting, "All is well."  Imagine how different the last few years might have been if in 2004 the Fed's testimony before Congress had been,

"Housing prices are growing at an unprecedented rate.  While the U.S. has never had a large nationwide decline in housing prices, it has also have had such a huge nationwide increase in prices, so all bets are off. Consumers and banks are becoming obscenely levered.  Fannie and Freddie are issuing mortgages to every borrower with a pulse.  This situation is scaring our pants off!

Tuesday, January 5, 2010

Hardly Anyone Really Believes in Free Speech

A radical Islamic group planning a protest march through the streets of a town that has achieved iconic status in Britain for honoring the passing hearses of British soldiers killed in Afghanistan ran into a stiff rebuff from the British government on Monday.
Prime Minister Gordon Brown issued a statement saying he was “personally appalled” by the group’s plan to march through the streets of Wootton Bassett, 70 miles west of London, where townspeople have lined the sidewalks since April 2007 to mourn the passing cort├Ęges of British military casualties flown home to the nearby military airbase at Lyneham. ...
Home Secretary Alan Johnson, who is responsible for the police, said in a separate statement that he would support any request from the police or local government officials to ban the march.
The point that the opponents of the march fail to get is that suppressing the march will polarize and alienate Muslims even more.

Monday, January 4, 2010

Alcohol Prohibition in Iraq?

BAGHDAD -- The banner appeared mysteriously this fall on a railing along Abu Nawas Street, the hub of nightlife on the banks of the Tigris River in downtown Baghdad, where the atmosphere in recent months has grown markedly more subdued.

"Damned is he who sits at a table with alcohol," the handwritten sign said.

Posted near a strip of nightclubs recently raided by police, the unsigned missive spoke to a new fight being fought across Iraq as government officials attempt to assert greater control over the country's moral and social norms.
This is evidence for my view that, when all is said and done, the invasion and occuption of Iraq will have replaced a secular repressive regime with a sectarian repressive regime.

Sunday, January 3, 2010

Smoking Bans in New York City

Six years after New York City passed a ban on smoking in bars and restaurants, it is easier than ever to find smokers partying indoors like it’s 1999, or at least 2002. In November, Eater.com called it “the worst kept secret in New York nightlife” that “smoking is now allowed in numerous nightspots, specifically just about any and every lounge and club with a doorman and a rope.” A few weeks later, GuestofaGuest.com, a blog about New York clubs and bars, posted a “smoker’s guide to N.Y.C. nightlife.”

“Everyone looks the other way,” said Billy Gray, 25, a reporter for Guest of a Guest, who says that he knows precisely which high-end bars and lounges, most of them in the meatpacking district or Lower East Side, will let him smoke inside. Far from deterring smoking indoors, the ban simply adds an allure to it, said Mr. Gray, a half-pack-a-day smoker.

“It’s more of an illicit thrill now,” he said. “Like when you were a teenager and snuck a beer in your parents’ basement.”
Thus, as with other prohibitions, smoking bans breed disrespect for the law.

Is a prohibition ever the right policy?  What about the ban on murder?  Take as given that this one is a good idea.  So what's the difference between banning murder and banning smoking in restaurants?

Everyone agrees that murder inflicts grave harm one someone who cannot easily avoid that harm.  Smoking in restuarants does not share this feature.  Even taking the evidence on second-hand smoke at face value, the effects from occasional expsoure are trivial, and anyone who wants to avoid them can stay home or patronize non-smoking restaurants.

Smoking bans are also miguided because they assume restaurants and bars are "public" and should therefore be subject to regulation by government.   Instead, any privately owned establishment should be regarded as fully private, with owners allowed to offer smoking versus non-smoking experiences, as they wish.

Saturday, January 2, 2010

How Not to "Fix" the Housing Market

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.
All these criticisms are dead on.  Keeping people in homes they cannot afford makes no sense, so policies that attempt to prevent foreclosure are guaranteed to generate perverse side effects.  The horrifying fact is that policy is still subsidizing high-risk mortgages.

Friday, January 1, 2010

Liberals, Unions, and Detroit

A friend from Detroit passes along this story and video about my home town.  News or comedy?