Book review: The Cult of the Presidency

My book review for The Cult of the Presidency, published in The Independent Review last year, is now online.

A love letter from a reader

J.H. Huebert, a brilliant writer, libertarian, attorney and friend, wrote this column showing that Glenn Beck is not now and never has been a libertarian (even though some people refer to him as such for some unfathomable reason).

A fellow named Leon Haller wrote in calling Huebert a "leftist plant" and a "fool," which is fun in itself, but this part piqued my interest for obvious reasons:

"You are a free market egalitarian, Huebert, and I'm going to show up at any Mises Institute event in which I know you're going to be a speaker (at least someday, when I can arrange matters properly), and I'm going to expose for the world just what leftists you and [Mises Institute founder Llewellyn] Rockwell et al really are. I knew Murray Rothbard, and he would be disheartened and DISGUSTED at the "Modals" like you which turncoat Rockwell has allowed into the formerly paleolibertarian fold. Shame on you, Lew, for selling out, and building the careers of pathetic leftist nobodies like this Huebert, McMaken, Anthony Gregory, that Kramer freak, and similar jackasses."

Wuh oh. I plan to be at the Institute in March. Maybe 'ol Leon will be there to "expose" my crypto-leftism to the world too! Meanwhile, I guess the shade of the late, magnificent Murray Rothbard will weep at our treachery.

Government owns 46 percent of foreclosed inventory

Cross posted at Mises Economics Blog

The latest data for the S&P/Case-Shiller Home Price Index were released today. The home price index for April is still down considerably from the July 2006 peak:

As of April 2010, average home prices across the United States are at similar levels to where they were in late summer/early autumn of 2003. From their peak in June/July of 2006 through the trough in April 2009, the 10-City Composite is down 33.5% and the 20-City Composite is down 32.6%. The peak-to-date figures through April 2010 are -30.5% and -30.0%, respectively.

To paraphrase Donald Rumsfeld from a different context, it is close to impossible now to deny that the housing markets are in for a long, hard slog. Well, the places that have hit bottom are in for a slog. Some places, such as Las Vegas, are still on their way down. Comparing year over year, Las Vegas home prices actually fell 8.5 percent. April of 2009 was a disastrous month for home prices, but Vegas is now below even that.

This all assumes an owner's perspective, of course. It's a nice buyers' market out there right now for some people.

This is April data, so it doesn't compare directly to the May data I commented on here a few days ago, but the data continues to drive home the fact that home prices simply aren't going to bounce back. Thanks to bad public policy and perennial but unwarranted bullishness about real estate, lenders assumed that prices were going to bounce back. Consequently, mortgage servicers and investors have been dragging their feet on approving short sales and the liquidation of foreclosed properties.

Nevertheless, the holders of REO properties (foreclosed properties returned to the bank) are going to have to do something with them sooner or later. And worse yet, almost half of those REOs are held by the government:

Based on Radar Logic’s analysis, the federal government’s REO inventory — including homes owned by Fannie Mae, Freddie Mac, HUD, and the Department of Veterans Affairs (VA) — has increased steadily for over 24 months and now accounts for approximately 46 percent of the nation’s total REO supply.

Looking at information from the GSEs and HUD, Radar Logic says the government currently owns 209,500 homes as a result of foreclosure, and the company estimates there could be an additional 9,560 homes held by the VA, for a total of 219,060 government-owned foreclosed homes.

This will create additional downward pressure on prices for the foreseeable future.

In a larger context, the protracted growth of non-performing loans will likely continue to have a deflationary effect as lender portfolios contract with the value of residential real estate.

Twilight of the Economists

by Ryan McMaken

Cross posted at LRC blog.

The economics profession is experiencing a crisis of legitimacy. Well, not the whole profession, just the mainstream neo-Keynesian part that comprises the majority of the professional economist corps. Austrian economics, on the other hand, is in a state of renaissance since the old Keynesian sloganeering obviously isn't working anymore.

So, in response, an economist who works for the Federal Reserve, Kartik Athreya whines that the economics bloggers are mean and are undermining the real economists with PhD's who sit around with their computer models and debate whether the government should tax everything at a rate of 40 percent or 50 percent.

In reality, this isn't a matter of PhD's, since many brilliant economists from Ludwig von Mises to Joseph Salerno have had PhD's or an equivalent degree. So what Athreya really means is that non-PhD'ed economists -who point out the Olympus-like heights to which the non-Austrians have reached in being wrong about almost everything- should just shut up.

The Screed Against The Bloggers should be recognized as its very own genre of non-fiction now. It is a genre first developed by professional journalists who couldn't stand the fact that they were being upstaged by more informative, balanced and interesting bloggers who were gaining readership at the expense of the "official" organs of public information. Now the economists have joined in the game, and it's just as unseemly.

It is also worth noting, that there is no true real distinction between an economist with a PhD and one without. The National Association of Business Economists is filled with professional economists who lack PhD's but who are paid, professional economists. Yes, the economists with PhD's perhaps make up the majority of the NABE rolls, but Athreya's claim that real economists have PhD's is an arbritary novelty invented by Athreya in an effort to perhaps make himself feel better about all those years spent writing for obscure scholarly journals that no one ever reads.

Tax Credit Pumps Up Latest Home-Buying Bubble

by Ryan McMaken
Cross posted at Mises Economics Blog

Existing home sales did not do as well as expected in May, while new home sales fared even worse.

Last week's new home sales data released by HUD and the Census Bureau revealed yet again the underlying weakness in the housing markets in the United States. New home sales, not to be confused with existing home sales, fell 32.7 percent from April to May. The negative month-over-month change was expected by many in the real estate industry, although most major media outlets called the drop "surprising." The drop surprised no one who was watching to see the response to the expiration of the home buyer tax credit in April.

So, while the April to May drop was expected, the year-over-year drop signaled a significant lack of demand for new housing. From May 2009 to May 2010, new home sales dropped 18.3 percent. This is especially noteworthy since May 2009 was near the bottom of the market following the financial panic of late 2008.

One would be tempted to think that there was no where to go but up when comparing real estate trends to the first half of 2009, but the 18 percent drop put an end to that hope.

Existing home sales fared better. According to data released last week by the National Association of Realtors, existing home sales were up 2.2 percent from April to May and increased 19.2 percent from May 2009 to May 2010. The year-over-year increase from the doldrums of May 2009 was correctly anticipated.

Now, the lackluster performance of home sales in the absence of the homebuyer tax credit has spurred talk of extending the tax credit yet again. Staff at Moody's Economy.com admits that the proponents of the tax credit had miscalculated how the tax credit would stimulate home buying.

Some supporters had "expected the tax credit to pique buyer interest in a manner that would carry over for months following the credit's expiration." How exactly this was supposed to happen remains a mystery. Real estate agents who work daily with buyers knew that the tax credit was merely cannibalizing buyers from later in the year. In other words, people who were planning to buy in, say, August, moved up their plans to take advantage of the tax credit. There has been very little evidence that the tax credit created any significant number of buyers who hadn't otherwise been considering a home purchase.

Now, with many of the summer's buyers electing to purchase before the end of April instead, the summer is looking to be particularly grim for home purchasing.

The latest real estate bubble isn't much of an argument in favor of a tax credit with the sole purpose of increasing spending on residential real estate. All things being equal, tax credits are good because they mean more control can be exercised by the taxpayer over his or her wealth. However, a tax credit that exists only to convince people to spend more money faster is problematic.

The answer is not to end tax credits, but to make them far more broad. Why do renters not deserve tax credits? And why must one buy a house to get a tax credit? If the Keynesians in government want to really increase spending, shouldn't they just give everyone an $8,000 tax credit? Or they could cut tax rates.

Policymakers won't do this, however, because they fear that people would use such an open-ended tax credit or reduction to save money or pay off debt, which is totally unacceptable for the Paul Krugmans of the world.

Politics explains a lot in this case also since renters simply don't enjoy a powerful lobby as do the real estate agents, mortgage brokers and home builders. Thus, tax "breaks" are written to subsidize a single industry rather than provide relief for the taxpaying population overall.

Even if the tax credit were extended again, it would not produce any income growth or job growth any more than did the last extension of the credit. Without job creation and income growth, there will not be any sustainable increases in demand for home buying. Despite many claims to the contrary, demand for real estate will improve when the economy produces jobs and income growth, and not the other way around.

The need for actual job growth will especially be seen among younger home buyers, or lack thereof. One of the ways that the home buying bubble was sustained during the last decade was to make home purchasing available to younger and younger segments of the population. Job creation during the bubble allowed for wildly optimistic estimates of future job prospects and earning power for twenty-something who then looked to homebuying as the next logical step. Combined with incredibly low requirements for down payments and credit histories, 25-year-olds were buying up houses.

Today, with unemployment among twenty-somethings at 25 percent, and with income growth near zero, there is nowhere from where to draw new households looking to buy houses. The tax credit can be extended, but like so many of the "stimulus" efforts that have been used in the last two years, this one may have run out of steam.

Personal Income Rises With Government Spending

by Ryan McMaken

Cross posted at Mises Economics Blog.

Personal income information released this week by the Bureau of Economic Analysis shows total personal income increasing 0.4 percent, or $54 billion, from April to May 2010. Year over year, personal income is up 1.6 percent, or $191 billion. In spite of recent growth, total personal income is still down $24.4 billion, or 0.2 percent, from the peak reached during May of 2008.

In short, personal income has gone nowhere over the last two years as it plummeted $479 billion, or 3.9 percent, from May 2008's peak to March 2009's nadir. It has generally increased each month since.



Now that personal income has nearly recovered to where it was during the peak time, it is important to look at where the income has come from.

Job creation has been extremely weak since 2008. More than 7 million jobs have been lost, and as new high school and college grads have entered the work force, there simply haven't been enough jobs to provide for growth in the work force. Hence, unemployment hovers near 10 percent, and job creation in the private sector is essentially zero.

So, how is it that income growth has recovered? The answer lies in what is included in the income numbers. Total personal income statistics include wages earned, whether from public-sector or private-sector jobs, and will also include wages from government-funded stimulus jobs such as highway construction and other similar projects.

But more important for our analysis here is the fact that personal income totals also include "personal current transfer receipts" which include "benefits received by persons for which no current services are performed." Such benefits show up as personal income in the form of Medicare, food stamps, unemployment compensation, public assistance and a variety of other forms of income.

While personal income peaked in 2008, then crashed and slowly recovered, income in the form of transfer receipts have only increased. At the same time that personal income fell 0.2 percent from May 2008 to May 2010, personal current transfer receipts increased 12.2 percent. During those two years, as personal income saw a net decrease of 24.4 billion, transfer receipts increased 244.3 billion.



Indeed, a look at the last ten years shows that transfer receipts increased far more, both in absolute terms and in percentage increases, during the last two years than during any previous economic downturn dating back at least to 1959. (Although, there are almost certainly would have been very large increases in transfer receipts had they been measured during the New Deal.)

Today, the Dow rallied on news that personal income had grown faster than spending and that households were beginning to save more. This would be excellent news if this income had been produced by increases in wealth and income in the private sector, but unfortunately, increased personal income, while not totally due to public sector spending, has been largely buoyed by public sector spending, and has been a very significant portion of the growth in income that is now being trumpeted as proof that the recovery is taking hold.

However, as long as income growth is largely dependent on public-sector spending, growth is just a matter of income being redistributed from net tax payers to tax receivers, which is largely why personal income continues to improve in spite of only very small gains in private-sector employment. Ultimately, however, economic "growth" that is driven by mere transfer payments, cannot be growth founded any any true creation of wealth.

Free Sholom Rubashkin!

Bill Anderson has an excellent piece on this case today:

This week, Sholom Rubashkin, who was the vice-president of what was once the largest kosher meat processing supplier in the world, was sentenced to 27 years federal prison for "financial fraud." Prosecutors had asked for 25 years, and this is essentially a life sentence for Rubashkin, who is 51. However, a lot of other people, including a number of former U.S. attorneys general, called for leniency and are outraged by this sentence that was motivated more by politics and not by the law.

I will go against all of them. Sholom Rubashkin, in my view, does not need "leniency." He needs to be freed, period, for the man is not a criminal, which is more than I can say for the people who hounded and prosecuted him and destroyed his business, Glatt kosher Agriprocessors of Postville, Iowa. Let me begin.

Rubashkin is a Hasidic Jew, his family having fled the U.S.S.R. after the Nazi invasion. They came to the United States and set up a butcher shop in New York City. After marriage in 1989, he and his new bride moved to Atlanta on shlihut to do kiruv (Jewish outreach). That same year, Rubashkin’s father started a kosher meat processing business in Postville to better enable Jews living outside of main Jewish centers to be able to obtain kosher meat.

Before Glatt kosher Agriprocessors began to expand its business, Jewish families could only purchase kosher meat from small butchers and specialty stores that catered to Jews. This made things more difficult for Jewish families who did not leave near these kinds of stores, but by expanding the amount of kosher meat for sale, the firm was able to bring kosher meat to regular grocery stores, which was not a small development for jewish families.

Read more.

More economic pain ahead

From my post at Libertarianstandard.com:

In the chart below, provided by chartoftheday.com, one can see how grim the job situation has become. The long term-trend experienced since 1961 has been abandoned for what can only be described as stagnation in job creation. As jobs remain flat, of course, the size of the job force will continue to grow as more young people graduate from college and secondary school. This is partly why unemployment among teens and twentysomethings is now about 25 percent.



According to chartoftheday.com:

Today, the Labor Department reported that nonfarm payrolls increased by 431,000 in May. It is worth noting that a large majority of last month's gain in payrolls was due to the hiring of temporary workers for the 2010 census. Today's chart provides some perspective on the US job market. Note how the number of jobs steadily increased from 1961 to 2001 (top chart). During the last economic recovery, however, job growth was unable to get back up to its long-term trend (first time since 1961). More recently, nonfarm payrolls have pulled away from its 40-year trend (1961-2001) by a record percentage (bottom chart). In fact, the number of US jobs is currently at level first reached in early 2000.

So far, the current "recovery" has produced a net loss of 133,000 jobs. During the same point in the last recovery (2003), the economy was adding 200,000 to 300,000 jobs per month. Calling the current situation a recovery is risible to anyone who is out looking for a job right now, especially since workers are now experiencing the longest periods of joblessness experienced in decades.

We can add to this the fact that the debt crisis in Europe has now spread to Hungary. So now, Greece, Portugal, Ireland, Italy, Spain and Hungary are all now facing serious debt crises and even risk of default. The European economy is in disarray, and investors were not pleased as the Dow plunged more than 300 points to below 10,000.

The homebuyer tax credits are gone, the stimulus is beginning to wear off, and there is nothing left that the feds can do to stave off another crisis since interest rates are already effectively zero and the federal government is more more broke than ever. State and local governments are in even worse shape.

Needless to say, this does not bode well for the "recovery."