Archives: 07/2009

Does the Left Know We Had a Housing Bubble?

Over the last week, speaking at a variety of events, I heard three different representatives of the Left; first a Democrat US Senator, then a senior member of the Obama Administration, and finally a “consumer” advocate, all repeat the same narrative:  all was fine in the housing market until predatory lenders forced hard-working honest families into foreclosure, which reduced house prices, bringing the economy to a crash.  That’s correct, apparently the Left believes we all would still be seeing double-digit home price appreciation if it wasn’t for those evil lenders.

Undoubtedly foreclosures, especially those that result in houses that remain vacant for a considerable amount of time, have an adverse impact on surrounding property values.  Many constitute a serious eye-sore and provide a haven for criminal activity.  But did foreclosures really drive down prices, or were foreclosures first driven by price declines resulting from a bursting housing bubble?  While causality is always difficult to establish with certainty, we do know that the rate of house price appreciation peaked and started declining about 18 months before the dramatic up-turn in mortgage delinquencies.  If one prefers a more rigorous test, economists at the Boston Fed have directly tested if prices first drove foreclosures or whether foreclosures drove prices.  Their results conclude that its was declining prices that matter, and that the price effect of foreclosures is minimal.

Why does any of this ultimately matter?  Because if we craft policies to avoid the adverse impacts of the next property bubble based upon a narrative of “consumer protection” – as is being pushed by the Obama Administration, we will do little to avoid the creation of the next housing bubble and its damaging aftermath.  Instead we should be focusing attention on those policies that contributed to the creation of the housing bubble: expansionary monetary policy and the Federal government’s blind pursuit of ever-expanding home-ownership rates at any cost.

French Folly

Following the dubious example set recently by U.S. legislators, French politicians have informally proposed slapping punitive tariffs on goods from countries who refuse to curb greenhouse gas emissions. The German State Secretary for the Environment has, quite rightly, called foul:

There are two problems – the WTO (World Trade Organization), and the signal would be that this is a new form of eco-imperialism,” Machnig said.

 ”We are closing our markets for their products, and I don’t think this is a very helpful signal for the international negotiations.”

I have a paper forthcoming on the carbon tariff issue, but in the meantime here’s a recent op-ed (written jointly with Pat Michaels) on climate change policy mis-steps.

Remembering Government at Its Worst

The 20th Century featured many examples of genocide, mass murder, brutality, and other forms of human horror at the hands of totalitarian governments.  Perhaps none was worse – at least in terms of the proportion of the population slaughtered and resulting impact on the survivors – than Cambodia.

The commandant of the notorious S-21, or Tuol Sleng, is currently on trial.  The proceedings offer a stark reminder of what monstrosities cruel social engineers with guns can wreak.  Reports Reuters:

A senior Khmer Rouge prison guard on Thursday told a war crimes tribunal he was forced to send thousands of detainees to an execution site, where they were brutally killed and their bodies thrown into mass graves.

Him Huy, 54, a guard at Phnom Penh’s notorious S-21 prison, said he was ordered by Pol Pot’s chief jailor to transport prisoners to a rice field where they were stripped naked and beaten with clubs as they bled to death.

“All prisoners were blindfolded so they did not know where they were taken and their hands were tied up to prevent them from contesting us,” Huy told the joint United Nations-Cambodian tribunal.

“They were asked to sit on the edge of the pits and they were struck with stick on their necks,” he said, his voice breaking as he gave his harrowing account of the Choeung Ek executions.

“Their throats were slashed before we removed their handcuffs and clothes, and they were thrown into the pits.”

Huy was testifying against S-21 chief Duch, whose real name is Kaing Guek Eav, the first of the five indicted former Khmer Rouge cadres to face trial.

I’ve visited both Tuol Sleng and the so-called Killing Fields.  The experience is incredibly depressing and moving.  These sites should be mandatory viewing for anyone tempted to surrender his or her liberty, even to the most supposedly well-meaning politicians, bureaucrats, and activists.

(H/t to Paul Chesser, who has been blogging regularly on the trial.)

Why a “Public Option” Is Hazardous to Your Health

President Obama and other leading Democrats have proposed creating a new government health insurance program as an “option” for Americans under the age of 65. In a new study, Cato scholar Michael F. Cannon shows that government programs cost more and deliver lower-quality care than private insurance. “If Congress wants to make health care more efficient and increase competition in health insurance markets, there are far better options,” argues Cannon.

Fannie Med? Why a “Public Option” Is Hazardous to Your Health, Cato Policy Analysis No. 642

What’s A Dollar Worth?

It’s not just Americans worried about the flood of dollars from the Fed.  The Chinese and now the Malaysians also are wondering if they should keep dealing in greenbacks.

Reports the Wall Street Journal:

Malaysia’s prime minister said China and his country are considering conducting their trade in Chinese yuan and Malaysian ringgit, joining a growing number of nations thinking of phasing out the dollar.

“We can consider whether we can use local currencies to facilitate trade financing between our two countries,” Malaysian Prime Minister Najib Abdul Razak told reporters at a briefing Wednesday after meeting with China’s premier, Wen Jiabao.

“What worries us is that the [U.S.] deficit is being financed by printing more money,” Mr. Najib said. “That is what is happening. The Treasury in the United States is printing more notes.”

The dollar won’t easily be displaced as the world’s principal reserve currency.  But Washington appears to be doing everything possible to hasten that day.

Perhaps Americans should consider keeping their wealth in yuan or even ringgits.  At least they might retain their value even as the Fed and Treasury attempt to inflate and spend the U.S. economy into oblivion.

Time to Cut Back Boondoggle Embassy in Iraq

The Bush administration has many legacies.  One is the more than $700 million U.S. embassy, set on 104 acres, only slightly smaller than the Vatican’s land holdings, in Baghdad.  It was an embassy designed for an imperial power intent on ruling a puppet state.

It turns out that Iraq’s Prime Minister Nouri al-Maliki doesn’t plan on being anyone’s puppet.  U.S. troops have come out of the cities and will be coming home in coming months.  Provincial reconstruction teams also will be leaving.  The Bush administration’s plan for maintaining scores of bases for use in attacking Iran or other troublesome Middle Eastern states is stillborn.  And Prime Minister Maliki isn’t likely to ask for Washington’s advice on what kind of society U.S. officials want him to create.

So just what should the Obama administration do with this White Elephant on the Euphrates?  Cut it down, says the State Department’s own Inspector General.

Reports the Washington Post:

The U.S. Embassy in Baghdad – the United States’ largest and most costly overseas diplomatic mission, with 1,873 employees – is overstaffed and must be reduced to a size more in keeping with the evolving U.S.-Iraq relationship and budget constraints, government auditors said in a report issued Wednesday.

The State Department’s inspector general said that although the U.S. presence in Iraq will become more civilian as the military withdraws over the next two years, the embassy “should be able to carry out all of its responsibilities with significantly fewer staff and in a much-reduced footprint.” The reduction “has to begin immediately,” the report said, before Foreign Service officers complete their next assignment bidding cycle and other employees are extended or hired.

The U.S. should be preparing to have a normal relationship with Iraq.  That includes maintaining a normal embassy.