28 September 2010

The Land of Stupid People

I've lived in Boston, which is to say anywhere from the Habah to Route 128 (or may be 495 these days) a few times over the years.  One time was for a software company in Lexington.  One of my colleagues was Phil, who lived in Brockton.  The commute was not fun, but when he was in the mood buy a house (some years before then) interest rates were sky high.  In the event he ended up in Brockton.  We all have stock phrases we inject into both writing and conversation; one of Phil's favorites was his reference to Brockton:  "The land of Stupid People". 

Such was the widely held view by most folks, not just Phil.  Brockton was in the abandoned inner city, former manufacturing, desolatevilles class of city.  Newark, Detroit, and such.

Until today.

Here's the link to a Times story that demonstrates a number of factoids.  Here they are:
- as Napoleon is reputed to have said, "there are no bad soldiers, only bad generals"
- organizational failure, despite the blathering of Right Wingnuts, is caused by incompetent management, not workers
- the problem with education is The Teacher's Union
- small schools are the answer

That's a lot of factoids.  The story makes clear that the solution to the education problem, and we're talking here about a 4,100 student inner city high school, came not from management, but worker bees.  To its credit, management didn't stonewall.  To its credit, the union didn't either.  The impetus came from an informal (in the beginning) group of (as I read the story) *experienced* teachers.  I stress the experienced, because the Wifey at one time decided that she would be a teacher as a career change.  She went through the process, but became one of the majority of new teacher who leave rather than hang around for the cushy retirement (that's sarcasm, it isn't).

The main reason she left was that management set off on an explicit policy of shunting aside any teacher with experience, in favor of young girly girls.  They "relate" better to the students.  Yeah, right.  A good tight ass always helped me concentrate on calculus.  I know that sounds outrageous, but that's what happened.  Brockton lucked out; it still has experienced teachers who care about students and teaching.

The group developed teaching methods which are known to work by anyone who's over 40.  These methods were not the curriculum jujubees from consultants and central office.  It was clearheaded thought.

27 September 2010

Barnes is Ignoble

So, I went into my local Barnes & Noble, here in right wingnut Connecticut, to have a look at Charlie Pierce's "Idiot America".  For those not in the know, Charlie is a regular on NPR's "Wait, Wait, Don't Tell Me" (which no one should miss:  it's generally on late morning Saturday and, someplaces, Sunday), and his intro mentions the book.  I'd been meaning to have a look, but hadn't got around to it until yesterday.


Not only didn't they have it in stock, THEY'RE NOT PERMITTED TO STOCK IT.  Three walls of right wing religiosity and another two of Obama bashing.  But not allowed to stock "Idiot America". 

Boycott Barnes & Noble.  They're just another Right Wingnut fascist corporation.  Enough is enough.  If the only books idiots get to read are lying idiocy, they'll surely believe it.  No child left behind, my ass.

17 September 2010

Dee Feat is in Dee Flation, Part 4

The CPI numbers just came out.  Ready?  Overall up .3%.  Core (excludes energy and food) was FLAT.  Not explicit Dee Flation, but on the razor's edge.  The Right Wingnuts will, of course, say that InFlation is looming because the gross CPI was up a smidge, but they're lying, of course; they always do. 

Core represents demand pull InFlation, a rise in prices NOT connected to either intrinsic cost increase (that's energy, which is oligopoly pricing and necessary given the structure of the society, and food, which is necessary and largely inelastic demand) or wage push.  Not surprisingly, median income is not moving, either, so there's no wage push in the equation.  Core prices (ex. energy/food) go up when demand pull is in effect; that is, when the masses have more money to spend on some fixed amount of goods and services (not these days, me hearties).  In the case of energy, well, there is that monopoly thing going on.  With food, supply is a function of weather and the cost of fuel and fertilizer.  Note that those last two are driven by our friend energy. 

So, the Right Wingnuts are still wrong.  They can't quite get us into a Japanese DeFlationary spiral with their ludicrous propaganda (although there are enough inbred knuckleheads in Delaware these days; who knew?).  Yet.  Stupid people are easy to flummox, especially if you can spin your evil through the Bible and the Second Amendment.  The Fatmen in Famine scenario is just what the Right Wingnuts want.  Think, Goldfinger; he would make his stockpile of gold more valuable by destroying the US's stockpile.  Same thing here:  drive down overall prices by 1%, and your monetary holdings instantly gain 1% in value, WITHOUT YOUR DOING ANYTHING USEFUL.  Such a deal.

15 September 2010

Don't be a Stooge

Don't shoot yourself in the foot.  Yet another news piece discussing the housing market, interest rates, and bankers urging folks to take advantage of really low interest rates.  Really low interest rates don't help you.  The total package (house price and interest) is fixed to median income; when one goes up, the other goes down. 

The gloriousness of your house is determined by your income, and that of your townsfolk.  If, in the next five or ten years, median income rises in your town, so will house prices (interest rates unchanged) and you'll make a killing.  If not, then house prices will bounce around the value they have today; unless, of course, median income continues to fall and/or interest rates rise.  If you're old enough, or can find folks who are, remember what happened to folks who bought houses in the late 1970's.  Interest rates where very high, prices were very low, and as interest rates fell, prices rose.  All that unearned capital gain fell into their laps.

Never forget the Prime Directive:  the bankers/builders/sellers intend to suck up the entirety permitted mortgage payment, and they trade principal (the house price; to the builder/seller) for interest (to the bankster).  There's nothing you can do about that.  They can, and will, and do, take every last morsel.

13 September 2010

Mea Culpa

A few posts back I made reference to Recursive Economics(tm) as a term of art, invented by me.  Alas, out of curiosity, I let my fingers do the searching, and it turns out that the term has existed in economics curricula since, at least, the late 1980's.  The use appears to be somewhat different from the notion I was attempting to propose.  But the term isn't mine.

Here is a syllabus I found which provides a readable (that is, without the maths) description of what the economics profession means by Recursive Economics.  I may read one the the texts mentioned to see whether there's much overlap, but I doubt it.  Reading reviews of some of these texts on Amazon, I saw that many allowed as how there was copious use of semi-advanced maths (from the point of view of a math Ph.D) in a naive way, but little economics insight.  Once again, the reason I abandon the field.

09 September 2010

Split the Baby in Half

David Leonhardt's article in yesterday's NY Times made my little heart go pit-a-pat.  I commend it to you.  He fleshes out my argument about housing prices with a lot of data and interviews.  He doesn't quite get the point, but comes closer than I've read from the Mainstream Pundit Brigade.  Do, I suppose, to almost getting it, I was moved to email him, and lay out my argument.  It ended up being two, since I forgot an important bit the first time.  I've edited them together here for simplicity.

Yes, I do read the Times, and thus you, each day.  I find your writing less fawning toward Business than most of your business section colleagues (that may be insult or compliment), thus I saw the headline, and dove in, sure that there would be insights that I haven't found elsewhere.

And there were, but I had to wait to nearly the last graph to find the nugget which explains the whole Great Recession:  it's about median income.

My degrees are in economics (the 1970's), and I learned early on that there are few absolutes in economies (or life, as well); intelligence and income particularly.  When housing prices began diverting from the historical ratio with median income (about 2003), I knew something was up (or corrupt).  I didn't have any public outlet as I do now, but the motivation and consequences were clear.

The motivation:  by regulation and prudent lending practice, *monthly mortgage payment* is effectively fixed as a percentage of median income.  It may fluctuate a bit from time to time and place to place, but not by amounts sufficient to justify housing price appreciation seen from 2001 on.  The only way such prices could be supported is if the lenders (turns out to be mortgage companies, principally) were fiddling the contracts.  Median income, as you know and have written, has been stagnant (more or less) for decades.  Housing is, strictly speaking, a capital expenditure.  I, and others more prominent, have written that housing as real physical investment is an oxymoron, but that is another column.

Quel fromage!!!!  The contracts were fiddled.  Incomes couldn't possibly support the prices.  I've long concluded, but haven't dug through the data, that the only winners in all of this were the Pulte's and Toll's; or at least the CEO's and others gifted with options.

The consequences:  a Great Recession.  It was also clear (being a saltwater economist) that the only thing holding up the economy during Bush II was home equity loans; folks were burning unearned appreciation on consumption.  They certainly weren't garnering higher incomes; well except the top 1 or 2 percenters (II's friends).

I just hoped that your article, as well as your interviewees, would have pursued the relationship between median income and expenditures.  For pure consumption, it's more difficult to say what will be a winner or a loser in the short term, but for housing it's a wash, unless the numbers are fiddled.

I also question the quality of data which contradicts an inverse correlation between interest rates and housing prices.  The problem is the confounding with the fiddling we've been experiencing.  Builders and bankers aren't stupid, though they be sly.  SMSA income data has been available for decades, and the B & B's can easily determine (within whatever margin of error they're willing to pay for) the median mortgage payment that can be supported.  Said mortgage payment is divided between the B and the B; as interest rates fall, house prices will rise to consume the full mortgage payment available.  Conversely, when interest rates rise, housing prices have to fall; there is only so much mortgage payment to be had.  While an undergraduate, 1970, one of my economics professors had a consulting gig with a local/regional bank in western Massachusetts.  Using the SMSA data, he developed an analysis engine he called Shift and Share Analysis.  It was used for just this purpose.

Later in the 1970's I lived in the Boston area, and folks were buying houses at rates above 10%.  Those are the folks who made out very well indeed.  Now is the absolute wrong time to sign a mortgage.  Interest rates can only go up, and unless median income rises (won't happen unless the Democrats hold government for at least three Presidential terms), prices must fall.

03 September 2010

Let Them Eat Cake

It really is the distribution, stupid.

I started this endeavor when I discovered, not caring a fig earlier, that one could blog without having one's own web site and server to match.  Who knew that Blogger, WordPress, Open Salon, and the like existed?  As the Great Recession deepened, I found more and more to write about.

I began professional life as an economist, and not the sort I would have liked; working, if even menially, at Brookings.  Eventually, I segued into statistics and computers, and did OK, until the Great Recession, as for so many others.  I keep an eye out for those in the Profession who write the facts.  They often do so for The NY Times, an assumed to be Liberal Media, and if so, about the only one.  Well, not counting "Mother Jones".

Today's installment comes courtesy of Robert Reich, Clinton Labour Secretary.  Read the whole piece, if you would.  What follows are a few quotes for those who don't.

[C]onsumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven't kept up with what the growing economy could and should have been able to provide them.

The median male worker earns less today, adjusted for inflation, than he did 30 years ago.

When American families couldn't squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless - as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.

The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation's total income; by 2007, the top 1 percent took in 23.5 percent of total income.

All points I have been making in the course of this endeavor.  Reich, in the balance of the piece, has some prescriptions.  He also, I feel, has missed out a key sociological component.  So far as I recall, this insight is mine alone; which is unfortunate, in that I lack the visibility of Reich, Clinton, or Obama.  The growth, and its shared nature, during the 1950's and 1960's (ending in 1973 with the first oil embargo) was due mostly to a residual Socialism engendered by the shared sacrifice of World War II.  For about 20 years, or about a generation, Americans as a whole understood and accepted the notion "that we're all in this together".  Thus, a truly progressive tax system was accepted as necessary.  The forced inclusion of Civil Rights, the divisiveness of Vietnam, and the evil of Republicans put an end to that. 

Stupid white folks have been looking to blame Others ever since.  And they'll keep on doing that until they start a real civil war, again.

Mad Men

And in today's news, a drug company factoid of which I was unaware:

In 2009, companies spent a vast $4.8 billion to reach out to consumers in the United States -- the only country besides New Zealand that allows direct-to-consumer advertising -- up from nearly $4.7 billion the year before, according to tracking firm Kantar Media.

I'm not sure why we stand (or grovel) alone with a meaningless(!) country like New Zealand, but there you are.  In the rest of the civilized world, pharma has to convince doctors that it's stuff actually works.  Of course, they've been caught fiddling there, too.  Fact is, I've always wondered why pharma spends the money.  Do they really think that Dr. Welby will prescribe some Love Potion Number 9 just because Fred Flintstone has been brain washed into craving it??  May be it works.  Which is worse:  the waste of money on such adverts if they don't work, or the waste of money and perversion of prescribing if they do????

01 September 2010

Beautiful Bermuda

Another letter from (well, to) Bermuda.  A letter writer there, anonymously, wrote to blame the island's economic woes on the wage earning work force.  Some other writers then chimed in.  I've no way of knowing what the balance of writers was, only what the Editor chose to print.  So, I was moved to offer a volley.  Which is below.

Neither "neither a construction worker or a lawyer" nor the various letter writers (well, those you've decided to print) understand the sources of inflation.  Inflation exists over time (the usual way people think of it), but also from place to place.  Here in the US, the metro Washington, DC area costs more to live in to a non-trivial level than the national average.  Places in Appalachia, less.

Bermuda's cost of living is not a function of wages paid to blue collar (a US term) non-skilled and skilled workers.

The three drivers of inflation are:  cost push, wage push, and demand pull.

Cost push:  when the cost of goods on the market rise without regard to local wages or monetary policy; petrol is a prime example.

Wage push:  when cost of goods on the market rise due to wage growth beyond productivity growth; allegedly happened in the US in the 1960's.

Demand pull:  when prices of goods on the market rise due to increase of cash available to buyers, generally attributed to machinations by the nation's monetary authority, but only when the cash is distributed to the consuming public (the recent bailout monies distributed in the US went to financial institutions, which goes some way to explaining why the bailout was not only not inflationary, but with increasing obviousness, deflationary).

So, where does Bermuda fall among the three?  From my stay, it is clearly cost push.  The islands are essentially uninhabitable from local sustenance.  Wages to workers simply reflect the cost of stocking goods.  Reducing their wages to that of, say a sharecropper in Alabama, won't reduce the cost of living in Bermuda.  With sufficient police state effort, you might be able to enforce greater poverty on this class of citizen, but if you do, the level of unrest clearly visible on your pages will grow geometrically.  That may be what some Bermudians want.