Feroli, Harris, Sufi and West on Housing and the Transmission of Monetary Policy

I will share a link when I find one.  Let me pull out a couple of paragraphs from the executive summary:

In this report, we focus on weakness in housing. Our analysis makes two broad points. First, weakness in housing and residential investment is a main impediment to a robust recovery. Second, problems related to housing have affected the transmission of monetary policy. More specifically, the unprecedented decline in house prices and residential investment has introduced headwinds that may require a more aggressive monetary response than in normal downturns. Further, problems related to housing markets may reduce the sensitivity of real economic activity to the interest rates that monetary policy can affect. Or in the parlance of textbook intermediate macroeconomics, housing problems have likely shifted the IS curve leftwards and steepened the slope of the curve by introducing a gap between policy rates and effective rates. For both of these reasons, problems related to housing introduce significant challenges to monetary policy-making.
There are six steps in our analysis:
1. We begin by placing housing in the context of the broader economic recovery. The overall recovery in GDP has been one of the weakest in the postwar period even though the recession was the largest in the postwar period. Residential investment has been a particularly dismal performer. Further, the other weakest components of GDP--consumption of services and state and local government expenditures--can also be closely linked to weakness in housing markets. Focusing just on the direct impact of housing—home construction and housing service consumption—the sector accounts for about a third of the shortfall of growth relative to a typical recovery. Obviously the full impact of the housing crisis is bigger if we include indirect impacts on local governments and consumption of housing-related durables. We also show evidence from other countries that a collapse in housing is associated with subsequently weak recoveries....

If one looks at business cycle histories (see here, here and here), it is hard to imagine full recovery without housing market recovery.  Warren Buffet this morning said it was time for one.  I hope he is right.

Still playing consumers for suckers

So I am having a lazy Saturday watching ESPN, and see an ad where the husband says, "I need the TV," and the wife says, "We can't afford more credit card debt," and the announcer says--"you can have your TV and not take on credit card debt--by renting."

Of course, by renting, consumers are paying an implicit interest rates to RAC, the company peddling the scheme.  The price of renting a Sony 55" television is $29.99 a week.  The cost of a Sony 55" is $1899 on Amazon.  Let's say the expected life of a Sony is four years (it is probably longer).  That is an implicit IRR of 1.51 percent per week, or 117 percent per year.  There used to be a word for this kind of thing, and the word was usury.

This is different from legitimate rental businesses, that rent out equipment for short periods and that have to keep inventory that often sits idle.  But to suggest to consumers that they are better off not using their 24 percent APR credit cards for this scheme--it is disgraceful.

Matthew Yglesias says low income people face lower inflation

More specifically, he writes:

At the same time, it’s worth noting that stagnating real working-class wages are calculated by using a meaningless overall average rate of price inflation. Some things—college tuition, apartments in Manhattan, health care—have gotten more expensive much faster than average. This means that people who buy a below-average amount of those things are better off than the statistics show.

So I repeated an exercise I did a few years back--I looked at expenditure shares for different goods for each income quintile, and then looked at price dynamics for each expenditure category in the CPI (the matches between the CES and CPI are not perfect, but they are close.  I am not sure what to do with the expenditure categories "cash contributions" and "pension contributions.").

In any event, I find that the effective CPI for each income category is pretty much the same for 2009-2010: the CPI increase for the lowest quintile was 1.6, for the second lowest was 1.4, for the third 1.7, the fourth 1.8 and the highest 1.7.  These differences look like noise to me.

I will try to figure out something using longer term data, but since expenditure shares change over time, it will be harder to glean meaning from differences in CPIs.

 

What do these two places have in common?

Cudahy, California

New York, NY

What they have in common is that Cudahy's population density, at 21,684 per square mile, is not dissimilar to New York's 26,402 per square mile.  I can't be positive, but I am pretty sure no building in Cudahy is more than three floors tall.  New York is the 5th densest municipality in the US, while Cudahy's is 10th.  If one visits Cudahy, one won't feel particularly crowded either.  But there is no wasted space.

3quarksdaily: Learning Urdu

3quarksdaily: Learning Urdu

Professor Judith Green reminds me of the meaning of "begging the question"

Fowler defines "begging the question" as the "fallacy of
founding a conclusion on a basis that as much needs to be proved as
the conclusion itself."

I learned this in high school, and just forgot (or just got sloppy). It is a good phrase with a specific meaning--we should keep it.

Paul Krugman essentially invites the question: should California secede?

In his column this morning, Paul Krugman discusses a recent Times article that shows that the reddest states receive more of their personal income from government programs than blue states. An implication of this is that places such as California would be better off fiscally by seceding from the union (my colleague Lisa Schweitzer shows that California gets less than its fair share of the gasoline tax as well).

So as someone who lives in California (and who plans to remain here until I no longer have any say about where I live), I should support secession, or at minimum, a substantial reduction in federal taxes and spending, which could then be replaced with state taxes and spending. But I care about the elderly and the poor in Oklahoma, so I guess I am stuck; yet the average voter in Oklahoma seems not to care at all about the elderly and poor in California. This leaves us stuck again.

Hannah Green: The problems of engaging in blind warfare - Forum - The Daily Northwestern - Northwestern University

My daughter on drones.

Green: The problems of engaging in blind warfare - Forum - The Daily Northwestern - Northwestern University

Adam Levitin on the San Francisco Audit: Why no investigation?

Adam writes:

Here's a bombshell: the San Francisco City Assessor commissioned a serious audit of foreclosure documentation filed in the past few years. The audit examined 400 foreclosures. It found problems with 85% of them, often multiple problems. What's more, some of the problems are pretty serious as they implicate not only borrowers' rights, but the integrity of mortgage-backed securities and the property title system. 

The San Francisco City Assessor's audit also serves as a benchmark for evaluating the Federal-State servicing settlement. The San Francisco City Assessor managed to accomplish in a few months what the Federal government and state Attorneys General weren't able to do in nearly a year and a half with far greater resources at their disposal: perform a credible investigation of foreclosure documentation with serious implications about the securitization process in general. That's a lot of egg on the face of Shaun Donovan, Eric Holder, Tom Miller, et al. The SF City Assessor report shows that it really wasn't so hard for a motivated party to undertake a serious investigation. And that raises the question of why the largest consumer fraud settlement in history proceeded with virtually no investigation...

Read the San Francisco Assessor's Audit on Mortgage Compliance.

It is jaw-dropping.  Among other things, around 30 percent of the foreclosed loans sampled from San Francsico have a minimum of three clear compliance issues. 

One should not draw inferences about the rest of California from San Francisco alone--so it is time to replicate the study for some other counties. 

Did David Brooks think the social fabric was better when...

...we had Jim Crow?  When the military was segregated? When Chinese were denied citizenship?  When husbands could beat their wives?  Not so long ago, this was part of the social fabric.

Why do people confuse "transit" with rail?

Perhaps the most important transportation economist since World War II was John Kain.  Professor Kain liked transit very much, but be showed, over and over again, that urban buses were more efficient in virtually every context than urban rail: for the same amount of money, buses can take more passengers more places more conveniently than trains. 

When transit agencies build expensive rail systems, they inevitably cannibalize bus systems.  This has happened in Salt Lake City, in Portland, in Atlanta and in Dallas.  The goal of transit should be to move people as efficiently as possible.  The evidence is overwhelming that rubber tire transit beats fixed rail pretty much everywhere.  So why the nostalga for an obsolete technology?  I just don't understand.




 

My lexicographic voting preferences

I could no more vote for someone that opposed marriage equality than I could for someone who supported anti-miscegenation laws. And yes, for me that pretty much trumps everything else.

Lisa Schweitzer on Shouting People Down

It starts:

One problem with planning, particularly for planning in the academy, concerns its normative basis: the good city, the just city, etc. Recently, a commenter here said:
That describes what a university SHOULD be, but not what I have found most universities to actually be. Anyone that disagrees with the mainstream academic viewpoint is not engaged in discussion, but shouted down. Students aren’t encouraged to explore and come up with new ideas, but to validate the ideas of their professors. Seems like the “debate” (or lack thereof) is not longer intellectual, but political and ideological.

That comment meshes with my experience in the planning academy, but not my experience with social scientists. Social scientists have their own sets of problems and limitations, but planning’s normative basis means that once consensus forms on what is good, deviations from that will be condemned not as misguided or inaccurate, but as evil. I’m not naive enough to believe the social sciences aren’t subjective and subject to ideological influences. But a common theoretical basis, such as that held in economics (however flawed), allows even for deep divisions to run alongside a rigorous body of empirical work. That is, unless you’re in macro, where ideologies rule and big names bellow at each other like mammoths across the primordial swamp about how to interpret theoretical models that have a weak empirical basis.

Read the whole thing.

Two strong positives for the new Obama refinance plan

(1) It finally allows underwater borrowers to exercise an option that investors knew existed when they purchased mortgage backed securities--the prepayment option. Right now, the fact that borrowers are underwater allows investors to earn a windfall by collecting a premium on what is effectively a callable bond.

(2) It imposes a Pigou tax on large banks. When a small bank fails, the negative externality is small to non-existent. When a TBTF bank fails, the negative externality can be catastrophic.  Taxes on large banks help internalize the externality.

Rolf Pendall: Racial Segregation is Still a Reality

Rolf responds to Glaeser and Vigdor:

The Manhattan Institute for Policy Research’s website made a triumphal proclamation this week that we have reached “the end of the segregated century.” The New York Times dutifully spread the news, leading with the headline “Segregation Curtailed in U.S. Cities, Study Finds.” The story beneath the spin, however, shows that segregation isn’t just a phenomenon to look back on regretfully during African American History Month (which begins today). Segregation lives on in far too many American cities.

In 1970, two years had elapsed since Congress enacted the end of private-sector apartheid with the Fair Housing Act; only a few years before that, President Kennedy had ordered the desegregation of public housing. Why should we wonder that segregation levels have declined since then? Shouldn’t the real story be that in the nation’s second-largest metropolitan area, Chicago, over 70 percent of African Americans would have to move to a predominantly non-black neighborhood (or the same proportion of whites would have to move to mostly non-white areas) to achieve an even racial distribution? Chicago isn’t the only metropolitan area in this position: Detroit, Cleveland, and St. Louis also surpass 70 on this segregation index. New York, Baltimore, and Philadelphia—that is, a continuous band of urbanization stretching from just north of Washington, DC, to the middle of Connecticut with well over 25 million inhabitants—stand between 60 and 65. The heart of the northeast corridor still lives in a segregated century, as does the fringe of the Great Lakes. Even “less segregated” metropolitan areas still have levels of racial segregation far higher than the Fair Housing Act promised.

Rolf underscores an uncomfortable point--that Northern cities have more black-white segregation than Southern cities.  The largest city in my home state of Wisconsin, Milwaukee, is the most segregated large city in the country.