According to Professor Tyler Cowen, the Great Recession was caused by a number of different factors. Cowen outlines 4 distinct and complicated problems which led to the downturn:
• A drop in the aggregate demand (http://en.wikipedia.org/wiki/Aggregat…)
• A “horribly” performing banking sector
• Problems with monetary policy
• An increase in the “risk premium” (http://en.wikipedia.org/wiki/Risk_pre…)
Prof. Cowen explains why one economic model isn’t sufficient to explain the economic downturn. He shows how several different economic models can be used to explain both the cause and the effects of the recession.
May 16, 2013
February 3, 2013
It took me less than a day to start my own business — and it was all done online. We have it good: Canada is at the top of the league table for ease of starting a new business. Americans don’t have it as easy as we do:
Last week, having read my own writing about how it’s cheaper to buy a house than rent one in most markets, I decided to take my own advice. My wife and I bought a new place, and instead of selling our old condo, we’re going to rent it out. And thus I became a small-business man.
Or, rather, I’m becoming one. Entrepreneurship — even on the smallest and most banal scale — turns out to be a time-consuming pain in the you-know-what. My personal inconveniences aren’t a big deal, but in the aggregate, the difficulty of launching a business is a problem and it may be a more important one as time goes on.
[. . .]
The striking thing about all this isn’t so much that it was annoying — which it was — but that it had basically nothing to do with what the main purpose of landlord regulation should be — making sure I’m not luring tenants into some kind of unsafe situation. The part where the unit gets inspected to see if it’s up to code is a separate step. I was instructed to await a scheduling call that ought to take place sometime in the next 10 business days.
Not that I expect your pity. I don’t even pity myself. Going through the process, I mostly felt lucky to be a fluent-English-speaking college graduate with a flexible work schedule. But the presence of a stray pamphlet offering translation into Spanish, Chinese, or Amharic seemed like it would be only marginally useful to an immigrant entrepreneur. A person who needs to be at her day job from 9 to 5 would have a huge problem even getting to these offices while they’re open.
The bureaucratic hassles of entrepreneurship turn out to vary pretty substantially from place to place. The World Bank has a fairly crude measure of how easy it is to start a business in different countries and ranks the United States 13th. North of the border in Canada (ranked third), there’s typically just one “procedure” — a paperwork filing, basically — needed to launch a business. In America, it takes more like six.
January 16, 2013
In the Wall Street Journal, Roger Kimball talks about the experience of trying to put your life back together after a major storm damages your home:
Like many people whose houses were badly damaged by Hurricane Sandy, my family and I have been living in a rented house since the storm. Unlike some whose houses were totalled, we could have repaired things and been home toasting our tootsies by our own fireplace by now. What happened?
Two things: zoning (as in “Twilight Zone”) and FEMA.
Our first exposure to the town zoning authorities came a couple of weeks after Sandy. We’d met with insurance adjusters, contractors and “remediation experts.” We’d had about a foot of Long Island Sound sloshing around the ground floor of our house in Connecticut, and everyone had the same advice: Rip up the floors and subfloors, and tear out anything — wiring, plumbing, insulation, drywall, kitchen cabinets, bookcases — touched by salt water. All of it had to go, and pronto, too, lest mold set in.
Yet it wasn’t until the workmen we hired had ripped apart most of the first floor that the phrase “building permit” first wafted past us. Turns out we needed one. “What, to repair our own house we need a building permit?”
Before you could get a building permit, however, you had to be approved by the Zoning Authority. And Zoning — citing FEMA regulations — would force you to bring the house “up to code,” which in many cases meant elevating the house by several feet. Now, elevating your house is very expensive and time consuming — not because of the actual raising, which takes just a day or two, but because of the required permits.
Kafka would have liked the zoning folks. There also is a limit on how high in the sky your house can be. That calculation seems to be a state secret, but it can easily happen that raising your house violates the height requirement. Which means that you can’t raise the house that you must raise if you want to repair it. Got that?
“A paradox, a paradox, a most ingenious paradox. Ha, ha, ha, ha, ha, ha, ha, ha, this paradox.”
H/T to Monty for the link. Monty also has this meditation on bureaucracy:
This is where Leviathan does the most damage, I think. Tyranny is always a danger in centralized governments, but a greater danger is the proliferation and growth of bureaucracies. The rules become ever more Byzantine, ever more contradictory, ever more pointless, and ever more expensive (both to implement and comply with). The bureaucracies themselves achieve a life outside the body politic: they persist, age after age, irrespective of their political origin. Their sole imperative (regardless of their ostensible purpose) is to perpetuate themselves. They are an amoeba, growing to engulf everything they touch — not because they are evil, necessarily, but simply because it’s in their nature to do so. They cannot help themselves. Bureaucracies — lethargic, slow, risk-averse, rules-bound, pedantic, expensive, often causing more harm than good — are perhaps the very worst creation of human society.
July 14, 2012
James Delingpole on the British government’s latest announcements on flood policy:
Yesterday it was reported that the Coalition had decided we should all be liable for the cost of flood damage, regardless of where we live. This puzzled me, as the Coalition’s decisions so often do. The only way it would make any kind of sense would be if you believed a) flooding is a new and unnatural phenomenon resulting directly from late 20th century Man Made Climate Change or b) that everyone is now so stupid they cannot be trusted to act in their own best interests and that it is therefore government’s job to hold their hands and wipe their bottoms for them from cradle to grave.
To discount a) you only have to go somewhere like the River Severn, just below Worcester Cathedral, and look at the flood marks on the wall. Many of the most dramatic inundations happened in years long before “man made global warming” was even a sinister glint in Al Gore’s eye. This isn’t to say that the cost of flood damage hasn’t risen to unprecedented levels these last few decades. But that has more to do with our insane practice of allowing property developments to be built on flood plains, together with our unfortunate habit of paving and tarmacking everything (such as the front gardens we would once have kept as front gardens) which means that in times of high rainfall floodwater is likely to accumulate in drains more rapidly. Plus, of course, we’re all richer — so there’s more expensive property for flooding to damage.
But it’s the b) aspect I find more worrying because of the way it rides roughshod over the most basic principles of free market economics. Can we really assume that when anybody buys a house by a river — or near a floodplain — they don’t do so in the full knowledge that flood-risk is one of the prices they pay for their pleasing waterside ambience? The very idea is a nonsense. Buyers, being rational, will factor this into their calculations: “OK, so it will be great for fishing and swimming and boating. But getting insurance will be a bugger and we’d better not keep anything too precious on the ground floor.” These complexities will be reflected by the market. While the value of the property may be enhanced by its attractive location, it will simultaneously be decreased by its flood-damage potential.
July 9, 2012
Tim Harford’s weekend column on the state of Britain’s housing market and a possible solution to the disconnect between supply and demand:
The chief obstacle to house building in the UK is the planning system, which, 65 years ago, did away with the idea that if you owned land, you could build on it, and replaced it with a system where planning permission was required. Permission to build houses is severely rationed, and such rationing can be seen clearly in the gap between the value of agricultural land without planning permission (a few thousand pounds a hectare) and the value of such land once permission has been granted (a few million).
The difficulty is that local authorities have the ability to grant planning permission but have little incentive to do so, because it tends to be unpopular with existing voters. The huge windfall from winning planning permission falls to whoever has managed to speculate on land and navigate the tangle of planning rules. These serve as nice barriers to entry for existing developers, while driving up the price of building land and so driving down the size of new homes.
Tim Leunig, chief economist at CentreForum, a think-tank, has proposed a two-part system of land auctions to get around this problem. Local authorities would buy land at auction, grant planning permission on it and then sell the land on to developers — with some strings attached, if they so choose. The profits would be enormous, and enjoyed by existing residents in the form of lower taxes or better public services. This isn’t the only way to liberalise planning, but it retains local control and democratic accountability — while dramatically increasing the incentive to develop.
Restoring a free market right to build on property you own would also be a fast solution to the diminished housing supply, but when have governments at any level willingly given up power?
May 22, 2012
In the New York Times, Norimitsu Onishi reports on recent developments (if you’ll pardon the expression) in Marin County, California:
In 1978, a year after “Star Wars” was released, George Lucas began building his movie production company far from Hollywood, in the quiet hills and valley of Marin County here just north of San Francisco. Starting with Skywalker Ranch, the various pieces of Lucasfilm came together over the decades behind the large trees on his 6,100-acre property, invisible from the single two-lane road that snakes through the area.
And even as his fame grew, Mr. Lucas earned his neighbors’ respect through his discretion. Marin, one of America’s richest counties, liked it that way.
But after spending years and millions of dollars, Mr. Lucas abruptly canceled plans recently for the third, and most likely last, major expansion, citing community opposition. An emotional statement posted online said Lucasfilm would build instead in a place “that sees us as a creative asset, not as an evil empire.”
If the announcement took Marin by surprise, it was nothing compared with what came next. Mr. Lucas said he would sell the land to a developer to bring “low income housing” here.
“It’s inciting class warfare,” said Carolyn Lenert, head of the North San Rafael Coalition of Residents.
It’s lovely to see NIMBY-ism spiked on its own hypocritical underpinnings. Just the threat of allowing “the other” into their lovely 1% outpost will be enough to rattle cages and upset the (self-nominated) “great and the good”:
Whatever Mr. Lucas’s intentions, his announcement has unsettled a county whose famously liberal politics often sits uncomfortably with the issue of low-cost housing and where battles have been fought over such construction before. His proposal has pitted neighbor against neighbor, who, after failed peacemaking efforts over local artisanal cheese and wine, traded accusations in the local newspaper.
The staunchest opponents of Lucasfilm’s expansion are now being accused of driving away the filmmaker and opening the door to a low-income housing development. That has created an atmosphere that one opponent, who asked not to be identified, saying she feared for her safety, described as “sheer terror” and likened to “Syria.”
Update: Jesse Walker comments at Hit and Run:
Lucas hasn’t always been a force for good in land-rights fights: His same statement that complains about the barriers to building on his property also complains that he wasn’t able to put up similar barriers himself when a developer built a neighborhood nearby. But that’s forgiven now. You have to appreciate a move that will simultaneously achieve four worthy goals: making housing more affordable for the poor, showing up the hypocrisies of the local limousine liberals, taking revenge (whether or not Lucas wants to call it that) on the people who restricted his property rights, and setting off a reaction that promises to be far more entertaining than any of the director’s recent movies.
May 14, 2012
This is presented as a “bureaucracy run wild” kind of story, but I find it hard to believe that any planning committee — even a British one — would insist that a railway carriage could acquire “grandfather rights”.
When it comes to building a comfortable bungalow, Jim Higgins has got the inside track.
The retired transport manager, 60, has one of the most unique houses in Britain… because it is built around a real railway carriage.
The property in Ashton, Cornwall, is a fully functioning house but bizarrely has the fully restored 130-year-old Great Western Railway car within its walls.
Mr Higgins, 64, originally from Buckinghamshire took over the property from his former father-law Charles Allen who was forced to build it around the railway carriage because bizarre planning regulations meant the train could not be moved.
Mr Higgins said: ‘The railway carriage was lived in by a local woman Elizabeth Richards from 1930.
April 20, 2012
Jonathan Rothwell in The New Republic on the palpable failure of zoning:
While most political economists think of institutions operating at the national or even state level, there is one essential but overlooked institution operating at and within the metro scale: zoning.
In a new report I argue that its impacts are destructive. Zoning laws are keeping poor children out of high-scoring schools, degrading education, and weakening economic opportunity.
Anti-density zoning — embodied in lot-size and density regulations — is an extractive institution par excellence. Through the political power of affluent homeowners and their zoning boards, it restricts private property rights — the civic privilege to freely buy, sell, or develop property — for narrow non-public gains. Property owners in a jurisdiction benefit from zoning through higher home prices (because supply is artificially low) and lower tax rates (because population density is kept down, as school age children are kept out), while everyone else loses.
[. . .]
Dragging down the quality of education available to poor children is not only unjust, it hobbles national economic gains and therefore harms even affluent people. Young black and Latino adults earn thousands of dollars more each year, and are far more likely to obtain a college education, if they grow up in metro areas where blacks or Latinos attend high-scoring schools — like in Raleigh or San Jose — compared to their counterparts in metro areas with low-scoring schools — as in Philadelphia or New Haven. Impressive research from Raj Chetty and other economists has also found that the quality of one’s school environment — measured by teacher or peer performance — causes large long term gains in earnings and labor market performance.
Previously, my work has found that zoning laws inflate metro-wide housing costs, limit housing supply, and exacerbate segregation by income and race. Other work faults these laws for their damaging effect on the environment, since they make public transportation infeasible and extend commuting times. With a few possible exceptions (see Michelle Alexander), it’s hard to think of an existing political institution in the United States that is more destructive of human and social capital.
March 22, 2012
“When I come into a house with buyers, I start picking it apart,” says San Diego’s Jim Klinge, known on the internet as ‘Jim the Realtor,’ a wise-cracking real estate agent who posts his honest, painful, and sometimes hilarious assessment of bank-owned properties on his Youtube channel: youtube.com/jimtherealtor.
While both the Bush and Obama administration have advocated programs aimed at keeping people in their homes, Klinge argues that this is the exact wrong approach and is only prolonging the agony in the housing market.
March 21, 2012
It’s because he’s not only requiring the middle classes to take a hit for the team, but he’s also trying to get rid of all the custom-crafted deductions, loopholes, shelters, and special favours in the tax code. Middle class voters have been sending their elected representatives to Washington to add to the special tax “tweaks” that disproportionally benefit the middle class. That’s how politicians ensure their re-election chances.
Unveiling his new budget proposal, Paul Ryan once again reminds us that he is one of the few men in Washington with guts and brains operating in harmony. His budget asks the big question in American politics: What is the middle class willing to give up in order to save the country?
I am afraid that the answer will be: Not very much.
[. . .]
The reaction to Ryan’s tax plan will be the truly telling thing. He proposes to create two relatively low tax brackets but to do so in a way that achieves revenue neutrality by eliminating most deductions and exclusions. Almost certainly this will mean reducing or eliminating the mortgage-interest deduction, deductions for state and local taxes, and deductions for charitable giving. (Ramesh’s beloved child tax credit probably will survive, unfortunately.) The Committee to Reinflate the Bubble will fight tooth and talon to defend the mortgage-interest deduction, and they’ll have a great many middle-class homeowners behind them.
H/T to Kathy Shaidle for the link.
Update: Nick Gillespie thinks that the Ryan budget proposal is merely an echo of Obama’s plan, not a serious attempt to get the government’s finances in order:
In brief, the Ryan plan is not as bad as [President Obama's] budget, which wants to spend $3.8 trillion in FY2013 and envisions spending $5.8 trillion in FY2022. Over the next 10 years, Obama assumes that federal spending would amount to 22.5 percent of GDP while revenues would average just 19.2 percent of GDP. That ain’t no way to run a country.
In this sense, Ryan’s plan is slightly better but still doesn’t pass the laugh test. He would spend $3.5 trillion in 2013 and $4.9 trillion in 2022 (all figures in the post are in current dollars unless otherwise noted). Spending as an average of GDP would average 20 percent of GDP and revenue would amount to just 18.3 percent.
[. . .]
Yet Ryan’s plan is weak tea. Here we are, years into a governmental deficit situation that shows no sign of ending. How is it that Ryan and the Republican leadership cannot even dream of balancing a budget over 10 years’ time? All of the discussion of reforming entitlements and the tax code and everything else is really great and necessary — I mean that sincerely — but when you cannot envision a way of reducing government spending after a decade-plus of an unrestrained spending binge, then you are not serious about cutting government. If Milton Friedman was right that spending is the proper measure of the government’s size and scope in everybody’s life, then the establishment GOP is signaling what we knew all along: They are simply an echo of the Democratic Party.
February 19, 2012
I don’t know what the actual situation is in Britain, but here in Ontario the responsibility for public housing is a regional or municipal responsibility. There’s no automatic mechanism for planners in one area to anticipate the need for additional housing, so apartments, townhouses and other subsidized accommodations are informally “swapped” between city, town, and regional governments. Would-be tenants are able to refuse being moved from one municipality to another (if you’re in Oakville, but the offered housing is in Pickering, for example).
I suspect, based on Tim Worstall’s thought experiment here, that the British system does not work quite the same way:
What’s the first thing that rational planner is going to do? Note that there’s a number of people living in London without the means to afford housing in London. And no particular economic reason for living in London either. She’s also going to note that’s there’s great swathes of housing up North which is indeed affordable. And given that there’s no particular economic reason for those in London to be in London why shouldn’t they be on benefits up North in the much cheaper housing?
This will be, after all, greatly to the benefit of society even if a bit tough on the personal liberty side. But then that’s what planning of all these things is about, doing what is best for society, yes?
So you can see the amusement: the Statists, the planners, those who insist that society is more important than the desires of any mere individual, are in something of a bind. The current reforms to the housing market are producing exactly what a rational planner would produce. The poor are sent off to be poor in cheap housing, individual desires be damned.
February 3, 2012
Arnold Kling, writing in the Wall Street Journal, explains why (if his new theories are validated) governments have been doing exactly the wrong things to help the economy recover:
… I believe that the process of creating employment is explained not by the theories of Keynes, but rather by the theories of Adam Smith and David Ricardo. Smith famously described the advantages of specialization and division of labor. Ricardo pointed out the gains from trade that come from consuming goods that others produce more efficiently. From the perspective of Smith and Ricardo, real jobs emerge in the context of patterns of sustainable specialization and trade.
Unfortunately, the patterns of specialization and trade that had emerged five years ago were not sustainable. Many jobs in home construction, durable-goods manufacturing and distribution, and mortgage finance were dependent on housing markets with ever-rising prices. In the U.S. and the U.K. in particular, the finance industry expanded well beyond its true economic value. Once the property bubbles burst, these jobs were exposed as not viable. Meanwhile, ongoing creative destruction brought about by the Internet and globalization have continued to allow substitution of capital and emerging-market labor for industrialized countries’ labor in many sectors. Together, these phenomena have caused widespread dislocation.
More government spending will not bring back the days when supposedly triple-A-rated mortgage securities could be fashioned out of dodgy loans to unqualified borrowers. Doing so would not halt the ongoing improvements in productivity in manufacturing and retail trade. It would not facilitate the adjustments that are needed in the mix of skills in the labor force. The necessary adjustments can only be made by the decentralized efforts of entrepreneurs.
[. . .]
The word “sustainable” in “patterns of sustainable specialization and trade” refers to profitability. Patterns that are profitable can be sustained. Patterns that are not profitable must eventually be shut down. That is the problem with patterns of trade created by government borrowing and spending: They are not sustainable, as has been illustrated in the U.S. by the failure of many of the “green energy” companies supported by President Obama’s stimulus package. Moreover, as European policy makers have discovered, there are limits to how much governments can borrow to fund their experimentations in specialization and trade.
December 29, 2011
A former US Air Force missile silo (with a house and other buildings on the land above) was put on the market earlier this month at a low-low price of only $750,000:
Boing Boing has come across a cozy little place that any future super-villain would be happy to call home on Sotheby’s International Realty website. Situated in the scenic Adirondack Mountains of New York, this silo and air park were operational for a short time in 1961. Hundreds of these Atlas F missile silos were built across the U.S. in the 1960′s in anticipation of attacks on the country.
As if the promise of moving into your very own missile silo isn’t tempting enough, Sotheby’s has recently dropped the price from $4.6 million USD to a mere $750,000. Not a bad deal if you’re looking to save money on your lair so you can splurge on that death ray you’ve always wanted.
In addition to the house perched atop the missile, you may also be interested in the adjoining air craft hanger, seven buildings spread out over neighbouring acres of land and an additional log cabin with runway access. To get the whole package, it’ll cost you $1.76 million USD.
The article also linked to this related video:
December 28, 2011
H/T to Popular Woodworking for the link.
December 8, 2011
T.J. Rogers explains the latest corollary to the well-known Law of Unintended Consequences (for examples of that law in operation, see your local, regional, or national government):
Wall Street understands how to make money, up-market or down. “Margin Call” may fuel Occupy movement ire, but in creating mortgage-backed securities, Wall Street did nothing other than facilitate home-financing access to the next tier of less-qualified home buyers, as demanded by every president since Bill Clinton. After that, the bankers did exactly what their shareholders wanted: bundle those risky loans into securities, sell them to lock in the profits, and dump the risk right back onto the federal government — where it belonged.
My purpose is not to debate the morality of mortgage-backed securities but to update the Law of Unintended Consequences with the corollary Law of Misguided Subsidies: Whenever Washington disrupts a market by dumping subsidies into it, Wall Street will find a way to pocket a majority of the money while the intended subsidy beneficiaries are harmed by the resulting market turmoil.
Rogers also explains why so many “special Limited Liability Corporations (LLCs)” are getting into the solar power business — not the manufacturing side, but the retail side. The profit margins are obscene. If the government hadn’t set up the market to work this way with their subsidies, the profit margins would be much lower.