How the Crash Will Reshape America
theatlantic.com
theatlantic.com
This is a perfect example of what makes history fascinating - its ability to make sense of the present and the future.
His conclusion, for those who can't get through it: housing is a dead end investment. It's a liability, not an asset in economic terms because it discourages mobility and doesn't have good (any?) returns. We should abolish policies that promote each man his own home, encourage renting, and come up with housing infrastructure solutions that are economically stimulating (in terms of mobilizing the workforce and bringing talent together).
The housing market seems ripe for technological innovation. Any ideas?
Unless you're proposing the government operates a People's Barracks, then housing must be able to make a return for someone or there won't be any liquidity. Which will mean that renters will be just as immobile; they'll have no way to rent a new place at their destination.
This doesn't require a People's Barracks. It could be done privately, merely by introducing a layer of indirection between individuals and housing stock.
I see a few problems with this idea. First, given the opportunity to behave more rationally, will most people act on it? Second, it doesn't fully decouple "home" from a physical place. It doesn't address the social environment of family and friends, or the costs of moving one's belongings. My other worry is acknowledged in the article but sort of dismissed: "homeownership has some social benefits—a higher level of civic engagement is one."
But what were people supposed to do differently?
Don't know if a good solution exists... housing is a very messy optimization process because people want vastly different things in their homes. I guess you could focus on niche groups so you can get some standardization going.
I guess nowadays, everything is turning impersonal and people are losing the value of connection and belonging. I'm not sure the benefits of greater mobility are greater than the cost.
One point (only tangentially related, at most, to the article's thrust) that always bothers me when it comes up is this:
"On one level, the crisis has demonstrated what everyone has known for a long time: Americans have been living beyond their means, using illusory housing wealth and huge slugs of foreign capital to consume far more than we’ve produced."
Can somebody explain this to me? I mean, the amount that Americans overconsume should be bounded above by the trade deficit, right? That's the net imbalance in flow of goods and services from other nations to us. We've demonstrated that we can actually produce everything else that we consume ourselves. So we're talking a maximum overconsumption of like seven hundred billion-ish dollars a year, which is about 5% of our GDP.
Are people really worrying about removing the 5% overconsumption, or am I missing something?
If you spend 5% on top of your GDP annually (if it is that much I can't verify) and you do that for two decades you're in hock for a full years worth of GDP. If you think about GDP as your whole salary before taxes and costs then you can see how long it would take you to pay back that loan.
I hope that's all correct, I'm nowhere near an economist but that's how I read it.
That's the entire point of, for example, credit cards.
Everyone knew it, and after a generation or two, people seemed to take it for granted.
Take the housing bubble. If you bought a house in California between 1995 and now, you paid a massive premium because you were competing against financial morons with no sense of history, much less fiscal responsibility. It's like the admonition about never arguing with idiots, for fear of becoming one.
http://www.amazon.com/Nine-Nations-North-America/dp/03805788...
seems to have some connection with the content of this article. The article mentions some cities that are key to their regions. The book breaks up North America into nine regions with economic and cultural connections, and names a "capital" city for each of them. For example, Miami as the "capital" of a region including the Carribean. I think the article mentions some of these same cities as being important centers for their regions.
EDIT: wiki page might be better for facilitating discussion:
He's right, but getting rid of that those deductions is a political non-starter. There's no way it could ever pass (as he mentions, home ownership is 70% of the population, good luck with that).
If anything, politicians seem to be doubling-down on homeownership in this recovery, trying to prop up prices in order to recover.
I've spent a lot of time trying to map out the world with data and I've come to the same conclusions: Boston-Wash-NYC corridor (I would almost count in Toronto and Montreal as adjacent to it; I guess, then you could just simply call it the industrial Northeast), Pacific Northwest, Northern continental Europe (Northern France, Belgium, Netherlands, Northwest Germany). I also like the Southern Germany-Austria-Switzerland-Northern Italy cluster. The London cluster is overpriced IMHO, but still has excellent public schools. California seems overpriced and the state budget is in bad shape.
i live in california and love it...i think in so many ways it is the best place in the world to live...but i must admit (with trepidation since i hold so many state bonds)...that the state is doomed.
the size of the fiscal crisis here is not "state size", its "nation size". but california cannot engage in printing money, deficits, or anything else a nation can do to temporarily ease through. tax revenues are dropping like a rock in every city in the state as EVERYONE lines up to get their house re-assessed to get lower taxes.
california was crushed in the housing bubble and prop 13 makes revenue collection even more inflexible. i personally intend to have my property taxes cut in HALF, which is actually accurate and fair given that houses on my street are now...half off. whatever happens i will be paying less in taxes by some amount. now repeat for tens of millions of people...
and there's no stock market windfall to offset the gloom. google and apple are just high-salary employers now. that won't save this state. suffice to say i think the state finances are in doomsday mode. thankfully my kids do not go to public schools...
Actually, prop 13 is the only reason most CA cities aren't declaring bankruptcy.
Prop 13 has two relevant provisions - a cap on property tax rates and a cap on the rate of growth of the taxable basis w/o a change of ownership or new construction. (IIRC, most/all bay area cites are at the cap.) When you buy a house, you know the most that you'll pay in taxes going forward.
When housing prices boom, Prop 13 means that tax revenues don't boom. It also means that when housing prices crash, tax revenues don't crash.
Yes, the taxes paid by folks who bought near the peak will drop with housing prices. However, the taxes paid by folks who bought long before the peak are continuing to grow because their taxable basis lags the market.
Prop 13 was passed in reaction to a previous boom - property taxes were going up 10-20% a year because that's what housing prices were doing. CA govts don't cut rates and they don't cut revenues either.
If CA cities/counties had been able to grow their tax revenues in proportion to the property values, do you really think that they'd be willing to let their revenues drop with property values? Of course not - they'd increase the tax rates.
The Bay Area I would fold into the Pacific Northwest, since it's culturally a part of that region, although it has a lot of California's problems (expensive housing, budget crisis). It's more similar to Seattle than to L.A., I would say.
This is interesting: "The geographic sorting of people by ability and educational attainment, on this scale, is unprecedented."
The jab at Tom Friedman is fair. I've seen the trailing Paul Romer quote at least three times within the past week, though. There certainly is truth to it. Reinforcing "idea infrastructure" like internet connectivity seems crucial.
Here's to affordable housing in talent-rich and diverse Manhattan and San Francisco...
As the tech Midwest (Chicago, Minneapolis, Toronto) heats up, I'd imagine that Pittsburgh has similar potential, being also at a crossroad between that region and the Northeast.
Western and central PA have a reputation nationwide for producing a disproportionate number of hard-working, successful people... who don't move back. There's definitely somewhat of a "Pennsylvania diaspora" (as well as one for Minnesotans) community in New York.
I think Pittsburgh has a lot of potential to reverse that trend, seeing as it has two major universities and has come a long way in terms of being a good place to live.
Around here we call it "Steeler Nation." :)
As for "good place to live," I was just talking to someone about the number of cultural institutions that Pittsburgh has. Being the home of robber barons like Carnegie, Mellon, and Frick, there were a lot of institutions and endowments left behind to assuage their consciences for treating so many steel workers so brutally to build their fortunes. Having kids, I'm especially aware of the excellent Carnegie libraries, Children's Museum, Science Center, and Phipps Conservatory. Not to mention the fore-mentioned universities, and all of the hospitals (UPMC is the region's single largest employer). One of the ironies for the city is that having non-profits as the largest employers means that a large portion of the city's economic activity is off-limits for local taxes.
"Non-profit" only affects income taxes. You can still tax their property, purchases, activities, and employees.