Month: April 2008

My lust for the smell of burning kerosene has driven me to spend a lot of time in the suburbs of Cincinnati. All of the stores and restaurants in Cincinnati seem to be staffed by high school students. This probably doesn’t seem unusual to the average American, but it struck me because I couldn’t remember ever seeing a Cambridge Public School student working an after-school or weekend job. Stores and restaurants in Cambridge seem to employ adults, often recent immigrants.

I can’t figure out what would account for the huge observed difference. It can’t be that Cambridge High School students are spending all of their time studying because they consistently score very poorly on achievement tests. Nor do I think that it is a question of household income because the Cambridge High School serves a lot of teenagers whose parents are on welfare, living in city-owned housing, etc. (after the chucking of an honors program, the higher-income parents moved their children to private schools or moved the entire family to Brookline or Newton).

If I go to a supermarket in Cambridge on a weekend, why don’t I see a Cambridge High School kid working the checkout?

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The newspapers are full of stories about politicians frantically searching for a way to prevent foreclosures and dramatic declines in the price of houses across the United States. The thinking seems to be that high house prices are good for the economy. Maybe they are good for the banks and Wall Street firms who lent money on the theory that a crummy 100-year-old wooden house was worth $1 million. It is tough to see how high house prices are good for the economy as a whole and for job growth.

Suppose that I want to employ a woman who supports a family of four in California, Boston, or New York City. I have to pay her enough that she can afford to buy or rent a three-bedroom place to live. If that three-bedroom place costs $1 or $2 million, I will have to pay her quite a lot of money simply so that she can survive. I might find that a worker in Guadalajara, Bangalore, or Shanghai could do the job for less than half the salary and yet live quite comfortably. The next time that I get a big tax break from the Federales, therefore, I invest it in a new office somewhere that has a reasonable cost of housing and therefore a reasonable cost of labor.

We spent most of our investment capital over the last ten years building huge and luxurious houses. Americans were by far the best-housed people in the world before, but now many of us are truly living like kings. Does this help our international competitiveness? Does an employer care that we can go home to a 6,000 square foot McMansion and watch a 60″ TV in our media room? I don’t see why the employer would care. In fact, an employer would probably prefer that his workers be housed in sufficiently squalid conditions that employees were encouraged to linger in the office. Certainly the employer doesn’t want to have to pay a worker extra just so that he or she can afford to pay rent or mortgage in an artificially inflated housing market.

Reporters and pundits are saying that government intervention in the housing market is inevitable. As we hand out tax dollars to ensure that $1 million houses are still priced at $1 million, let’s not forget to hand out some more tax dollars to employers as an incentive for them to keep hiring Americans who need to pay a $70,000 per year mortgage.

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Congress has decided to leave no house price speculator behind: “Homebuilders get breaks from Congress.”

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“Playing the Housing Blame Game” by David Leonhardt is an interesting New York Times story on what happens when you use tax policy to encourage people to spend a lot of money on houses instead of investing it in businesses. It turns out that you end up with a country with spectacularly expensive houses and feeble job growth.

Our government seems so plodding and ineffective most of the time that it is tough to remember how powerful it is.

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