Author: philg

All wisdom comes from watching television. Tonight a viewer on a political panel show called in and posed the following question to the assembled pundits: “All three current presidential candidates are senators. All three claim to have tremendous leadership skills and ideas for improving the lives of all Americans. If they have such great ideas and leadership abilities, why haven’t any of them been able to lead their colleagues in the Senate to accomplish anything significant?”

He raises a good point. Obama, Clinton, and McCain are among the 150 or so most powerful Americans. They can literally rewrite all of the laws in this country. Yet it would be tough to find anyone who can say that they have enjoyed greater opportunities or a better life because of something that one of these three has done.

Full post, including comments

Today’s New York Times carries a story about the U.S. government financing home construction for Palestinians: “New Home-Buying Plan May Bolster Abbas”. You would think that we have demonstrated conclusively, by our own sagging economy, the dangers of investing almost exclusively in housing as opposed to factories and industry. Now the Palestinians, who have the world’s highest birthrate and a level of education and productivity that is not competitive with Asia, are going to have an even larger imbalance between housing and jobs.

The article does not address the question of why this is being funded by U.S. taxpayers. Wealthy Arab nations are buying up assets all over the U.S. because they can’t figure out what to do with the hundreds of billions of dollars that we’ve been sending them. These same folks often express solidarity with the Palestinians. If folks in the Emirates can afford to buy investment banks in the U.S., airports and container shipping ports throughout the world, and personal Boeing 747s (some of which cost about as much as this program), how come they won’t give their Palestinian brothers a mortgage?

Full post, including comments

Today’s Wall Street Journal carries an article on the softening of the yacht market. This is consistent with some friends’ experience in the jet market. A group of pilots at Hanscom Field are trying to buy a Cessna Citation Mustang business jet without waiting the full three years it takes to get one from Cessna. The asking prices seem to have come down at least $100,000 (out of approximately $3 million) over the last two months.

Full post, including comments

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?

Full post, including comments

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.

Full post, including comments

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

Full post, including comments

“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.

Full post, including comments

The Daily Mail shows some newly discovered photos of German officials enjoying life at the Auschwitz death camp in 1944 and 1945. The album belonged to a senior officer, Karl Hocker, who worked in a bank prior to World War II and returned to his career after the war.

The photos live in a Washington, D.C. museum, which has a crummy Web page devoted to them with some low-res photos.

Full post, including comments

Here’s an important video for understanding how tomorrow’s job market is likely to work: small-size WMV format | even smaller YouTube version

If you’re interested in Alaska, brown bears, or hand-to-hand combat, this video should prove useful.

Full post, including comments

Americans are often chided for a low savings rate. We would be better off if we saved, supposedly. Instead of taking a luxury vacation or buying a beach house, we loan money to bank or invest it in a business. They use that money productively and give us back a nice return on investment so that we can, at some point in the future, take two vacations or buy a much nicer beach house.

Consumers in the past decade or so have not behaved as though they believed this pitch. They borrowed the maximum that they could out of their home equity and went off to Europe. They spent every dime that they earned and every dime that banks would lend them. They behaved as though they believed that money invested in the stock market would be stolen by managers running the companies. They spent as though they believed beach houses and European vacations would rise in cost much faster than the stock market.

It now appears that Wall Street agrees with these folks. The yield on 5-year Treasury Inflation Protected Securities (TIPS) has gone negative (story). If you give the government $1000 today, they will give you back $900 and change in 2013. Whatever they give you back will be adjusted for domestic inflation, at the officially published rate, so in theory your spending power in 2013 will only be slightly smaller than it is today. But for the average thing that you might want to buy, you are more likely to be able to buy it right now than if you bought TIPS and waited five years.

A friend who is a professional money manager says that you should expect the yield on every form of investment to converge to LIBOR. In other words, there is no reason to believe that other investments will return more than these negative-yield TIPS. They might appear to yield more right now, but that is only because we are underestimating inflation.

Due to the decreasing marginal utility of income, i.e., that $1 spent on top of $150,000 brings less enjoyment than the same dollar spent on top of $15,000, it makes sense to save a bit for retirement. Otherwise, perhaps anyone with a steady income should party on. What if disability or death interferes with that steady income? One can buy insurance against these unlikely events and that insurance might well be cheaper than the haircut you’re going to take as an investor in TIPS or any other publicly traded instrument.

Full post, including comments