Escape from Pianosa

1. The Federal Reserve and its role in the housing bubble. Artificially low interest rates create excessive demand for long-term assets (like real estate), until the inflationary pressure spreads to other sectors, driving rates back up, causing a painful “readjustment” in long-term asset prices. Like my house. That was appraised at $236,000 in January 2006 and now refuses to sell at $199,500. Via the Austrian Economists.
I blame myself, as well as the Fed for the mess I’m in now. Which leads me to wonder if people who are partial to a philosophy of individual responsibility will be more likely to mis-attribute their failure or success to their own actions, even if they are the victims of luck, circumstance, or bad Fed policy.

2. Tyler Cowen on the development of social conventions such as tapping your foot to signal your interest in gay escapades with your stall neighbor. Seriously, what bold pioneer was the first to initiate such behavior and how is it codified? Or is there a secret gay planning committee that governs the conventions of sexual solicitation? I favor a spontaneous order explanation.

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I’ve been perusing RedStateEclectic’s liveblogging of the Republican straw poll in Ames, Iowa. I’m mostly interested to see how Ron Paul fares, but I always enjoy watching presidential candidates trying to impress and pander. Sometimes I wonder if it isn’t a contest to see who can say the most ridiculous thing without anyone noticing.

“As president, I would build a magical fence on the border, that nobody would be able to cross, and I would build it in only 6 months, and it would be amazingly effective. Then I would build a giant laser to protect us from Martians and then I would win the war in Iraq, and save all the babies!”

But Sam Brownback doesn’t stop there. “As president, I will rebuild the modern family” he says. Great. What could that possibly mean?

Tommy Thompson (seriously?) has an even bolder plan:

“Our oil money is going to a Sheik in Saudi Arabia who is giving it to a terrorist. Tommy is going to “break the umbilical cord” to foreign oil. He favors drilling for oil in Alaska.

Tommy, the umbilical cord is attached to the American navel and it’s pumping in delicious life-giving oil. You’re basically proposing an abortion for America. Bad idea Tommy. And abortion is wrong.

Tommy also thinks that people should learn the English language legally. I have to admit, I’m entirely on board with that. Nobody, and I mean nobody, is above the law when it comes to learning a new language. But it’s not just immigrants. Americans also need to learn languages legally. Let’s put a stop to this now before any more walls have to be built.

Ok, I know what you’re thinking. Bashing Tommy Thompson is too easy. But I have to get my shots in because he could be done after tonight, and it gets harder when you’re dealing with the more slippery types.

For example, Mitt Romney, who I believe is actually a robot, although I have no evidence. Yet. The RomneyBot is going to…

Strengthen marriage by helping our kids understand that “before they have kids, they get married.”

I totally know where he’s coming from! When I sold real estate in Baltimore I spent a lot of time in some really bad Wire-esque neighborhoods. And one day I thought, hey, it’s not right that I’m here making money off real estate when there’s all these kids around that need my help.

So I used to give them life advice (free of charge!) like “hey buddy, just say no to drugs” and “hey little guy, better get married before you start making babies.” I think I really made an impact but we won’t know until Freakonomics 2 comes out. In the meantime, I’m with the RomneyBot.

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Socialist medicine takes a beating by Don Boudreaux and commenters at Cafe Hayek.

Then Kurt Loder has a go at Michael Moore’s Sicko on MTV.com. This is my favorite part, and Loder really gets the economics right:

“When governments attempt to regulate the balance between a limited supply of health care and an unlimited demand for it they’re inevitably forced to ration treatment. This is certainly the situation in Britain. Writing in the Chicago Tribune this week, Helen Evans, a 20-year veteran of the country’s National Health Service and now the director of a London-based group called Nurses for Reform, said that nearly 1 million Britons are currently on waiting lists for medical care — and another 200,000 are waiting to get on waiting lists. Evans also says the NHS cancels about 100,000 operations each year because of shortages of various sorts. Last March, the BBC reported on the results of a Healthcare Commission poll of 128,000 NHS workers: two thirds of them said they “would not be happy” to be patients in their own hospitals.”

In summary, you get a massive tax increase for declining quality in health care and you may have to wait a year or two to get it. And you might die while you’re waiting. Why anyone, let alone everyone would want to be forced into such a system is beyond me.

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Listening to Bryan Caplan talk about his new book The Myth of the Rational Voter, I realized that I’ve been too hard on politicians. Yes, they do awful and stupid things all the time but that’s what they have to do to stay employed.

As spineless as they may be, they move in the direction of the voters, and often the voters demand ridiculous policies. So just as I don’t fault a business for responding to the market and producing silly products, I shouldn’t fault politicians for responding to voters who demand (literally) poor policy.*

The funny thing is that voters demand bad economic policies and then punish politicians for poor economic results. For example, they demand higher tariffs but get angry when less trade leads to less growth and less wealth and less employment. Not that they connect the dots. Anyway, it’s a tough life being a politician.

*Caveat: people who demand bad products waste their own money. People who demand bad policies invariably waste my money, so I feel that I have the right to thumb my nose at their ‘inferior preferences.’

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I saw one of those big utility signs parked along the road this week. The message in big green dots said “water ban this weekend. Friday 6pm until Midnight Sunday.” And I thought to myself ever so smugly that a free market in water would never have this problem. When the supply gets thin, the price goes up. And people decide that maybe watering their lawn isn’t the best use of their hard earned dollars. Water ban averted.

And then I imagine the day that I drive by the hospital and there’s a sign that says “No medical care this weekend, due to overuse.”

Because I’ve heard the argument that medicine is far too important to leave to “the free market.” I agree in one respect; that medicine is important. Far too important not to leave to the free market. When the government runs out of “free” health care, where will you go? They don’t sell it in bottles at Safeway.

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Once you watch The Wire, you’re spoiled. On the plane they showed Freedom Writers. What drivel. A movie about an idealistic white woman, inspiring the ignorant blacks and Hispanics. Yes, if only they had better, whiter teachers to teach them about literature and writing!

What’s the lie? That the system is OK. That welfare and housing projects and the drug war (especially the drug war) and socialist government schools haven’t destroyed inner city culture. No, everything’s OK. Nothing some good ivy league inspiration can’t solve, right? Or how about some Scheherazade?

Where to start? God only knows. Shows like The Wire don’t pretend to know. The good intentions of the guilt-ridden have done enough already.

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I keep getting these forwards from people, exhorting me to not fill up on gas on May 15th, in an attempt to strike a fatal deathblow to all Middle Eastern oil producers, by making them… slightly… less… profitable… for one day.

Anyway, the email doesn’t give me any guidance as to how I get my car moving that day. I only fill up once a week, but that gas takes me places for an entire week. Should we all forgo cars and trucks for an entire week? Why don’t we all walk or ride bikes to work? Sounds like a “green” idea to be sure, but a tremendous waste of time and energy.

We may inflict a few billion in lost profit on the Arabs, but what about the damage here? What about the billions and billions of lost productivity and profits for American companies, employees, and consumers? Or the billions of people around the world that consume the goods and services we produce?

So tell me… is this email a product of economic ignorance or a clever stratagem to bring down the U.S. economy as we know it? You decide.

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Brian Doherty’s book, Radicals for Capitalism, was an utter joy to read–all 619 pages. In fact, I would’ve enjoyed a few hundred more of his “freewheeling history” of the libertarian movement in the U.S. This masterpiece gives a great deal of context and history to everything I’ve been reading about for the past few years.

Doherty’s well-crafted narrative navigates the thoughts, ideas, conflicts, and lives of the five figures central to the libertarian movement in the 20th century: Ludwig von Mises, Murray Rothbard, Ayn Rand, Milton Friedman, and Frederich Hayek, while saying a great deal about the myriad other characters (and some were really characters) that have played a role in the advancement of liberty in the United States.

I particularly enjoyed this quote from the epilogue because I think (or hope?) that it sums up the general spirit of liberty that will be so prevalent among members of my generation.:

“Look at it this way: You’re young, you’re intelligent, you have a rough sense that people ought to be free to do whatever the hell they want, mostly, as long as they aren’t hurting anyone else-a simple, honest, live-and-let-live moral sense…You have a basic appreciation for free markets, an idea associated win American politics with the GOP.
“But you are young, and you don’t want to order people around regarding things you know are their business, and theirs alone. You certainly don’t want to be on any team that’s obsessed with locking people up for what they smoke, or treating people differently under the law because they’re gay…
So what are you? You might start thinking of yourself as libertarian.”

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Many people seem incredulous when I tell them about the “rubber rooms” that the NYC public school system has set up for its incompetent, dangerous, and sexually predatory teachers that cannot be fired because of the powerful teachers’ union and the onerous firing process. It’s so hard to fire a teacher there that it’s easier to just pay them their salary to sit and do nothing, away from students. Well I shouldn’t say nothing… Labor Pains reports that one of the teachers has been secretly filming a documentary of what goes on:

Garrett’s documentary is called “The Rubber Room”, and its website advertises that “sleeping in a sleeping bag,” “practicing karate on file cabinets,” and “running a small business” all occur within the rubber room’s confines. I’m sure the movie will be both hilarious and depressing.

That sounds nothing like what went on at my government job, although I don’t remember needing a special room. Guess our union wasn’t up to snuff.

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For a libertarian analysis of the housing bubble, check out this podcast. Mark Thornton’s conclusion? The bubble is not nearing the end, and it’s all the fault of the federal reserve.

I’m not a very good real estate blogger, am I?

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Turns out there’s someone else in Baltimore who believes that maybe, just maybe, Wal-Mart isn’t a totally unmitigated force of evil. Him and you know, the millions of people who like to save money every day.

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I’m a member of one of the local chambers, and the other day I got an email shouting the praises for the new minimum wage bill that was passed in congress.

I’m firmly in the camp that minimum wage laws harm unskilled workers by making it harder for them to find employment. There are arguments on both sides of the issue, but even if you think it’s a good thing for workers, it’s obviously not a good thing for small businesses (large supermarkets and other union employers are probably a different story).

So why on Earth would an organization ostensibly charged with the goal of promoting local businesses support a law that makes it more costly to do business!?

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I’m reading Freakonomics, a wildly popular book that has also caused some controversy among real estate agents. First off, the book really is a great read and fascinating for anyone, not just amateur econ-nerds like myself.

The gist of the real estate section is that the incentives of real estate agents are not perfectly aligned with the incentives for home sellers. Sellers naturally want top dollar for their property, although they will not wait forever to get it. And of course agents also want high sales prices. So what’s not aligned?

Well, let’s say that your home is listed at $300,000 and after a week on the market, you get an offer for $290,000. That’s $10,000 less than what you wanted, a very big number to you. However, it’s not so much for your agent. If the seller’s agent is getting 3%, and has to pay half of that to his broker and the IRS, then a reduction of $10,000 in the sale price equates to a $150 reduction in the agent’s commission. Not really a big deal for the agent, money-wise.

The homeowner has a very strong incentive for wanting a higher price, while the agent only has a small incentive. The homeowner might be willing to wait three more weeks or three more months to get a higher price, while three months for $150 just isn’t worth it for the agent. The homeowner makes the final decision, but the agent has influence on the homeowner’s decision.

Now I believe that good real estate agents will recognize this situation, ignore it, and act in their client’s best interest. In fact, Dubner’s analysis doesn’t take into account another incentive that agents have–the fact that getting a higher price for their client will make for a happier client and ultimately more referrals.

I suspect that the misaligned incentives have a greater effect on agents who are more shortsighted and aren’t thinking about the longer run incentives of providing the best service possible. Any ideas on how to determine whether or not a prospective agent would be affected by the incentive to sell quickly?

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Tom at The Real Estate Bloggers reports that the government is looking more closely at commercial lenders. I have a feeling that banks would be less likely to over-leverage themselves if they didn’t think that the government would be there to bail them out when things go south.

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“Affordable housing” is coming to Baltimore. Why? Because politicians say so. As if making it more difficult and less profitable for developers was the best way to encourage the construction of new housing. As if Baltimore, a city experiencing a truly remarkable renaissance after being on its last legs not too long ago, should be telling developers: “hey, don’t build here!” If anything, they should be giving out tax breaks and high fives to the companies that are re-building the city.

I can understand this type of political gamesmanship in places like Howard County where there really isn’t much in the way of affordable housing for blue collar workers. But Baltimore City has TONS of affordable housing! Tons!!!

I went to an auction yesterday for a 3 bedroom house that sold for $57,000, and it had just been renovated. It was clean, safe, lead-free, and ready to move in. Does anyone think that a developer is going to build houses cheaper than THAT?

I know what you’re saying, “but what neighborhood was that house in?” And you’re right, it’s not the best (or the worst) neighborhood in the world. Do you know why it’s not so great? Because of the crime and the terrible schools.

And who’s fault is that? Please tell me, who is responsible for the crime–is it the developers, or is it the politicians?

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