Wednesday, October 21, 2009

Housing for the Wealthy Unemployment for the Poor

October 21, 2009, 6:15 a.m.

"It's the Unemployment, Stupid!
(brought to you by*)

Washington's corruption of our economic recovery efforts is painful, embarrassing and so obviously benefiting the rich while ignoring the poor and middle class that it's coming to be as depressing emotionally as it is economically.

Yesterday Tom Ashbrook's "On Point" program from WBUR offered one more example in, "The Housing Wild Card," October 20, 2009. Guests included Diana Olick, real estate correspondent for CNBC; Karl Case, Wellesley College professor of economics and co-author of the Case-Shiller Home Price Index; Thomas Lawler, housing economist and founder, Lawler Economic & Housing Consulting; and Mark Zandi, chief economist and co-founder of Moody’s

The show provided just one more example of corporate greed and a Congress favoring America's wealthiest -- and most generous campaign contributors.

Housing is where a lot of our current economics problems began. Remember?

It's like the story of the doctor who asks, "Have you ever had this before?" The patient nods, and the doctor provides the diagnosis: "Well, you've got it again."

We're about to get it again.

(1) While we took our eyes off of the Federal Reserve last March they went and put another $1.25 trillion into the housing market. ("To provide greater support to mortgage lending and housing markets, the [Federal Open Market] Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year . . ..") Press Release, Federal Reserve, March 18, 2009.

(2) Add to this the mortgage interest deduction that constitutes a $69 billion subsidy to help boost home sales -- a subsidy enjoyed by only 23% of taxpayers, and a disproportionate share of which goes to the wealthiest 1%, given that it applies to homes worth as much as $1 million.

Note that this means that Congress is willing to spend twice as much subsidizing housing for the wealthy as it's willing to spend on low income housing for the poor -- a program it says "we can't afford." Danilo Pelletiere, "Mortgage Interest Deduction," National Low Income Housing Coalition, May 6, 2009. ("In FY08, the Joint Committee on Taxation calculated the cost of the [MID] subsidy to be $67 billion. Though developments in housing markets may put downward pressure on the trend, the cost of the MID is expected to increase to as much as $112 billion by 2012.").

(3) Not satisfied with that largess, the housing profiteers got Congress to give them enough taxpayers' money to provide an $8000 cash subsidy to potential "first time buyers" -- some 355,000 individuals as it turned out who are sufficiently well-off to even contemplate buying a home at a time like this. It can fairly be assumed many of them would have bought homes without this additional $3 billion designed to further help the housing industry. Now the program is about to expire, so they're back with their hands out demanding it be extended, increased to a $15,000 subsidy per buyer, and opened to all (not just first-time) home buyers. And while most economists oppose the plan as folly at best and wasteful corruption at worst, the housing industry may well get its wish.
But where are all these houses coming from? Why, foreclosures, of course. So more of the unemployed, those facing bankruptcy because they've lost their health insurance, or those otherwise too financially strapped to pay their mortgages, will be out on the streets.

And how is this "housing program" going to help our recovery when 70% of the economy is driven by consumer spending? It won't, of course. But we will have wealthier real estate brokers and mortgage lenders, just as we have wealthier Wall Street bankers enjoying million-dollar bonuses as a result of our generosity.

The Wall Street Journal quotes Thomas Lawler's analysis as to why this level of subsidization is folly: "Of course, in the current environment home prices have . . . in most areas of the country, finally adjusted back down to more 'normal' levels . . .; the government is providing massive resources to ensure that mortgage rates remain low; and the biggest obstacle to a rebound . . . is the job outlook. The housing tax credit is an enormously inefficient use of government resources, and it does not really focus on what the economy needs: more job creation, and a return to “normal” growth of households." Nick Timiraos, "Weigh In: Should Congress Extend the First-Time Buyer Tax Credit?," Wall Street Journal, October 1, 2009.

New York Times columnist Bob Herbert agrees about the need for jobs:
[I]ncreasingly important is the idea of direct government job creation. The recession has absolutely crushed employment opportunities for unskilled, undereducated young people — not just in big cities and rural areas, but in suburban communities as well. Without direct government intervention, the recession is never going to end for them.

During the first half of this year in Illinois, to take one wretched example, just one in four black men in the age group of 20 through 24 had a job.

Nationally during that period, according to the Center for Labor Market Studies at Northeastern University in Boston, “the employment rate of males 16-19, 20-24, and 25-29 were at their lowest values over the past 61 years for which national employment data are available.” That’s for men of all ethnic groups.

“The past,” as William Faulkner told us, “is not dead. It’s not even past.” The lessons of the Works Progress Administration and the Civilian Conservation Corps of the 1930s are right in front of us, ready to be studied, analyzed, updated and applied to the present-day needs of the country.
Bob Herbert, "Igniting the Growth of Jobs," New York Times, October 10, 2009, p. A23.

It was a theme I'd advocated nearly a year ago when I urged a jobs program as the most efficient and effective "stimulus package." Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery; Why America Needs a Jobs Program: Because When Your Automobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," November 8, 2008.
My own view -- buttressed by [reports regarding] (1) the automobile industry (especially General Motors), (2) retail sales, and (3) unemployment -- is that the best interests of the business community, as well as the American people, will be served by providing public jobs programs, and economic support to the unemployed, rather than continuing to pour billions of dollars into failed and failing businesses. . . .

[A] major part of GM's problem is that laid-off GM workers, and the 10 million other unemployed Americans, don't have the money to buy anybody's cars right now . . ..

Enabling auto executives to have tens of billions of additional dollars to spend at their discretion in postponing bankruptcy doesn't strike me as a solution to anything . . ..

Another problem with Washington's willy-nilly giveaways, aside from the fact that they are unfair, don't work and will ultimately bankrupt our nation, is that they are irrational. . . .

[I]f Obama is looking for economic sectors to which to transfer taxpayers' money, wouldn't the one that represents "two-thirds of the nation's economic activity" make more sense in a recession/depression than bailing out the one that makes $30,000 new vehicles? . . .

Why We Need a Jobs Program

Look at the numbers. There are now over 10 million unemployed. Unemployment stands at 6.5 percent, and is projected to go to 8 percent next year -- 22 percent of whom have been out of work for more than six months, something we haven't seen for a quarter-century. The rates are increasing. Of the 1.2 million jobs lost this year 284,000 were in September and 240,000 in October. [These are, of course, the numbers from a year ago, when this blog entry was written.]

In the 1950s over 50 percent of the unemployed received benefits; today, because of various restrictions, only 32 percent qualify -- more unemployment, more holes in the safety net. . . .

[T]he answers seem, to me, rather obvious.

You can't improve business (profits, returns to shareholders, executive compensation) without improving retail sales; you can't improve retail sales without putting money in the hands, and confidence in the heads, of potential consumers; and unemployed consumers don't have money unless they are provided either unemployment compensation or wages from a public sector job (in an economy with a shrinking private sector). . . .

[E]ither makes more sense than trying to turn an economy around with "trickle down" -- whether tax cuts for the rich, or bailouts for the rich.
Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery; Why America Needs a Jobs Program: Because When Your Automobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," November 8, 2008.

Last July I wrote a blog entry about one American county that is using its money for a jobs program rather than further enriching its wealthy, "It's the Unemployment, Stupid! Perry County: If the Question is Economic Recovery The Answer is Jobs" July 29, 2009:

[If he was still in the wall poster business,] James Carville, the political consultant who once famously tried to keep presidential candidate Bill Clinton "on message" with the wall sign, "It's the economy, stupid!" . . . , I suspect his wall sign for President Obama might well be, "It's the unemployment, stupid!"

We did this in the 1930s and called it the "Works Progress Administration" and "Civilian Conservation Corps" -- the creations of which we are still enjoying to this day (for example, in our state parks).

Why are we not doing it today? Your guess is as good as mine. But my suspicion is that it has more to do with the big money corruption of our political system than with some new, Nobel-prize-winning insight into the mysteries of economic theory.
We may be Number 37 in the world in health care, but by golly we're Number 1 in greed and economic stupidity.

* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson

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