Source link: http://archive.mises.org/13711/see-if-you-can-spot-the-glorious-stimulus/
See if you can spot the glorious stimulus
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The Ludwig von Mises Institute
Tu Ne Cede Malis
Advancing the Scholarship of Liberty in the Tradition of the Austrian School
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funny because christina romer left the white house not too long ago
An easy interpretation is Gingrich Pelosi – big rise while Republicans controlled the House – big drop after the Democrats took it back.
However, is home ownership a good thing for everyone?
“is home ownership a good thing for everyone?”
this question kills me.
so who gets the rent?
so who deserves to live like a serf the rest of their days working to payoff someone else’s property? just because they aren’t plowing the fields does not mean the analogy is not apropos.
because the ‘we will use houses as investments’ crowd has driven the price through the roof everyone is blaming average americans for owning homes. like it is our fault we want to live the damn dream that politicians keep claiming draws people to our shores.
“Is home ownership a good thing for everyone?”
The answer is apparently “No”. At least, that’s what a lot of people effectively answered for themselves when they walked out on mortgages that they could not afford. Of course, they would answer otherwise if they did not have to pay for their own housing, but why should the rest of us have to pay for other peoples’ housing?
“Is home ownership a good thing for everyone?”
“The answer is apparently “No”. At least, that’s what a lot of people effectively answered for themselves when they walked out on mortgages that they could not afford.”
We’re talking two distinct groups of people here, Russ. The one group “walked out” on their mortgages because they were under water. There was less sense paying good money into negative equity than there was in quitting while they were behind, to just pay rent for a couple of years.
The other group, those who could not afford their mortgages when they reset at much higher rates, didn’t “walk out”. The sheriff evicted them, or they left just ahead of his arrival.
“Of course, they would answer otherwise if they did not have to pay for their own housing, but why should the rest of us have to pay for other peoples’ housing?”
A question: how do you “have to pay” for someone else’s housing?
“We’re talking two distinct groups of people here, Russ. The one group “walked out” on their mortgages because they were under water. There was less sense paying good money into negative equity than there was in quitting while they were behind, to just pay rent for a couple of years.
The other group, those who could not afford their mortgages when they reset at much higher rates, didn’t “walk out”. The sheriff evicted them, or they left just ahead of his arrival.”
There is also the large group of people who bought rental properties for little or nothing down at IO and negative amortization rates, and then walked away when the equity went negative and the mortgage payments reset to levels way above the rent they were collecting. The renters were then forced to leave.
All hail the multiplier effect.
If a statist hack sees that graph, they’ll say something to the effect that the stimulus wasn’t big enough.
No, actually they’d notice that this latest bubble was far bigger than any that had preceded it. So it would probably be succeeded by a deeper trough– one that would take longer to clear.
That should satisfy you, Cortez, that’s straight from the mouth of the biggest hack that’s ever stayed around here.
I’ve got it. It is the second little bump right on top of 2010 that suddenly drops off when it ended.
Boy are we lucky to have a Federal Reserve who will help with liquidity and a government who gives incentives to move expenditures into the future without any regard of what will happen when the future becomes the present.
Obviously, the stimulus resulted not in housing recovery, but in flat-screen sales, benefiting the CHINESE economy, as per Dave Barry.
Gorging On Keynesian Stimulus Causes Depression!
The big fat gray line is not big enough or fat enough! Gorging during the Keynesian “free the politicians from all economic reality” period lead to a big, fat gray (shaded) line but the data center at the Federal Reserve does not want to be politically incorrect and call the economy grossly overweight! They talk about the dainty double dip recession instead of the gargantuan depression blob.
Now we have Bernanke putting on his pilot glasses and buckling himself into his helicopter. To get a tiny blip in GDP the helicopter is going to need to be packed so densely that the poor dopey Bernanke will not be able to get it off the ground!
Wait, wait, the chart is upside-down.
Part of the problem is that, in California and Florida, there are thousands of new houses standing empty. Many are owned by banks who took them back from the builder. You can offer the bank a fair market price but they will not take it. They would then have to mark the other units to market and book a loss. So they carry the units on the books at book value, waiting for prices to go back up (… to the bubble level). The FED obliges by proving essentially 0% financing so that the “extend and pretend” charade can continue.
Throughout the Florida Keys one can see massive examples of Austrian “malinvestment.” There are hundreds of condo units not only empty but NEVER occupied. Brand new buildings sitting there rotting because they couldn’t be sold. Think of all the capital tied up in those buildings – the skilled labor, wasted, – the energy, wasted – the lumber, concrete, plumbing and electrical supplies, all wasted.
Wonder why the economy can’t recover? There it is. Too much capital tied up in projects that will never turn a profit, no real capital left to grow the economy. Sure there’s lots of MONEY around, but no real capital goods for the money to buy. The real capital is sitting there rotting.
Michael, a question. I agree, immense amounts of capital were wasted in overbuilding at the height of the bubble. But how would austrian economics have prevented that?
Leave developers to their own devices in a free market, and they’ll jump on every bandwagon that offers a return. When overpriced homes are going fast due to low interest rates, and rates are low due to increased volume, they’ll overbuild on spec until something collapses, leaving them with their latest stack of homes unsold and unoccupied. That’s in the natural order of things. It’s the way the business operates all over the planet, anywhere there’s an abundance of investment capital looking to get placed in real estate.
How would the austrians cure this business cycle? Would they try to prevent low interest rates?
michael,
Austrians would try to prevent artificially low interest rates. Higher or lower interest rates are not themselves harmful, and in fact they convey important information to investors about consumers’ time preference. If interest rates fall because people change their time preference and start saving more, then increased investment in housing, cars, and other capital-intensive lines of production would be the appropriate business reaction.
However, if interest rates are pushed below their natural level by a monetary expansion, then investors see the lower interest rate as an indication that consumers want more goods further in the future, when in fact consumers are actually spending more now and saving less, which increases prices for consumer goods. Thus, investors are sent conflicting signals–one saying that consumers are saving more, another saying that consumers are spending more. These conflicting signals lead to a discoordination in the production process as investors put resources into certain lines of production, but without sufficient investment in and production of other higher order goods necessary for their completion. A good example of this is near the height of the tech bubble, there was a report that there was enough fiber-optic cable to stretch from the Earth to the Moon and back several times. There was no way that all of this cable could have been utilized because the complementary factors of production did not exist. The bust comes when investors realize that they can’t finish their projects and have to reorganize their production processes.
Thinker: You’ve provided one of the rare good answers here. Please contribute more.
Throwing pearls before swine *is* a fairly rare and always worthless thing.
Reminds me of another scripture about Michael:
“And there was one herd of many swine feeding on this
mountain; and they besought him that he would suffer them to enter into them. And he suffered them.
“Then went the devils out of the man and entered into
the swine; and the herd ran violently down a steep place into the lake and were choked.
“When they that fed them saw what was done, they fled,
and went and told it in the city and in the country.
“Then they went out to see what was done; and came to
Jesus and found the man, out of whom the devils were departed, sitting at the feet of Jesus, clothed and in his right mind; and they were afraid.”
Luke, ch. viii. 32-37.
You should take Bob Murphy’s ABCT class next time he offers it.
The Austrian solution would be to get rid of the Fed – most problems are caused by the Fed, or the Central Government in general, distorting interest rates and providing distorted incentives. Also in what we are discussing here, the tax code provides distorted incentives for home ownership (mortgage interest deductions and capital gains exemptions). The Austrian solution to the problem would be for the Fed and the Federal Government to get out of the way, and let the market clean up the mess. If GAAP accounting standards were applied to the Fed and the Federal Government, they would both be insolvent.
Walt, you’re obviously familiar with the situation, here:
“Part of the problem is that, in California and Florida, there are thousands of new houses standing empty. Many are owned by banks who took them back from the builder. You can offer the bank a fair market price but they will not take it. They would then have to mark the other units to market and book a loss. So they carry the units on the books at book value, waiting for prices to go back up (… to the bubble level). The FED obliges by proving essentially 0% financing so that the “extend and pretend” charade can continue.”
And I agree, it’s preferential to allow mortgage interest to be deductible. Instead, ALL interest should be deductible. And capital gains, being essentially the same as any other income, should come under the same rules and rates as ordinary earned income. These are all stipulations that have been inserted into the tax code to prefer some persons over other persons.
As for forcing the Fed to hold a going out of business sale, I doubt the wisdom of it. Elsewhere I’ve referred to the consequence of driving our previous central bank out of business, the Second Bank of the US. What we got was the Panic of 1837, an entirely predictable (and grave) crisis of liquidity. And that one took five full years to work itself out.
“As one of its results the banking system of the country suffered a general collapse. Out of eight hundred and fifty banks, three hundred and forty-three closed entirely, sixty-two failed partially ,and the system of State banks received a shock from which it never fully recovered.”
http://www.publicbookshelf.com/public_html/The_Great_Republic_By_the_Master_Historians_Vol_III/thepanic_ce.html
If you also get rid of FDIC, that’s not going to be a popular move.
“…it’s preferential to allow mortgage interest to be deductible. Instead, ALL interest should be deductible.”
Or they could just get rid of the mark-to-market accounting rule.
See that tiny little bump on the tail end of the graph?
If we only made the stimulus bigger we could have had that bump bigger too! Just make it big enough and make the injections indefinite and we’ll have prosperity forever!
There’s over 70 million owner occupied homes in the US. Assuming that we often share these homes with a spouse and one or more kids, 307 million people aren’t going to need more houses.
This graph is too easy.
The dip around 1970 was Republican Nixon’s fault.
1976 to 1979 was the early success of Democrat Carter’s integrity in government.
1979 to 1980 was simply due to American dismay of the Iranian hostage crisis and the expectation of disaster under impending Republican Reagan.
1980 to 1982 was the abysmal failure of Republican Reagan.
1983 to 1988 was faux Republican prosperity due to deficit spending.
1988 to 1990 shows the failure of Republican Bush Sr. policies.
1990 to 1991 was faux Republican Bush Sr. prosperity due to Desert Storm.
1991 to 1992 was the ulimate failure of Republican Bush Sr.
1992 to 2000 shows the success of Democrat Clinton’s peace and prosperity.
2000 to 2006 was faux Republican Bush Jr. prosperity due only to deficit spending.
2006 to 2008 shows the ultimate failure of Republican Bush Jr. policies.
2008 to 2010 shows how bad the Bush Jr. mess was, which poor Democrat Obama inherited.
If you’re a Republican, not to worry. Simply swap a few adjectives and nudge the dates a bit; and you’ll be ready to defend yourself with the same rubbish, maybe even get a 60-second guest wrestling appearance on one of the heave-your-hypocrisy CNN or FOX pad-your-resume “news” programs.
Then hook arms with your opponent du jour, post broadcast, walk a few blocks to 21 in New York or Old Ebbitts if you’re in DC, and banter over the bartender’s latest concoction.
Sort of like the old _Mad Magazine_ “Spy vs. Spy” comics.
Just another day in the life.
CEO’s are telling the public that they can’t hire because demand is so soft, the middle class is just not consuming like they used to. Companies are sitting on piles of cash but refuse to invest in innovation because demand is so poor these days. So, in perfect Hayekian tradition, Wall Street creates Ponzi Schemes because there isn’t any good place to invest in products or services in America, and the Ponzi schemes create bubbles which pop and cause more economic distress.
I know this is tough for those with extreme faith in supply side economics, but there is another part of the equation necessary for economic growth, demand. If people have no money, and all the investment money is tied up in clever derivative schemes that produce nothing other than more money on paper, then the economy will continue its downward spiral. We have to face facts that Big Business runs this country and they prevent and will always prevent real capitalism from taking place. Big Business always seeks to eliminate competition, but competition is the foundation of capitalism.
What is the type of government where the government controls means of production? Socialism? So, when Big Business runs the USA, and they control the means of production, does that make the US a socialist nation? Redistribute wealth from the middle class to the rich and well connected by any means necessary, no bid contracts for the Islamic based company Halliburton, pharmcos forcing the US citizens to pay the highest price in the world for medicine using the lame old, “Its for your Protection”, excuse. Exxon gets oil on federal lands, We the People’s oil, for free, and then they sell it back to us at market rates. Is that capitalism? Exxon taking our oil for free and selling it back to us at the same price the Saudi’s sell us oil? Now that Business fully runs this country, with an occassional bone thrown to the peasants to shut them up, our nation is going to hell in a 747. Business should not be in the business of governing, and government should not be in the business of business. The last thing we need is Exxon conducting the Central Planning for we serfs. I remember hearing Palin publicly praying for 30 BILLION in pork to build a pipeline, because God forbid energy companies pay for their own capital projects when they are making more profits than at any time in history. The marriage of God, Big Business and Central Planning pretty much sums up the US Government.
Huh?
You’ve left Richie speechless, Bill. Apparently no one here has figured out that Big Government is being run by Big Business, for its own benefit.
Actually, Michael, I thought I stumbled upon a leftist blog that keeps spouting off unoriginal posts like Bill’s. And yours.
My mistake, Richie, I should have remembered. Big Government is the bad guys. They all wear black hats. Big Business is the good guys. They wear the white hats, and have to suffer the pangs of an onerous government giving them unearned money.
If some people here are a little one-sided, it’s only because they are reacting to the opposing one-sidedness of the media, and of people like yourself. You see greedy capitalists as the cause of all problems, and the government as the answer to all problems.
Greedy capitalists are not the cause of all our problems, Russ. Most of those problems are caused by ineffectual people who don’t stand up for their rights. People afraid of consequences.
And I suppose we should be happy that is the case. When people become so dissatisfied they think they have nothing more to lose, they rise up and tear all the capitalists limb from limb. Then you get some stupid thing like the dictatorship of the proletariat. A wise capitalist would still be greedy, but also a little bit smart. And he’d let the occasional penny drop out of his pocket.
BTW please do not tell me I think government is the answer to all our problems. In so many ways it is at the nexus of them. To paint me as a simple thinker is to do me an injustice.
Corporate welfare is still welfare, so yes, it’s still socialism.
Or, to be even more explicit, it’s a system whereby the costs are socialised… whereas the gains are privatised.
“Apparently no one here has figured out that Big Government is being run by Big Business, for its own benefit…. it’s a system whereby the costs are socialised… whereas the gains are privatised.”
http://www.youtube.com/watch?v=XZxzJGgox_E
All of the costs of wealth redistribution are eventually paid by individuals. There is no such thing as “socialized costs”. And thus, all wealth redistribution, whether “social” welfare or corporate welfare, is theft.
Right on Russ! From Sy Akhplart
To paraphrase Margaret Thacher, “the problem with socialism is that sooner or later you run out of other people’s wealth to redistribute”. If you want to see how badly socialism is at generating wealth on its own, remember Milton Friedman’s example – when South Africa was still under apartheid, there were more blacks who owned cars than citizens of the old Soviet Union who owned cars.
What’s amazing is how the Left keeps spouting that more government is the solution. You’d think they could put 2 and 2 together.
They do htran, they just come with 5. It’s the multiplier.
Bill, I think you may have this site mixed up with a Glen Beck or Rush Limbaugh site. Please check the url and title of the site and maybe read a few of the articles and comments. You will find few, if any Republicans in favor of the corporate state here.
The problem in our market in unrealistic expectations from buyers. Our prices have remained stable through most of this, but buyers watch too much news. They think they are supposed to get homes for 50% off like some other markets. Our prices weren’t high to begin with and when the market adjusted, we didn’t feel it as bad. What happened to buyers and sellers controlling the market and not the news media and government. Huntsville Homes
Mr. Homes,
The best evidence that house prices are still being pushed artificially high is all the piles of empty houses lying around not getting bought.
Houses would be a dime a dozen right now if not for further interference by the same people who tried to make buying a house “affordable.”
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