Joe Cortright says that higher gas prices are hurting suburbs and places without strong urban cores

He writes:

...high gas prices are not only implicated in the bursting of the housing bubble, but that the higher cost of commuting has already re-shaped the landscape of real estate value between cities and suburbs. Housing values are falling fastest in distant suburban and exurban neighborhoods where affordability depended directly on cheap gas. In metro areas around the country, housing prices are down most on the fringe, while close-in neighborhoods are holding more of their value--or in several cases, still continuing to see price appreciation.
And the analysis also shows that those metropolitan areas with the strongest close-in neighborhoods--as measured by the core vitality index we developed in our 2006 City Vitals report--have weathered the housing collapse far better than other metros. House prices have performed best and foreclosures have been lower in those metropolitan areas with vibrant core neighborhoods.

Far from being a short term or transitory event, our view is that this shift in real estate market valuations implies a fundamentally different path for future urban development in the years ahead. As my colleague, CEO's for Cities President Carol Coletta puts it, "In short, vibrant cities just became a whole lot more valuable."

There are tremendous opportunities for the nation's cities to build on this shift in value, promoting redevelopment, mixed uses, higher densities and better transit. These strategies will also play a key role in helping reduce energy demand (and the trade deficit) as well as putting us on a path to dealing with the challenge of global warming.

The paper has lots of interesting pictures relating location to changes in house prices. But I think a key policy question is whether "strong urban cores" can be created by design, or whether they are organic phenomena.

Peter Gordon on Phillip Roth (Zuckerman) on George Plimpton

Peter Gordon writes:

Philip Roth's Exit Ghost is enjoyable for many reasons. Roth even gives us a thumbnail definition of happiness. Nathan Zuckerman had been on self-imposed exile in the Berkeshire's and, on re-entering New York city life, is stunned to discover that George Plimpton had died.

George escaped his glamour without losing his glamour, only
further enhancing it in autobiographical books seemingly driven by
self-deprecation. Climbing into the ring with Archie Moore he is
simply practicing noblesse oblige in its most exquisite form -- a form,
moreover that he had invented. When people say to themselves 'I want to be
happy,' they could as well be saying 'I want to be George Plimpton': one
achieves, one is productive, and there's pleasure and ease in all of it. (p.
250).

I remember reading Paper Lion when I was around 10. At the time, I thought it was the best thing I had ever read.

(Vertical) transportation and urban form:

Nick Paumgarten in the New Yorker:

In New York City, home to fifty-eight thousand elevators, there are eleven billion elevator trips a year—thirty million every day—and yet hardly more than two dozen passengers get banged up enough to seek medical attention. The Otis Elevator Company, the world’s oldest and biggest elevator manufacturer, claims that its products carry the equivalent of the world’s population every five days. As the world urbanizes—every year, in developing countries, sixty million people move into cities—the numbers will go up, and up and down.

Two things make tall buildings possible: the steel frame and the safety elevator. The elevator, underrated and overlooked, is to the city what paper is to reading and gunpowder is to war. Without the elevator, there would be no verticality, no density, and, without these, none of the urban advantages of energy efficiency, economic productivity, and cultural ferment. The population of the earth would ooze out over its surface, like an oil slick, and we would spend even more time stuck in traffic or on trains, traversing a vast carapace of concrete. And the elevator is energy-efficient—the counterweight does a great deal of the work, and the new systems these days regenerate electricity. The elevator is a hybrid, by design.

Admissions Advice

This week I read Susan Coll's Admissions, which reminded me of my time as MBA Dean at GW. We had an excellent admissions staff with fine judgment, but they would sometimes ask my opinion about close calls. I remember one mediocre candidate who began his essay with something along the lines of "when people work for me." He then proceeded to describe what everyone would do for him--nothing about what he would do for them. He basically showed himself to be the sort of person with whom no one would wish to work.

So my advice to those writing admission essays: don't be a putz.

The New York Times is (some days) a National Treasure

Barry Bearek's story of his imprisonment for trying to cover the elections in Zimbabwe is both harrowing and informative. The final two paragraphs:

I had left the cells with a case of scabies, an infestation of microscopic mites that swelled my hands and wrists to nearly twice their size. But I am better now, back in Johannesburg, with Celia, with our sons, Max, 17, and Sam, 12.

In the meantime, Zimbabwe is beset with paroxysms of violence. Thuggery, torture and murder are familiar implements in Robert Mugabe’s tool kit. Political opponents are being brutalized, as are everyday people whose voting defied him. The presidential election results are still unannounced.

A blogger whom I esteem often entitles his posts "New York Times Death Spiral," and then gives examples of the paper's shortcomings. But all journalism is compromised by tight deadlines; journalists also need to play a repeated game with sources, which means they cannot be heroic and write whatever they are thinking every day.

To me, the Times balances the need for timeliness and access against its moral obligation to be courageous as well as any newspaper. It gets the balance wrong from time-to-time. But I remain grateful for its existence.

A Pox on All Three (but the biggest, grossest on McCain)

All three candidates are pandering about gasoline prices. McCain is the worst, having called for a gas tax holiday in the summer, when pollution is at its worst.

Now comes a story from Businessweek that suggests that, contrary to the findings in David Austin's work, higher gas prices are leading to less driving. It would be hard to list all the policy benefits that result from this.

We do need to be careful about the association here--people may be driving less because they are less likely to be working, or because they are not going shopping or out to eat as much. If the reduction is driving owes more to the likely recession than to the price of gasoline, the effect will not be permanent. We won't be able to figure out which it is until and unless the economy bounces back at the same time that the price of gas remains high.

The regressive nature of high gas prices is also a problem. But this would be better solved through increases in the minimum wage and/or the earned income tax credit than a reduction in the federal gasoline tax.

It is going to be awhile before the economy recovers

From the Washington Post:

Sales of New Single-Family Homes at 16-Year Low

I wrote ten years ago that residential construction was THE leading indicator. And Ed Leamer says housing IS the business cycle. Yikes!

dilemmas

My Wall Street Journal subscription is about to expire. I don't know whether to renew. One the one hand, I hate sending money to Rupert Murdoch. On the other, I would miss Greg Ip, David Wessel and Scott McCartney. And the editorial page is one of two places I allow myself to be exposed to right-wing nuttery (Bill Kristol's column is the other).

[update: I've decided to renew].

Polonius on Subprime

Hamlet, Act I Scene III

Neither a borrower, nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

Of course, Polonius was an ass.

Twelfth Night Commercial 3

With the Green sisters. Successors to the Coen Brothers.

Diane Swonk Waxes Poetically about Falling House Prices

She writes:

[The housing downturn] not only represents a hit to the American economy, but it represents a hit to the American psyche. It is a straw that breaks the back of working class households who feel they have already given more than their fair share in an economy that penalizes manual labor relative to educational attainment.

A more prosaic way to put it is that home equity is often the only wealth that people in the lower half of the income distribution have. According to the 2004 SCF, 40 percent of those in the bottom quintile of the income distribution have some home equity; only 12 percent own stock.

The prescience of JM Keynes

This via Brad Delong:

The outstanding ground for cheerfulness lies, I think, in this -- that the system has shown already its capacity to stand an almost inconceivable strain. If anyone had prophesied to us a year or two ago the actual state of affairs which exists to-day, could we have believed that the world could continue to maintain even that degree of normality which we actually have? This remarkable capacity of the system to take punishment is the best reason for hoping that we still have time to rally the constructive forces of the world.

Remarkable.

Schools and Property Values

One of my good GW friends, knowing that my daughters had just finished navigating the college admissions process, lent me her copy of Acceptance, a novel about crazed parents and their slightly less crazed children going through the college application process in a fictitious Maryland county that just happens to contain the National Institutes for Health. The novel is quite funny, and one passage stood out:

Her public school might as well have been a private school, and in a way, it was. There was no tuition, per se, but irrational real estate prices served to filter out most of the rabble and ;end it a somewhat exclusive air, or so she'd heard her mother say.

This paragraph summarizes why I support school choice. Affluent people have school choice--they can pay for private school, or they can move to places with excellent public schools (whose excellence is capitalized into land prices). Meanwhile, kids of poor families are stuck in dysfunctional school districts with no place to go. Just spending money on these schools doesn't seem to solve the problem--DC has among the highest expenditures per pupil of any school district in the country, yet by any reasonable measure, their performance, particularly at the high school level, is dreadful. Kids in DC should be allowed to attend schools in Montgomery and Fairfax Counties.

Mark Thoma gives George Will a deservedly hard time, but..

I agree with Mark that for George Will to accuse someone else of elitism is too rich. For Bill Kristol also to do so is the ultimate in Chutzpah (I would call Will guilty of Chutzpah too, but I would guess George doesn't know what it means).

But Will's basic point about the Fed is not as ridiculous as it might seem. Will says:

The Fed's mission is to preserve the currency as a store of value by preventing inflation. ... The Fed should not try to produce this or that rate of economic growth or unemployment

My problem is with the use of the word "should." The more interesting question is whether the Fed can influence long-term economic growth or unemployment. Kydland and Prescott's model of credible commitment and central bank behavior (Journal of Political Economy 1977), which produced a Nobel prize in 2004, suggests that the Fed can only credibly commit to fighting inflation; that issues of time consistency prevent it from both fighting inflation and maximizing employment, and that if it commits to something other than zero inflation, it will produce socially undesirable levels of both inflation AND unemployment. This has spawned a literature on credible commitment on the part of central banks. And while I am not a macroeconomist (and won't play one on TV--when reporters ask me to forecast interest rates, I tell them to go away), my reading of the literature suggests that it is within the realm of possibility that Kydland and Prescott are correct.

Twelfth Night Commercial 1

TWELFTH NIGHT

ACT I

SCENE II The sea-coast.



[Enter VIOLA, a Captain, and Sailors]

VIOLA
What country, friends, is this?

Captain
This is Illyria, lady.

VIOLA
And what should I do in Illyria?
My brother he is in Elysium.
Perchance he is not drown'd: what think you, sailors?

Captain
It is perchance that you yourself were saved.

VIOLA
O my poor brother! and so perchance may he be.

Captain
True, madam: and, to comfort you with chance,
Assure yourself, after our ship did split,
When you and those poor number saved with you
Hung on our driving boat, I saw your brother,
Most provident in peril, bind himself,
Courage and hope both teaching him the practise,
To a strong mast that lived upon the sea;
Where, like Arion on the dolphin's back,
I saw him hold acquaintance with the waves
So long as I could see.

VIOLA
For saying so, there's gold:
Mine own escape unfoldeth to my hope,
Whereto thy speech serves for authority,
The like of him.

Twelfth Night Commercial 2

Directed by Morgan Green. Starring Hannah Green as Olivia. Shakespeare at his comic best. And it's free. What could be better?

Jumbo Conforming Spread

I was looking at the Wells Fargo mortgage web page this morning. The jumbo conforming spread for prime mortgages is around 125 basis points. The spread implies an expected default probability for jumbos, and so I started fooling around with a few simulations.

I used the following assumptions: 12 percent prepayment each year, 30 year term, jumbo rate of 7.35 percent; conforming rate of 6.1 percent, constant conditional default rate (this is the least realistic); loss rate conditional on default of 35 percent. Given these assumptions, the implied conditional default rate is in excess of 3 percent per year, which is extraordinarily high for prime mortgages.

If I raise loss conditional on default to .5, the implied expected default rate becomes 2.5 percent per year. I will do further refining of this, but it seems to me that prime jumbo mortgages are a good investment opportunity.

Greg Mankiw Writes about Education and Income Inequality

But in doing so, he focuses on the top end of the education and income distribution. It seems to me that the problem lies on the bottom end, where according to Heckman and LaFontaine, educational attainment levels are falling.

Americans without high school diplomas simply cannot compete in the global economy.

Novels about Academia

I just finished On Beauty by Zadie Smith. It reminded me that my little professional world makes a good backdrop for novels. Others that I have liked include Moo by Jane Smiley, Gaudy Night by Dorothy Sayers, most novels by Robertson Davis, and Talk Talk by TC Boyle.

The economics professor in Moo hits a little to close to home for me sometimes; among Davis' stuff, I especially like the Lyre of Orpheus.

I couldn't say it better myself

http://economistsview.typepad.com/economistsview/2008/04/an-open-letter.html

And why did ABC think it was OK to let a Clintonista referee a debate that included HRC?