Welcome to Random Sunday, in which I will address certain topics of randomness, in totally random fashion. (Note that this practice will not always occur on Sundays; if it did, it could hardly be called "random.")
All three of today's random thoughts relate to my last post, which marked the Return of the Curmudgeon. (Presumably to be followed by the sequel, Night of the Living Curmudgeon.)
First up, an apology. In my last post, I made two parenthetical references which I failed to close. In other words, I put some words in parentheses by placing a left paren ("(") in front of them. (That last set of characters inside the parentheses was intended as an example of what I was talking about, hence placed in quotes inside parentheses; it was not an attempt to replicate some facial expression using typed punctuation marks, e.g. ";-)".) But then, in my typing haste - I type fast; a skill inherited from my Dad, who could crank out more than 100wpm, error-free, on an old Royal manual typewriter - I omitted the right paren, thus failing to close the parenthetical reference.
Now, you ask, why would he apologize for a simple typo?
The answer is simple: I am an unabashed spelling, grammar, usage and punctuation nazi.
I'm proud of this. I inherited the trait from my parents, neither of whom were college-educated, but both of whom wrote very well (Mom still does). They were also voracious readers, as am I, and I believe there's a strong correlation between reading a lot and writing well. Regardless what you read (as long as it isn't comic books), be it classic literature, Vonnegut, John Jakes, Louis L'Amour, Stephen King, Michael Connelly, or Brian Haig (he's a novelist, the son of former Secretary of State Alexander Haig), you expose yourself to proper usage of the language, and that should help you become a better writer. That's my theory, anyway.
I also passed this along to my daughter, who is also an unabashed spelling, grammar, usage and punctuation nazi, having devoted an entire post of her own blog to the topic. I'm proud of that, too.
You see, writing is a lost art, and I believe that also correlates to how little we read these days. The advent of technology has meant that we instead watch TV, browse the internet, etc.
Random detour: I do most of my reading on the internet or on an iPad these days. I'm not enough of a purist to need the feel of a book in my hands, or smell its pages. I read at the gym and on vacation, and it's easier to tote along an iPad than a bunch of books. I do print out most of the articles I find on the web that I want to read, so that I can read them while I eat lunch, or while I'm riding on a plane or in the car.
Anyway, as I said, writing is a lost art. And too many people are willing to accept that: "It's not important that I make typos," etc., etc. To which I say, "Poppycock" (I said "Balderdash" in my last post, and I like to change things up once in a while, though I'm told that I say "Bear in mind" too much).
When I was in grad school, in one of our classes we were required to write a business case analysis, then do a peer review of each other's work, on an anonymous basis. I was tasked with reviewing the paper of a very sharp graduate accounting student. I noted that while his analysis was spot-on and his calculations mathematically sound, his paper was rife with grammatical and spelling errors (this was in the days before the internet and spell-check).
I later overheard him complaining to a classmate about his peer review, saying, "It's not important that I write well. I'm going to be an accountant. The important thing is my analysis. There will be other people who will review and correct my spelling errors."
And I thought, "Yes, and those people will be called 'supervisors.' And they'll recognize that your work, while mathematically and analytically sound, can never be presented directly to clients, on the off-chance that they're sufficiently literate to judge your work not up to their standards, and fire the firm. And thus you've placed a ceiling on yourself; you'll never be one of those supervisors, because you can't be relied upon to perform a quality review of the work of others."
Hey, not everybody aspires to management. But then, not everybody's in an MBA program, either, so one assumes those that are, do.
I look at it this way: a neighbor once asked me, "Are you left-brain or right-brain? Are you good at math and numbers, or are you better at writing?" Thinking of all the calculus and statistics I'd taken in grad school, at which I'd done pretty well, and of the couple of books and numerous articles I'd written by the time she asked the question, I answered this way: "The good Lord saw fit to give me both halves of my brain, so I figure, why not use the whole thing?"
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Second random thought. I love my wife, for a host of reasons. One of them is her intellectual curiosity, which leads her to question darn near everything.
Okay, I admit - sometimes that tendency makes me want to run headlong into a brick wall. Heck, sometimes it makes me feel that I am running headlong into a brick wall.
But after reading my last post, in which I said I'd brook no argument about Keynesian vs. supply-side economics from a non-economist, she asked the valid question: "What qualifies one as an economist?"
Here's my answer: either a graduate degree (Master's or above) in economics, or holding the title of or having held the title of "economist" in a reputable academic institution or commercial enterprise. (And I don't mean your own business that you've started: "Jane Doe, Chief Economist, Jane's Lemonade Stand.")
I recognize how limiting that is. I myself have an MBA with a concentration in finance and economics, and formerly held the title of Chief Economist for a large national financial institution. I've penned economic commentary for more than 15 years, and remain an avid Fed-watcher (and now, a watcher of other central banks).
Not everyone is in a similar role - I get that. My point is simply that it's a waste of my time to argue economics with someone who might not have a strong grasp of it.
At some point in that exercise, I'm going to have to explain my position by providing a thorough discourse on either Keynesianism or supply-side economics, or some other facet of the Dismal Science. Tomes have been devoted to that, and time and space don't allow me to repeat that here. So I'll assume coming in that anyone who wants to argue these points is well-grounded in what they're talking about.
Otherwise, as a friend once said, arguing with them is like rocking in a rocking chair: it gives you something to do, but you don't get anywhere.
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Third and final random thought, on a related topic.
That attitude is rather exclusionist, especially from a guy who claims to want to help people better understand economic truth in a world devoid of it.
Yet, I don't think the attitude is inconsistent with the desire to spread economic truth. An important component of the latter is to be open to it; to approach it without bringing along one's inherent biases that are borne of factors outside economics: i.e., politics.
See, I've seen arguments in favor of Keynesianism posted in public places on the web by a number of people whose backgrounds have nothing to do with economics, but they all have one thing in common: they're liberal in their politics. And Keynesianism is the favored economic school of thought of the liberal.
I'll give you an example: one guy, a very successful accountant who's built his own business in accounting and tax services (and yes, "he built that" - more foreshadowing of posts to come), has argued vehemently in favor of Keynesianism, holding himself out as a definitive authority.
Look, I'd never argue what is and is not GAAP (generally accepted accounting principles) with him. I know just enough accounting to be dangerous, and while I have a pretty good understanding of GAAP accounting as a result of running a company that has to conform with its standards, I don't pretend to be an expert on its intricacies.
Nor would I argue the tax code with him. I do my own taxes - always have - and understand most of the standard loopholes, requirements and forms. But I would never advise someone else on tax strategy.
So why does an accountant, or a compliance officer with a theology degree, want to argue Keynesian vs. supply-side economics with an economist?
Answer: because he or she is politically partisan, and his or her candidates of choice advocate Keynesian economics, ergo he or she feels duty-bound to defend it.
So, defend away. If I have the time, space and energy, I'll address your arguments. Otherwise, I'm forced to consider the source, and leave the meaty discourse for those properly equipped to engage in it.
I hope that doesn't come across as exclusionist, but hey, there are only so many hours in a day.
Sunday, September 9, 2012
Friday, September 7, 2012
The Curmudgeon Lives!
Yes, boys and girls, like a phoenix rising from the ashes; like a bad penny that always turns up; like a B horror movie: "It's ALIVE!"
So what motivated me to resurrect The Economic Curmudgeon?
Two things. First, this space was devoted to speaking economic truth and dispelling the myths and false notions out there, at a time of economic crisis unlike anything we'd seen since the Great Depression. And we now find ourselves teetering on the brink of yet another economic catastrophe, but the central bankers are running amok in the streets, doing their best impersonation of the Kevin Bacon character during the parade scene in Animal House: "All is well!" So I figured the blogosphere could use a dose of economic truth. Forewarned is forearmed, and all that (hopefully forearmed as in prepared for what's to come, not forearmed as in a shiver from Ray Nitschke. (Look him up on Wikipedia if you're too young to get that reference.)
The second bit of motivation has been the Democratic National Convention.
The last couple of evenings, I've gone to the gym after work, gotten in a good workout stoked on Pump Fuel and ACG3, and hopped in my car with a major adrenaline rush, then listened to the convention speeches on the radio on the way home.
Bad combo.
By the time I've gotten home, I've found myself listening to the speeches on TV, yelling at the tube the way my dear old Dad, may he rest in peace, used to when he watched football. So I figure that I have from now until November to vent, and speak more economic truth, but from a political angle. Hopefully I can persuade at least one American of legal voting age to avoid repeating the sins of the past. In any event, I'll feel better, and the risk that I throw some hard, inanimate object at my television will diminish. A new TV really isn't in the budget right now, with a daughter getting married next year.
I'll provide more detail on specifically what it was about the speeches that fueled my ire in a future post (or two, or three). I'll devote the rest of this one to a couple of disclaimers, one political and one economic, and a general observation on the state of all things political today. I'm really going to make an effort to make this blog less verbose this time around, as I recognize that previous posts taxed the attention spans of some of my followers who tend not to want to read anything longer than the back of a cereal box.
Herewith, the disclaimer. I am, today, a registered Independent. When last I posted on this space, I was a registered Republican. In the interim, I became so thoroughly disenfranchised and disgusted with our entire political system, and the divisiveness that the two-party system (aided and abetted by the media) has fomented, that I decided I could no longer affiliate with either party. I am not a Libertarian. I know a lot of people who claim to be, but when push comes to shove, they simply cannot commit, ideologically, to the tenets that Libertarianism embraces. (I think it just sounds cool to them to say they're Libertarians.)
I remain a staunch fiscal conservative. I probably lean conservative on a number of social issues, but not far off-center, and they're far less important to me, in terms of what our elected officials should be meddling with, than other things. Many of the social issues are ours to wrestle with on our own, or states' rights issues. And I'm pretty much squarely in the middle on defense: while I agree with Ronald Reagan in the principle of "Peace Through Strength," neither do I believe that the US is obligated to be the world's cop.
A little background: I grew up the son of solid, blue-collar, lower-middle-class Democrats. Dad was a straight party line voter; if the candidate had a "D" after his or her name, that was all he needed to know. I loved my Dad, but I don't advocate that approach for any voter - assess the candidates, learn their true positions, research their track record (if they have one, and if they don't, that's a red flag - and yes, that was foreshadowing of a future post topic), and vote for the best man or woman for the job.
So I carried that bias into adulthood, and had I been able to vote when I was 18 (my birthday fell a few days after Election Day, 1976), I'd have voted for Jimmy Carter. Because he was a Democrat, though I did read his book, and much of what he'd done in Georgia (by his own account, which I failed to consider at the time) resonated with me. In 1980, I did vote for Carter, and I was thoroughly aggravated that he lost to that actor from California.
By 1984, however, I'd had an epiphany, courtesy of my supervisor at my university job. He simply asked me if I believed that the government should solve all our problems, or if I believed that the government should get out of our way and let us take initiative to solve them ourselves. If I believed in the government giving us what we wanted, or in us earning what we wanted.
I was getting ready to enter an MBA program, and my business sensibilities made me lean toward the latter answers to those questions. So my supervisor told me, "Congratulations - you're a Republican." And so I registered from then until a couple of years ago.
Lest one surmise that I am in fact an IINO (Independent in name only), ie, a closet Republican who's just too ashamed or afraid of confrontation to admit it, know this: first, anyone who knows me will tell you that I have no shame in terms of what I believe, and that I'm about as fearful of confrontation as one of Michael Vick's dogs.
And second, if I could vote for any candidate for President today, it would be Evan Bayh, former Senator from Indiana, the last of the true Blue Dog Democrats. Alas, Sen. Bayh also became disenfranchised with Washington, and is now making an honest living.
Second disclaimer, this one economic: I do not let politics influence my economics. Economics, in general, is black and white; its laws largely immutable in my view. To wit, my famous claim that the laws of supply and demand, which govern economics, have not changed since we were all wearing animal skins and trading rocks (this is usually stated in response to those who blindly claim that we're in a "new economy," or that "this time things are different."
I am not a Keynesian; that experiment failed. And for the record, supply-side economics can work, if done right and left alone by those who would tweak it to achieve some Keynesian-influenced social agenda.
Forthwith, I will brook no argument from anyone not an economist themselves to the contrary. It's simply not worth arguing about economics with somebody who doesn't understand economics, but is motivated by their blind partisanship. It's like arguing about molecular biology with a history teacher (not that history teachers aren't smart, they're just not molecular biologists). So if you want to argue Keynesian economics vs. supply-side or free-market monetarist economics with me, you'd better show your credentials and line up your facts, and leave politics out of the discussion, or your cred is non-existent.
Finally, a bit of the pith that the people who used to follow this blog expect, in the form of the general political observation that I promised early on.
Someone recently asked me if Ronald Reagan could get elected today, given the state of the Republican Party, and my initial reaction was, "Sure."
I have since reversed my position. Ronald Reagan could not, in fact, get elected today, but not because of the state of the Republican Party. Quite the opposite.
You see, the people that voted in Barack Obama four years ago, devoid of qualifications or experience but long on buzzwords like "Hope" and "Change" - most of whom have already decided they're going to vote for him again, because he has a "D" after his name and has conjured up a new empty buzzword: "Foward" - those same voters simply wouldn't allow it. There's a good chance they'll turn out in sufficient number to keep Mr. Obama in office for another four years, in spite of the fact that he may well be an even worse president than was Mr. Carter.
And therein lies the rationale for my premise. Reagan ran against Carter; of course we'd expect him to win. But that was then, and this is now.
Remember the term, "Reagan Democrat?" Many Dems crossed party lines back in 1980 to vote Carter out and Reagan in. But partisanship is so rampant today that such an occurrence is nigh impossible. Today's Democrats would vote in, yes, even Jimmy Carter, or Barack Obama, over Ronald Reagan. Heck, if Bill Clinton ran for president today on the Republican ticket, Obama would win, ushered back into office by the Democrat faithful.
Now, the left would have you believe that today's Republican Party has shifted far to the right, and that's why they're so venomously opposed to it.
To which I say as emphatically as I can, "Balderdash."
Ronald Reagan was certainly more conservative than either Bush - fiscally, in most ways socially, and in terms of defense. And he was a darn sight more conservative than Mitt Romney.
No, the truth is that the left has shifted so far further left, that the center-right (Mr. Romney's turf) looks uber-right wing to them. So a man like Ronald Reagan wouldn't stand a chance of unseating Mr. Obama. And that's not a function of the Republican Party, nor of Mr. Obama's impressive resume, nor of Mr. Reagan's lack of capability. It's a function of the times, and how far left we've shifted, and how partisan we've become.
Okay, so this was longer than the back of a cereal box. Break it into chunks if you need to. Be back soon, The Curmudgeon.
Two things. First, this space was devoted to speaking economic truth and dispelling the myths and false notions out there, at a time of economic crisis unlike anything we'd seen since the Great Depression. And we now find ourselves teetering on the brink of yet another economic catastrophe, but the central bankers are running amok in the streets, doing their best impersonation of the Kevin Bacon character during the parade scene in Animal House: "All is well!" So I figured the blogosphere could use a dose of economic truth. Forewarned is forearmed, and all that (hopefully forearmed as in prepared for what's to come, not forearmed as in a shiver from Ray Nitschke. (Look him up on Wikipedia if you're too young to get that reference.)
The second bit of motivation has been the Democratic National Convention.
The last couple of evenings, I've gone to the gym after work, gotten in a good workout stoked on Pump Fuel and ACG3, and hopped in my car with a major adrenaline rush, then listened to the convention speeches on the radio on the way home.
Bad combo.
By the time I've gotten home, I've found myself listening to the speeches on TV, yelling at the tube the way my dear old Dad, may he rest in peace, used to when he watched football. So I figure that I have from now until November to vent, and speak more economic truth, but from a political angle. Hopefully I can persuade at least one American of legal voting age to avoid repeating the sins of the past. In any event, I'll feel better, and the risk that I throw some hard, inanimate object at my television will diminish. A new TV really isn't in the budget right now, with a daughter getting married next year.
I'll provide more detail on specifically what it was about the speeches that fueled my ire in a future post (or two, or three). I'll devote the rest of this one to a couple of disclaimers, one political and one economic, and a general observation on the state of all things political today. I'm really going to make an effort to make this blog less verbose this time around, as I recognize that previous posts taxed the attention spans of some of my followers who tend not to want to read anything longer than the back of a cereal box.
Herewith, the disclaimer. I am, today, a registered Independent. When last I posted on this space, I was a registered Republican. In the interim, I became so thoroughly disenfranchised and disgusted with our entire political system, and the divisiveness that the two-party system (aided and abetted by the media) has fomented, that I decided I could no longer affiliate with either party. I am not a Libertarian. I know a lot of people who claim to be, but when push comes to shove, they simply cannot commit, ideologically, to the tenets that Libertarianism embraces. (I think it just sounds cool to them to say they're Libertarians.)
I remain a staunch fiscal conservative. I probably lean conservative on a number of social issues, but not far off-center, and they're far less important to me, in terms of what our elected officials should be meddling with, than other things. Many of the social issues are ours to wrestle with on our own, or states' rights issues. And I'm pretty much squarely in the middle on defense: while I agree with Ronald Reagan in the principle of "Peace Through Strength," neither do I believe that the US is obligated to be the world's cop.
A little background: I grew up the son of solid, blue-collar, lower-middle-class Democrats. Dad was a straight party line voter; if the candidate had a "D" after his or her name, that was all he needed to know. I loved my Dad, but I don't advocate that approach for any voter - assess the candidates, learn their true positions, research their track record (if they have one, and if they don't, that's a red flag - and yes, that was foreshadowing of a future post topic), and vote for the best man or woman for the job.
So I carried that bias into adulthood, and had I been able to vote when I was 18 (my birthday fell a few days after Election Day, 1976), I'd have voted for Jimmy Carter. Because he was a Democrat, though I did read his book, and much of what he'd done in Georgia (by his own account, which I failed to consider at the time) resonated with me. In 1980, I did vote for Carter, and I was thoroughly aggravated that he lost to that actor from California.
By 1984, however, I'd had an epiphany, courtesy of my supervisor at my university job. He simply asked me if I believed that the government should solve all our problems, or if I believed that the government should get out of our way and let us take initiative to solve them ourselves. If I believed in the government giving us what we wanted, or in us earning what we wanted.
I was getting ready to enter an MBA program, and my business sensibilities made me lean toward the latter answers to those questions. So my supervisor told me, "Congratulations - you're a Republican." And so I registered from then until a couple of years ago.
Lest one surmise that I am in fact an IINO (Independent in name only), ie, a closet Republican who's just too ashamed or afraid of confrontation to admit it, know this: first, anyone who knows me will tell you that I have no shame in terms of what I believe, and that I'm about as fearful of confrontation as one of Michael Vick's dogs.
And second, if I could vote for any candidate for President today, it would be Evan Bayh, former Senator from Indiana, the last of the true Blue Dog Democrats. Alas, Sen. Bayh also became disenfranchised with Washington, and is now making an honest living.
Second disclaimer, this one economic: I do not let politics influence my economics. Economics, in general, is black and white; its laws largely immutable in my view. To wit, my famous claim that the laws of supply and demand, which govern economics, have not changed since we were all wearing animal skins and trading rocks (this is usually stated in response to those who blindly claim that we're in a "new economy," or that "this time things are different."
I am not a Keynesian; that experiment failed. And for the record, supply-side economics can work, if done right and left alone by those who would tweak it to achieve some Keynesian-influenced social agenda.
Forthwith, I will brook no argument from anyone not an economist themselves to the contrary. It's simply not worth arguing about economics with somebody who doesn't understand economics, but is motivated by their blind partisanship. It's like arguing about molecular biology with a history teacher (not that history teachers aren't smart, they're just not molecular biologists). So if you want to argue Keynesian economics vs. supply-side or free-market monetarist economics with me, you'd better show your credentials and line up your facts, and leave politics out of the discussion, or your cred is non-existent.
Finally, a bit of the pith that the people who used to follow this blog expect, in the form of the general political observation that I promised early on.
Someone recently asked me if Ronald Reagan could get elected today, given the state of the Republican Party, and my initial reaction was, "Sure."
I have since reversed my position. Ronald Reagan could not, in fact, get elected today, but not because of the state of the Republican Party. Quite the opposite.
You see, the people that voted in Barack Obama four years ago, devoid of qualifications or experience but long on buzzwords like "Hope" and "Change" - most of whom have already decided they're going to vote for him again, because he has a "D" after his name and has conjured up a new empty buzzword: "Foward" - those same voters simply wouldn't allow it. There's a good chance they'll turn out in sufficient number to keep Mr. Obama in office for another four years, in spite of the fact that he may well be an even worse president than was Mr. Carter.
And therein lies the rationale for my premise. Reagan ran against Carter; of course we'd expect him to win. But that was then, and this is now.
Remember the term, "Reagan Democrat?" Many Dems crossed party lines back in 1980 to vote Carter out and Reagan in. But partisanship is so rampant today that such an occurrence is nigh impossible. Today's Democrats would vote in, yes, even Jimmy Carter, or Barack Obama, over Ronald Reagan. Heck, if Bill Clinton ran for president today on the Republican ticket, Obama would win, ushered back into office by the Democrat faithful.
Now, the left would have you believe that today's Republican Party has shifted far to the right, and that's why they're so venomously opposed to it.
To which I say as emphatically as I can, "Balderdash."
Ronald Reagan was certainly more conservative than either Bush - fiscally, in most ways socially, and in terms of defense. And he was a darn sight more conservative than Mitt Romney.
No, the truth is that the left has shifted so far further left, that the center-right (Mr. Romney's turf) looks uber-right wing to them. So a man like Ronald Reagan wouldn't stand a chance of unseating Mr. Obama. And that's not a function of the Republican Party, nor of Mr. Obama's impressive resume, nor of Mr. Reagan's lack of capability. It's a function of the times, and how far left we've shifted, and how partisan we've become.
Okay, so this was longer than the back of a cereal box. Break it into chunks if you need to. Be back soon, The Curmudgeon.
Friday, November 6, 2009
Rant for a Friend - the Conclusion
I have another rant planned, but I want to wrap up this series before my train of thought gets permanently derailed, so the next post will have to wait for the weekend (or perhaps later; I'm headed out of town with my lovely wife for some R&R and a little wine-tasting in Hermann, MO).
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Let me describe for you exactly how I think the first-time homebuyers' tax credit and cash-for-clunkers were hatched.
In a smoke-filled room in Washington, a bunch of pols were pounding the table and saying, "We have GOT to end this recession - and NOW!" "But how?" they asked. Then they trooped in some hack economist like like the ones you see them troop out to testify before them when they need somebody to tell them what they want to hear. We'll call him Dr. Z.
Dr. Z said, "First, you're not going to salvage the first or second quarter - the first is pretty much cooked, and the second is going to be really ugly. So focus on trying to make it look like the recession's over by the third quarter. Then, maybe people will go nuts on holiday shopping and the fourth won't be so bad either."
"Again, HOW?" asked the Congressmen.
"Well, the consumer is pretty much out of the picture on his own, and you can't replace 70% of the US economy with government spending, especially with the current and projected deficits. But you could give the consumer a fat incentive to buy stuff."
"It would take a lot of stuff being bought to bring this economy out of the tank," said the Congressmen. "You're not going to make up for the decline in consumption with chicken noodle soup from Aldi and toilet paper from Wal-Mart."
"Well, then focus on big-ticket items - the bigger, the better, since consumption is measured in dollar terms," said Dr. Z.
"Like houses?" said the Congressmen. "Sure," said Dr. Z, "offer a tax break for first-time homebuyers, and say that it's going to sunset shortly after the quarter ends. Don't make it too obvious - require that they close on the homes by the end of November. That way, given the 60 days it typically takes to close on a house, they'll rush to buy in September, before the third quarter ends. That may get you something on the order of, oh I don't know, a 9.4% increase in existing home sales in September - just in time to filter into the third quarter GDP numbers."
"Brilliant!" said the Congressmen. "But surely there's more we can do - we want a big GDP number for the third quarter."
"Well," said Dr. Z, "you could offer an incentive to buy new cars. Make it big, and make it only in the third quarter, to boost GDP on a one-time basis. Again, don't make it obvious - do it in July and August, don't have it expire at quarter-end. Tie it to making America 'greener,' and you'll garner broader support when it comes to a vote."
One Congressman had an aide who had actually gotten a degree in economics and understood the topic, and he whispered in the boss' ear. The Congressman piped up: "Wait a minute - won't this just front-load demand? You're not going to get people to buy houses or cars in this economy that otherwise wouldn't have within a few months or quarters, right?"
"So what?" acknowledged Dr. Z. "The objective is to boost the third quarter's GDP, to make it positive so you can declare an end to the recession."
The aide whispered to his boss again, who spoke up once more: "But the definition of the end of a recession is two consecutive quarters of positive GDP growth, not just one."
Again, Dr. Z replied, "So what? Most of the American public is too dumb to know that. And if their government tells them something, they tend to believe it. So don't ask the National Bureau of Economic Research, which officially declares the beginning and ending points of recessions, whether we're out of the woods yet. Have the Commerce Department declare the recession is over the day the third quarter GDP report is released. Then people will gain confidence and start spending again."
The aide whispered once more, and once more his boss regurgitated what he'd heard. "Are you sure?" the Congressman asked. "After front-loaded demand dissipates, won't there be a 'hangover,' with consumption dropping, and maybe negative GDP in the fourth quarter?"
"Maybe," said Dr. Z, "but that's why you have to be ready to extend the homebuyers' credit and maybe enact a second auto stimulus. You can say, 'Sure it's expensive, but look how well the first one worked, and we can't afford to let the economy double-dip.' Plus, that'll be in fiscal 2010, so it won't affect this year's budget, and by the time the new one's rolled out whatever you spend will already have to be in it, because it'll already be spent."
And thus we have the recipe for an even larger deficit. The beauty part is that Congress did just that - extend and expand the homebuyers' tax credit, that is - and they even added an extension of unemployment benefits, something I've been predicted since early summer would be done after fiscal 2009 ended. (By the way, ever notice that if you lose your job in a good economy, you're screwed, but if it happens in a recession, you can pretty much stay on unemployment as long as you want? Shouldn't that be the time we're providing an incentive for people to beat the bushes all the harder and get back to work?)
The price tag for this largess is $24 billion, automatically added to next year's budget - and deficit. But not factored into the deficit projections the administration made earlier this calendar year.
Ah well, what's another measly $24 bil in a world of trillion-dollar deficits? By the way again, next week we'll see the budget shortfall for the first month of fiscal 2010. It's expected to be $150 billion, for just the one month. Remember 2008, when the deficit hit a new record - of just about four times that amount? Remember how the left was howling about it? What kind of noise are they making now?
Wait, I hear them ... "Chirp, chirp ..." Nope. My bad. Just crickets.
************
Let me describe for you exactly how I think the first-time homebuyers' tax credit and cash-for-clunkers were hatched.
In a smoke-filled room in Washington, a bunch of pols were pounding the table and saying, "We have GOT to end this recession - and NOW!" "But how?" they asked. Then they trooped in some hack economist like like the ones you see them troop out to testify before them when they need somebody to tell them what they want to hear. We'll call him Dr. Z.
Dr. Z said, "First, you're not going to salvage the first or second quarter - the first is pretty much cooked, and the second is going to be really ugly. So focus on trying to make it look like the recession's over by the third quarter. Then, maybe people will go nuts on holiday shopping and the fourth won't be so bad either."
"Again, HOW?" asked the Congressmen.
"Well, the consumer is pretty much out of the picture on his own, and you can't replace 70% of the US economy with government spending, especially with the current and projected deficits. But you could give the consumer a fat incentive to buy stuff."
"It would take a lot of stuff being bought to bring this economy out of the tank," said the Congressmen. "You're not going to make up for the decline in consumption with chicken noodle soup from Aldi and toilet paper from Wal-Mart."
"Well, then focus on big-ticket items - the bigger, the better, since consumption is measured in dollar terms," said Dr. Z.
"Like houses?" said the Congressmen. "Sure," said Dr. Z, "offer a tax break for first-time homebuyers, and say that it's going to sunset shortly after the quarter ends. Don't make it too obvious - require that they close on the homes by the end of November. That way, given the 60 days it typically takes to close on a house, they'll rush to buy in September, before the third quarter ends. That may get you something on the order of, oh I don't know, a 9.4% increase in existing home sales in September - just in time to filter into the third quarter GDP numbers."
"Brilliant!" said the Congressmen. "But surely there's more we can do - we want a big GDP number for the third quarter."
"Well," said Dr. Z, "you could offer an incentive to buy new cars. Make it big, and make it only in the third quarter, to boost GDP on a one-time basis. Again, don't make it obvious - do it in July and August, don't have it expire at quarter-end. Tie it to making America 'greener,' and you'll garner broader support when it comes to a vote."
One Congressman had an aide who had actually gotten a degree in economics and understood the topic, and he whispered in the boss' ear. The Congressman piped up: "Wait a minute - won't this just front-load demand? You're not going to get people to buy houses or cars in this economy that otherwise wouldn't have within a few months or quarters, right?"
"So what?" acknowledged Dr. Z. "The objective is to boost the third quarter's GDP, to make it positive so you can declare an end to the recession."
The aide whispered to his boss again, who spoke up once more: "But the definition of the end of a recession is two consecutive quarters of positive GDP growth, not just one."
Again, Dr. Z replied, "So what? Most of the American public is too dumb to know that. And if their government tells them something, they tend to believe it. So don't ask the National Bureau of Economic Research, which officially declares the beginning and ending points of recessions, whether we're out of the woods yet. Have the Commerce Department declare the recession is over the day the third quarter GDP report is released. Then people will gain confidence and start spending again."
The aide whispered once more, and once more his boss regurgitated what he'd heard. "Are you sure?" the Congressman asked. "After front-loaded demand dissipates, won't there be a 'hangover,' with consumption dropping, and maybe negative GDP in the fourth quarter?"
"Maybe," said Dr. Z, "but that's why you have to be ready to extend the homebuyers' credit and maybe enact a second auto stimulus. You can say, 'Sure it's expensive, but look how well the first one worked, and we can't afford to let the economy double-dip.' Plus, that'll be in fiscal 2010, so it won't affect this year's budget, and by the time the new one's rolled out whatever you spend will already have to be in it, because it'll already be spent."
And thus we have the recipe for an even larger deficit. The beauty part is that Congress did just that - extend and expand the homebuyers' tax credit, that is - and they even added an extension of unemployment benefits, something I've been predicted since early summer would be done after fiscal 2009 ended. (By the way, ever notice that if you lose your job in a good economy, you're screwed, but if it happens in a recession, you can pretty much stay on unemployment as long as you want? Shouldn't that be the time we're providing an incentive for people to beat the bushes all the harder and get back to work?)
The price tag for this largess is $24 billion, automatically added to next year's budget - and deficit. But not factored into the deficit projections the administration made earlier this calendar year.
Ah well, what's another measly $24 bil in a world of trillion-dollar deficits? By the way again, next week we'll see the budget shortfall for the first month of fiscal 2010. It's expected to be $150 billion, for just the one month. Remember 2008, when the deficit hit a new record - of just about four times that amount? Remember how the left was howling about it? What kind of noise are they making now?
Wait, I hear them ... "Chirp, chirp ..." Nope. My bad. Just crickets.
Thursday, November 5, 2009
Rant for a Friend - Intermission
I interrupt this rant to bring you a rant on a totally different topic - sorry, but the switching system on the tracks upon which my train of thought runs tends to work that way. Besides, I read something this morning that made my blood boil. I'll return to the promised stream of consciousness tomorrow.
I've often railed against the talking heads on Bubblevison (CNBC) and the headline writers at Bloomberg News, with their rose-colored slant on the real state of things economic. But I got a doozy from the latter this morning.
Bloomberg was reporting on this morning's release of third quarter productivity and unit labor costs data. For the uninitiated, productivity is worker output per hour worked, in the aggregate, and unit labor costs reflect the input cost of labor into a unit of output.
Quite simply, when companies engage in a prolonged bout of job-cutting in an economic downturn - especially a lengthy and deep one - they're attempting to do the same amount of work with fewer workers. More accurately, though, they're not doing the same amount of work; demand is down, thus so is production. Early in the job-cutting phase, which tends to respond to the decline in demand, productivity will fall, as the job cuts have not yet caught up with the output decline. Later in the cycle, that situation will reverse, and up goes productivity.
Thus it should come as no surprise that productivity in the third quarter rose at the highest pace in six years. Let's make no mistake as to why this happened: hours worked fell at the sharpest year-over-year pace in the six-decade history of the data. Some companies even ramped up production in the third quarter; namely, the automakers, in response to the cash-for-clunkers-stimulated demand. But they didn't add workers to do it. So see? Productivity - output per worker hour - gained.
So this is all well and good. But Bloomberg chose to end its story with the following paragraph:
"In the 1990s, former Fed Chairman Alan Greenspan was one of the first to recognize productivity was accelerating because of the increased use of computers and the Internet, and that the improvement would contain inflation even as the economy gained strength and unemployment stayed low. The realization allowed the Fed to keep interest rates little changed from 1996 to 1999."
Now, hold on just a doggone minute. Let's break this down.
Productivity indeed gained in 1992. Why? In the aftermath of the '90-91 recession, companies cut jobs and entered the classic "do more with less" mode. As a result, productivity year-over-year rose to exactly where it is now in the first quarter of 1992, well into the cycle of job-cutting.
But productivity then tanked, dipping into negativity territory by the end of 1993, as companies overshot expected demand and hired too many workers, effectively doing less with more. Too often, that's what companies do. Productivity then rose modestly in 1994 before once again diping into negative territory in 1Q05.
After that, we did indeed see gains in the late '90s, though we never did reach the level where we are now, or where we were in the aftermath of the early '90s recession - until mid-2000, when the stock market had peaked and we were headed into a downturn again. And once again, the primary culprit was job-cutting, not technology.
Now, Greenspan did indeed espouse the theory that productivity gains were systemic and resulted from technological advances, and that productivity would therefore naturally contain inflation, allowing easy monetary policy.
Big deal. At one point in human history, we universally accepted the theory that the world was flat. That didn't make it good science.
Greenspan's view of productivity turned out to be his Great Undoing. He did indeed mistakenly believe that his theory allowed the Fed to keep interest rates too low, too long. That, of course, led to the dot-com bubble. In its aftermath, he once again kept rates too low, too long. And that, of course, led to the housing bubble.
Well, Alan Greenspan is no longer Fed Chairman. But at the conclusion of yesterday's FOMC meeting, the Bernanke Fed reiterated its pledge to keep rates as low as possible, as long as possible, in spite of the belief of some that the economy is picking up steam.
Undoubtedly, that is due in part to the Fed's realization, deep down, in spite of all the "green shoots" talk, that we are far from out of the woods.
But part of it is also due to the fact that this Fed is even more dovish on inflation than it was under Greenspan.
The Aussie central bank has acknowledged that it must, in addition to the traditional dual policy mandate of promoting full employment and fighting inflation, focus some effort on avoiding the inflation of asset bubbles, which, as we've seen, can be catastrophic. They get it. And to that end, they have raised interest rates twice in the last two months as evidence appeared that the economy Down Under was gaining strength. They chose to err on the conservative side, risking the politically unpopular outcome of cutting off growth too quickly in favor of avoiding the greater economic risk of inflating another asset bubble.
And the World Bank and the IMF have recently warned that bubbles could very well be forming, especially in Asia, where growth is taking hold faster than in other parts of the world. Indeed, the day China recently opened its new Nasdaq-like stock exchange, prices doubled. That smells like a bubble to me - I wish I could short an index on it.
But our central bank - too inextricably tied to the political winds - is not going to be proactive. Which leads us to a rule of thumb far more useful than Mr. Greenspan's flawed one:
"Those who fail to learn from past mistakes are doomed to repeat them."
I've often railed against the talking heads on Bubblevison (CNBC) and the headline writers at Bloomberg News, with their rose-colored slant on the real state of things economic. But I got a doozy from the latter this morning.
Bloomberg was reporting on this morning's release of third quarter productivity and unit labor costs data. For the uninitiated, productivity is worker output per hour worked, in the aggregate, and unit labor costs reflect the input cost of labor into a unit of output.
Quite simply, when companies engage in a prolonged bout of job-cutting in an economic downturn - especially a lengthy and deep one - they're attempting to do the same amount of work with fewer workers. More accurately, though, they're not doing the same amount of work; demand is down, thus so is production. Early in the job-cutting phase, which tends to respond to the decline in demand, productivity will fall, as the job cuts have not yet caught up with the output decline. Later in the cycle, that situation will reverse, and up goes productivity.
Thus it should come as no surprise that productivity in the third quarter rose at the highest pace in six years. Let's make no mistake as to why this happened: hours worked fell at the sharpest year-over-year pace in the six-decade history of the data. Some companies even ramped up production in the third quarter; namely, the automakers, in response to the cash-for-clunkers-stimulated demand. But they didn't add workers to do it. So see? Productivity - output per worker hour - gained.
So this is all well and good. But Bloomberg chose to end its story with the following paragraph:
"In the 1990s, former Fed Chairman Alan Greenspan was one of the first to recognize productivity was accelerating because of the increased use of computers and the Internet, and that the improvement would contain inflation even as the economy gained strength and unemployment stayed low. The realization allowed the Fed to keep interest rates little changed from 1996 to 1999."
Now, hold on just a doggone minute. Let's break this down.
Productivity indeed gained in 1992. Why? In the aftermath of the '90-91 recession, companies cut jobs and entered the classic "do more with less" mode. As a result, productivity year-over-year rose to exactly where it is now in the first quarter of 1992, well into the cycle of job-cutting.
But productivity then tanked, dipping into negativity territory by the end of 1993, as companies overshot expected demand and hired too many workers, effectively doing less with more. Too often, that's what companies do. Productivity then rose modestly in 1994 before once again diping into negative territory in 1Q05.
After that, we did indeed see gains in the late '90s, though we never did reach the level where we are now, or where we were in the aftermath of the early '90s recession - until mid-2000, when the stock market had peaked and we were headed into a downturn again. And once again, the primary culprit was job-cutting, not technology.
Now, Greenspan did indeed espouse the theory that productivity gains were systemic and resulted from technological advances, and that productivity would therefore naturally contain inflation, allowing easy monetary policy.
Big deal. At one point in human history, we universally accepted the theory that the world was flat. That didn't make it good science.
Greenspan's view of productivity turned out to be his Great Undoing. He did indeed mistakenly believe that his theory allowed the Fed to keep interest rates too low, too long. That, of course, led to the dot-com bubble. In its aftermath, he once again kept rates too low, too long. And that, of course, led to the housing bubble.
Well, Alan Greenspan is no longer Fed Chairman. But at the conclusion of yesterday's FOMC meeting, the Bernanke Fed reiterated its pledge to keep rates as low as possible, as long as possible, in spite of the belief of some that the economy is picking up steam.
Undoubtedly, that is due in part to the Fed's realization, deep down, in spite of all the "green shoots" talk, that we are far from out of the woods.
But part of it is also due to the fact that this Fed is even more dovish on inflation than it was under Greenspan.
The Aussie central bank has acknowledged that it must, in addition to the traditional dual policy mandate of promoting full employment and fighting inflation, focus some effort on avoiding the inflation of asset bubbles, which, as we've seen, can be catastrophic. They get it. And to that end, they have raised interest rates twice in the last two months as evidence appeared that the economy Down Under was gaining strength. They chose to err on the conservative side, risking the politically unpopular outcome of cutting off growth too quickly in favor of avoiding the greater economic risk of inflating another asset bubble.
And the World Bank and the IMF have recently warned that bubbles could very well be forming, especially in Asia, where growth is taking hold faster than in other parts of the world. Indeed, the day China recently opened its new Nasdaq-like stock exchange, prices doubled. That smells like a bubble to me - I wish I could short an index on it.
But our central bank - too inextricably tied to the political winds - is not going to be proactive. Which leads us to a rule of thumb far more useful than Mr. Greenspan's flawed one:
"Those who fail to learn from past mistakes are doomed to repeat them."
Wednesday, November 4, 2009
Rant for a Friend, Pt. III
I didn't get around to posting yesterday - it was my lovely wife's birthday, so we went out and stimulated the economy last night.
Up today: the AIG bailout. This'll be a short one.
At the time the government took control of too-big-to-fail AIG, the company was negotiating to pay its credit default swap (CDS) counterparties at as little as 40 cents on the dollar.
The government takes over, and the New York Fed - whose president at the time was one Timothy Geithner - directs AIG to pay its CDS obligations at par.
Incremental cost to the US taxpayer: $13 billion. Not a particularly outsized number in these days of trillion-dollar deficits. But it is 0.1% of GDP, if that's important (and, as we'll discuss tomorrow, it certainly is to those in Washington).
And the guy who presided over this brilliant trading decision - what's he doing now?
Oh yeah, he runs the US Treasury. Awesome.
What's more, the CEO of Goldman Sachs was the chairman of the board of the New York Fed at the time, and the CEO of JPMorgan Chase was on the board as well.
Who were AIG's counterparties, who received 100 cents on the dollar instead of the 40 cents they were going to get before the takeover?
Among them were Goldman Sachs and JPMorgan Chase.
But wait, it gets better - when Bloomberg broke this story, they asked for a comment from a Treasury official. He said something to the effect that if AIG hadn't paid these counterparties at 100 cents on the dollar, the counterparties themselves would have suffered financially.
So in effect, this was another bailout to those banks. I guess that's one way to get around the TARP limits.
************
Tomorrow, I'll present my little scenario describing just how the cash-for-clunkers and homebuyers' tax incentives came to be, particularly in terms of their timing.
Up today: the AIG bailout. This'll be a short one.
At the time the government took control of too-big-to-fail AIG, the company was negotiating to pay its credit default swap (CDS) counterparties at as little as 40 cents on the dollar.
The government takes over, and the New York Fed - whose president at the time was one Timothy Geithner - directs AIG to pay its CDS obligations at par.
Incremental cost to the US taxpayer: $13 billion. Not a particularly outsized number in these days of trillion-dollar deficits. But it is 0.1% of GDP, if that's important (and, as we'll discuss tomorrow, it certainly is to those in Washington).
And the guy who presided over this brilliant trading decision - what's he doing now?
Oh yeah, he runs the US Treasury. Awesome.
What's more, the CEO of Goldman Sachs was the chairman of the board of the New York Fed at the time, and the CEO of JPMorgan Chase was on the board as well.
Who were AIG's counterparties, who received 100 cents on the dollar instead of the 40 cents they were going to get before the takeover?
Among them were Goldman Sachs and JPMorgan Chase.
But wait, it gets better - when Bloomberg broke this story, they asked for a comment from a Treasury official. He said something to the effect that if AIG hadn't paid these counterparties at 100 cents on the dollar, the counterparties themselves would have suffered financially.
So in effect, this was another bailout to those banks. I guess that's one way to get around the TARP limits.
************
Tomorrow, I'll present my little scenario describing just how the cash-for-clunkers and homebuyers' tax incentives came to be, particularly in terms of their timing.
Monday, November 2, 2009
Rant For A Friend, Part II
Today's topic is the cash-for-clunkers incentive.
A total of 690,000 cars were sold under the CFC program. But Edmund's reported that only 125,000 cars were sold under the program that would not have been sold anyway (more on that later). So given the total cost to the taxpayer, that works out to an expense of $24,000 per sale, counting only those sales that wouldn't have taken place anyway.
That's a pretty steep price to pay for a one-time boost to consumption, and therefore GDP. But what does Congress care - it isn't their money, after all.
We did get a boost to GDP; third quarter output rose 3.5%, but absent the effect of the incentive, which ended in August, the gain was about half that. So what will happen in the fourth quarter?
Well, consider that total vehicle sales in the US averaged 16.35 million units (annualized) during 2006 and 2007, when the economy was still relatively unscathed. Then, sales dropped from an annualized pace of about 16 million units at year-end 2007 to just over 10 million by the end of 2008.
This year, the sales pace by month (annualized) for total vehicle sales in the US has trended as follows:
January: 9.57 million
February: 9.11 million (the lowest since 1981)
March: 9.86 million
April: 9.32 million
May: 9.92 million
June: 9.68 million
July (when CFC kicked in): 11.25 million
August (also a CFC month): 14.09 million
September (post-CFC): 9.20 million (second-lowest since 1981)
Get it? The problem with these incentives - as with the first-time homebuyers' tax credit - is that they tend to just front-load existing demand. People who were planning to buy a car (or house) within the next, say, six months, will just buy a little earlier than they otherwise planned to, cashing in on the incentive. So in terms of actually stimulating demand, these one-time stimuli do very little. And in terms of sales that otherwise wouldn't have taken place, that makes the price tag dear.
Besides boosting GDP, it's also worth noting that the US government owns chunks of GM and Chrysler, so spending more tax dollars to boost sales appears to help improve the return on that investment, though it's really simply robbing Peter to pay Peter.
On the docket tomorrow is the AIG bailout.
A total of 690,000 cars were sold under the CFC program. But Edmund's reported that only 125,000 cars were sold under the program that would not have been sold anyway (more on that later). So given the total cost to the taxpayer, that works out to an expense of $24,000 per sale, counting only those sales that wouldn't have taken place anyway.
That's a pretty steep price to pay for a one-time boost to consumption, and therefore GDP. But what does Congress care - it isn't their money, after all.
We did get a boost to GDP; third quarter output rose 3.5%, but absent the effect of the incentive, which ended in August, the gain was about half that. So what will happen in the fourth quarter?
Well, consider that total vehicle sales in the US averaged 16.35 million units (annualized) during 2006 and 2007, when the economy was still relatively unscathed. Then, sales dropped from an annualized pace of about 16 million units at year-end 2007 to just over 10 million by the end of 2008.
This year, the sales pace by month (annualized) for total vehicle sales in the US has trended as follows:
January: 9.57 million
February: 9.11 million (the lowest since 1981)
March: 9.86 million
April: 9.32 million
May: 9.92 million
June: 9.68 million
July (when CFC kicked in): 11.25 million
August (also a CFC month): 14.09 million
September (post-CFC): 9.20 million (second-lowest since 1981)
Get it? The problem with these incentives - as with the first-time homebuyers' tax credit - is that they tend to just front-load existing demand. People who were planning to buy a car (or house) within the next, say, six months, will just buy a little earlier than they otherwise planned to, cashing in on the incentive. So in terms of actually stimulating demand, these one-time stimuli do very little. And in terms of sales that otherwise wouldn't have taken place, that makes the price tag dear.
Besides boosting GDP, it's also worth noting that the US government owns chunks of GM and Chrysler, so spending more tax dollars to boost sales appears to help improve the return on that investment, though it's really simply robbing Peter to pay Peter.
On the docket tomorrow is the AIG bailout.
Sunday, November 1, 2009
Rant For A Friend
Okay, very long time, no blog. I've been busy, with work stuff; writing, performing and rehearsing music; and visiting my daughter in college on fall football weekends. But I'm having lunch this week with a friend who's a follower of this blog, so for him, a rant.
And boy, is there ample material. Today's topic is bailout mania. Oh, I've ranted about bailouts before. But now we get to see some of the aftermath. And what we see is very rant-worthy indeed. Actually, for the long-read-challenged, I'll break it down into a series, covering one bailout a day until I'm done.
At the series' conclusion, I'll present a little scenario that will explain just what the real purpose of all these bailouts was. (I know, I'm a tease.)
************
First up: the first-time homebuyers' tax credit. Rolled out shortly after President Obama was sworn in, it provided a credit of up to $8,000 for people buying a home who hadn't owned one in the previous three years; had incomes no greater than $75k single or $150k married; and closed on the purchase by November 30.
How did it go? Well, as with most stimulus - including the others I'll discuss today - we don't really know. How many people bought a house that otherwise wouldn't have? (Answer: gee, when unemployment is at a 26-year high and you fear you might lose your job, do you take on a mortgage payment because of an $8,000 tax credit?)
As with cash-for-clunkers, it did probably front-load some demand; September's existing home sales jumped 9.4%, a sizeable increase, and that was probably a last-gasp move by buyers to get in before the incentive expired. But September new home sales were unexpectedly weak, meaning buyers were focused on the low end of the housing market.
(The incentive is more likely to affect existing home sales than new home sales for two reasons. First, existing homes are typically lower-priced than the new market, and that's the market where people who need a tax incentive to afford a home tend to concentrate. Second, with all the foreclosures out there, existing homes in foreclosure are a huge bargain relative to new construction, as the banks that own them are slashing prices to get them off the books.)
What we do know is that the housing industry - builders, realtors, etc. - have been lobbying Congress to extend the credit, using fear-mongering (something politicians can relate to): "If the incentive expires, people will stop buying houses, and the recovery will sputter" ... (Those last two things are going to happen anyway, but that's a topic for another day.)
As is typically the case when a special interest group has their hand out - with the other hand surreptitiously slipping cash into Congress' collective pocket - Congress has apparently acquiesced.
They're not only extending the program, but expanding it. The credit stands, with a new final date of April 30, 2010 - but that's just the date by which the contract has to be signed. Closing doesn't have to take place until June 30. And the income limits have been raised, to $125k for single filers, $225k married. (Wait - in the original version, the married income limit was double the single limit. Yet another instance of the tax code screwing married people.)
In addition, a credit of up to $6,500 will be available for people trading up, who already own a home, as long as the home they're selling has been their primary residence for at least five years.
Now, as I said, we don't really know how effective this thing has been in moving real estate. But we do know what a Treasury Department watchdog uncovered from auditing returns claiming the credit in the initial go-round:
19,000 filers claimed the credit for homes they hadn't yet purchased.
74,000 filers claimed credits totaling $500 million for homes they already owned.
And 580 filers claimed $4 million in credits, said filers all being under the age of 18.
One of them was four years old. Probably Tim Geithner's kid.
Now, I don't fault these people one bit. First, if Geithner et al can cheat on their taxes and be rewarded with cabinet posts, anybody should be able to do it. Second, people are sick of being responsible, not buying more house than they can afford, making sure they understand their mortgage terms, paying their bills on time, then seeing their tax dollars go to bail out other people. So why not get yours, however you have to get it? It's understandable.
I'm thinking about each of my three dogs filing returns for 2009 and claiming the credit. Even though I'm the only one around here who ever sleeps in the doghouse.
So, we have widespread fraud and abuse of a bailout, and what does Congress do (they learned of the watchdog's findings before they began deliberations on whether to extend the program)? Not only do they extend it, they expand it. Awesome.
And the deficits keep rising, folks.
************
Up tomorrow: Cash-for-Clunkers.
And boy, is there ample material. Today's topic is bailout mania. Oh, I've ranted about bailouts before. But now we get to see some of the aftermath. And what we see is very rant-worthy indeed. Actually, for the long-read-challenged, I'll break it down into a series, covering one bailout a day until I'm done.
At the series' conclusion, I'll present a little scenario that will explain just what the real purpose of all these bailouts was. (I know, I'm a tease.)
************
First up: the first-time homebuyers' tax credit. Rolled out shortly after President Obama was sworn in, it provided a credit of up to $8,000 for people buying a home who hadn't owned one in the previous three years; had incomes no greater than $75k single or $150k married; and closed on the purchase by November 30.
How did it go? Well, as with most stimulus - including the others I'll discuss today - we don't really know. How many people bought a house that otherwise wouldn't have? (Answer: gee, when unemployment is at a 26-year high and you fear you might lose your job, do you take on a mortgage payment because of an $8,000 tax credit?)
As with cash-for-clunkers, it did probably front-load some demand; September's existing home sales jumped 9.4%, a sizeable increase, and that was probably a last-gasp move by buyers to get in before the incentive expired. But September new home sales were unexpectedly weak, meaning buyers were focused on the low end of the housing market.
(The incentive is more likely to affect existing home sales than new home sales for two reasons. First, existing homes are typically lower-priced than the new market, and that's the market where people who need a tax incentive to afford a home tend to concentrate. Second, with all the foreclosures out there, existing homes in foreclosure are a huge bargain relative to new construction, as the banks that own them are slashing prices to get them off the books.)
What we do know is that the housing industry - builders, realtors, etc. - have been lobbying Congress to extend the credit, using fear-mongering (something politicians can relate to): "If the incentive expires, people will stop buying houses, and the recovery will sputter" ... (Those last two things are going to happen anyway, but that's a topic for another day.)
As is typically the case when a special interest group has their hand out - with the other hand surreptitiously slipping cash into Congress' collective pocket - Congress has apparently acquiesced.
They're not only extending the program, but expanding it. The credit stands, with a new final date of April 30, 2010 - but that's just the date by which the contract has to be signed. Closing doesn't have to take place until June 30. And the income limits have been raised, to $125k for single filers, $225k married. (Wait - in the original version, the married income limit was double the single limit. Yet another instance of the tax code screwing married people.)
In addition, a credit of up to $6,500 will be available for people trading up, who already own a home, as long as the home they're selling has been their primary residence for at least five years.
Now, as I said, we don't really know how effective this thing has been in moving real estate. But we do know what a Treasury Department watchdog uncovered from auditing returns claiming the credit in the initial go-round:
19,000 filers claimed the credit for homes they hadn't yet purchased.
74,000 filers claimed credits totaling $500 million for homes they already owned.
And 580 filers claimed $4 million in credits, said filers all being under the age of 18.
One of them was four years old. Probably Tim Geithner's kid.
Now, I don't fault these people one bit. First, if Geithner et al can cheat on their taxes and be rewarded with cabinet posts, anybody should be able to do it. Second, people are sick of being responsible, not buying more house than they can afford, making sure they understand their mortgage terms, paying their bills on time, then seeing their tax dollars go to bail out other people. So why not get yours, however you have to get it? It's understandable.
I'm thinking about each of my three dogs filing returns for 2009 and claiming the credit. Even though I'm the only one around here who ever sleeps in the doghouse.
So, we have widespread fraud and abuse of a bailout, and what does Congress do (they learned of the watchdog's findings before they began deliberations on whether to extend the program)? Not only do they extend it, they expand it. Awesome.
And the deficits keep rising, folks.
************
Up tomorrow: Cash-for-Clunkers.
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