Archives: 11/2009

A Complaint for Wednesday

Rep. Emanuel Cleaver (D-Mo.) has introduced H.Con.Res.155, “Supporting the goals and ideals of ‘Complaint Free Wednesday.’” The bill description says:

Expresses support for the goals and ideals of Complaint Free Wednesday. Encourages each person in the United States to remember that having a positive life begins with having a positive attitude. Recognizes and reaffirms the meaning of Thanksgiving by asking each person in the United States to use Complaint Free Wednesday to refrain from complaining and prepare for a day of gratitude.

So what’s my complaint? My complaint is that people get elected to office and they think their every passing thought should be a law. Eat less, exercise more, play classical music to unborn children, have a college football playoff, keep your frequent-flyer miles forever, don’t complain so much – every time a politician has an idea, he writes a law to ban or mandate something.

So, please, send Rep. Cleaver a message – on this Wednesday of all Wednesdays, complain about politicians who don’t understand that the powers of the federal government are “few and defined” and think that all their preferences should be enacted into law.

Federal Housing Subsidies Are Insane

A New York Times report on the Federal Housing Administration’s subsidies for higher-priced real estate reveals the insanity of federal housing policies. The 2008 stimulus package signed by President Bush temporarily doubled the maximum loan the FHA insured to $729,750 on single-family homes. Coverage on multi-family units can exceed $1 million.

The article starts in San Francisco in early 2009:

In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston. A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary. ‘It was kind of crazy we could get this big a loan,’ said Mr. Rowland, 27. ‘If a government official came out here, I would slap him a high-five.’

If you’re thinking to yourself that this is the sort of government-induced behavior that helped create the housing bubble, go to the head of the class.

With government finances already under great strain, the policy expansions are creating new risks for American taxpayers. The Internal Revenue Service is giving tax rebates to first-time buyers, and soon to move-up buyers, in a program beset by accusations of fraud. And the government agency that issues mortgage insurance, the Federal Housing Administration, is underwriting loans at quadruple the rate of three years ago even as its reserves to cover defaults are dwindling. On Thursday, the Mortgage Bankers Association said more than one in six FHA borrowers was behind on payments.

It has been widely reported that the FHA might need a taxpayer bailout as a result of its head-first dive into riskier mortgages. HUD’s inspector general says the higher loan limits add additional risk to the FHA’s already dicey situation. But the FHA’s commissioner, David H. Stevens, says he isn’t worried because these mortgages “are for shelter. They aren’t speculative-type investments.”

Mr. Stevens is willfully ignoring the fact that the FHA’s ridiculously low minimum downpayment requirements mean homebuyers have little skin in the game. In a down housing market this increases the chances of homeowners being “underwater” on their mortgages, which can lead to them walking away and sticking FHA with the bill.

And as Richard Pozen pointed out in a Wall Street Journal op-ed yesterday, the $8,000 homebuyer tax credit can mean no downpayment at all:

Here’s how the credit allows buyers to avoid putting their own money at risk. Suppose a couple making $60,000 annually buys a home worth $200,000. They can get an FHA-insured loan if they put down 3.5% of the purchase price, about $7,000. The couple will also need to come up with another $1,000 in closing costs, for a total of $8,000. The couple can either dip into savings or borrow that money from relatives or somewhere else on a temporary basis. After closing, the couple can quickly obtain the $8,000 refundable tax credit to pay off their temporary loan (or replenish their savings). In effect, they will have bought a home without putting any of their own money at risk. Owners who don’t sink their own money into a house are much more likely to default on the mortgage.

So will Congress be bringing this insanity to a halt anytime soon?  Not according to the Times:

A few weeks ago, Congress extended the higher lending limits for another year. Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that he planned to introduce legislation next year raising the maximum FHA loan by $100,000, to $839,750. His bill would make the new limits permanent.

I guess being Barney Frank means never having to say you’re sorry.

Greedy Local Politicians Attempt to Grab Revenue Far Outside Their Borders

Regular readers of this blog are familiar with the tax competition battle, which largely revolves around high-tax governments attempting to track – and tax – economic activity that migrates to lower-tax jurisdictions. But this is not just a global fight between decrepit welfare states such as France and fiscal havens such as the Cayman Islands. American states also compete with each other, and there are numerous examples of high-tax states such as California and New York trying to grab money from people who escape to zero-income tax states such as Nevada and Florida. The fight even exists at the local level, and a good example is the attempt by politicians to tax faraway online travel agencies. The Orange County Register opines about these extraterritorial tax grabs:

A recent legal victory for some Texas cities against online travel companies over hotel taxes may have given Anaheim officials hope for their own case, but they shouldn’t start celebrating just yet. Other cities have not fared as well in similar lawsuits. …Here’s what Fairview Heights, Anaheim and other cities wanted to change: In a typical transaction, a traveler picks a hotel and books a room, stays there, and pays the hotel a room charge plus a local occupancy tax based on the room charge. The hotel keeps the room charge and forwards the tax money to the government. Enter online travel companies like Expedia, Hotels.com, Orbitz, Priceline and Travelocity, which allow travelers to sort through hotels and book a room on a central Web site. These companies do not reserve or resell hotel rooms, but act as intermediaries to facilitate the transaction between hotel and traveler. The hotel receives an amount for the room, on which the city’s hotel tax is based. Let’s say I search a Web site and book a $100 hotel room. The online company charges me $10 for their service. Anaheim argues that hotel occupancy tax should be paid not only on the $100 room charge, but also on the $10 service fee. …A federal bill is pending to limit hotel taxes to amounts collected by a hotel for occupancy purposes, excluding service fees and markups by intermediaries. The Constitution permits Congress to pass such laws if there is a danger that state and city laws are interfering with interstate commerce. Hotel taxes are attractive to local politicians because they are a way to shift the tax burden to “outsiders.” But because every U.S. city has a hotel tax, we’re all somebody else’s “outsider.” The net result is that everyone is taxing everyone else in an unaccountable way, and unless the cities and their lawyers are stopped, in an unpredictable way, too.

What’s Going on in Japan?

Two weeks ago in Defense News, I argued that America’s alliances are growing increasingly detached from American security interests.  With reference to Defense Secretary Bob Gates’ visit to the newly-minted government in Japan, I wrote that

after imploring [new Japanese PM Yukio] Hatoyama to continue Japan’s minuscule contribution to the war in Afghanistan and not to reconsider the deal to realign U.S. forces in Japan, Gates was asked whether the U.S. military role in Japan might be scaled back. Offering the obligatory reference to the countries’ “shared interest” in regional security, Gates admitted that “the primary purpose of our alliance from a military standpoint is to provide for the security of Japan … It allows Japan to have a defense budget … of roughly 1 percent of GDP.”

This is an excellent reason why the Japanese should support the alliance, but it raises the question of why U.S. taxpayers should want to pick up the tab for Japan’s security.

FutenmaMCAS Futenma

But the Hatoyama government seems intent on reopening old wounds.  Aside from its insistence on renegotiating the Futenma agreement on shifting US forces around in Japan, now comes the news that the just-elected Democratic Party (DPJ) is going to (*ahem*) open the kimono and reveal “evidence of a decades-old secret pact between Tokyo and Washington that allowed U.S. ships and aircraft to carry nuclear weapons on stopovers in Japan.”

The idea of a Japanese government breaking Japanese law in order to allow American military vessels to carry nuclear weapons in Japan is wildly unpopular among Japanese.  In large part, this is a pretty transparent move by the DPJ to stick it to the now out of power Liberal Democratic Party (LDP) by tying them to illegal and secretive practices that huge majorities of the Japanese public oppose.

But the broader point is that for those of us who have been advocating a larger role in Asia for Japan and a smaller one for the United States, the increasingly independent nature of the new DPJ government ought to be seen as a feature, not a bug.  If the Japanese are really feeling their oats and aren’t too excited at continuing the LDP’s lockstep alliance with the United States, more power to them.  If they want fewer US troops in Japan, terrific.  We’re militarily overextended as it is and have serious economic problems to deal with.  The Bush administration took some baby steps in this direction.  The Obama administration should keep the ball rolling.

American officials ought to be quietly thinking about how to use the developments in Japan to start handing off responsibility for defending Japan to the Japanese government.

The Nets Finally Win!

Unfortunately, that win comes as another blow to property rights:

The last major obstacle to a groundbreaking for the $4.9 billion Atlantic Yards development in Brooklyn fell Tuesday when New York’s highest court, the Court of Appeals, dismissed a challenge to the state’s use of eminent domain on behalf of the developer, Bruce C. Ratner.

Mr. Ratner, whose 22-acre development has been delayed for three years by a flurry of lawsuits, the collapse of the credit and real estate markets and a glut of luxury housing, plans to begin selling tax-free bonds next month to finance the development’s cornerstone project: an 18,000-seat basketball arena for the New Jersey Nets at the intersection of Flatbush and Atlantic Avenues near downtown.

Given the high-profile nature of the would-be new tenants of the land, this is the most famous property rights case currently being litigated, but it’s the same ol’ story: rich company wants land on the cheap, company gets the government to seize the land, property owners lose their land for the benefit of another private party for a decidedly not public use.

And, as I allude to in this post’s title, this loss comes to the 0-13 New Jersey Nets. (Even the Redskins can win a game without getting the government to bail them out!)

And while the story goes on to promise all this new office space and buildings to go on the newly acquired land, we know from recent experience that a successful deal doesn’t automatically trigger the jobs and benefit promised. To give you an idea what the rest of Brooklyn is looking like:

If construction begins in the coming weeks as expected, Atlantic Yards will stand out in a city where 530 different construction projects are stalled, sitting lifeless and without adequate financing in virtually every neighborhood.

One would think that if there was such a guarantee of money to be made, investors would be funding one of those 530 other projects in the city.

And if you think a brand spanking new stadium is more likely to bring in business to the immediate area, just ask the shop owners around the new Yankee Stadium how business was this year – when that team put up the best record in baseball and won the World Series. (NB: Go Red Sox!)

In any event, Cato continues the fight for the Fifth Amendment’s Takings Clause. We filed a brief in a case coming before the Court next week, Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection, which can be found here; and just yesterday filed a brief urging the Court to consider 480.00 Acres v. United States, which you can read here.

HT: Jonathan Blanks

Libertarian Policy Blogs

Looking for more commentary and analysis from Cato scholars? You can find their own blogs here:

Daniel Griswold - Mad About Trade

Jim Harper - Washington Watch & Tech Liberation

Daniel J. Mitchell - International Liberty

Will Wilkinson - WillWilkinson.net

Jeffrey Miron - Libertarianism, from A to Z

Patrick Michaels - World Climate Report

Randal O’Toole - The Antiplanner

David Boaz - DavidBoaz.com

Malou Innocent - Huffington Post

Julian Sanchez - JulianSanchez.com

Gene Healy - GeneHealy.com

Tom Palmer - TomGPalmer.com

Topics:

An Easy Target: Mocking the Stimulus

Writing for The Hill, I explain why Keynesian-style stimulus does not work. In addition, I note that the so-called stimulus was just an excuse for pork-barrel spending. But my concluding point, excerpted below, is that the White House goofed politically by making specific claims about the good things that ostensibly would happen by increasing the burden of government spending:

The only surprise was that the White House was foolish enough to make specific claims of the good results that supposedly would flow from all the pork-barrel spending. In part, this is the absurd notion of claiming 600,000-plus “jobs saved or created” when total employment actually has fallen by more than 3 million. But the bigger mistake was claiming that the faux stimulus would keep the unemployment rate from rising above 8 percent and that failure to squander $787 billion would cause the jobless rate to climb to 9 percent. The politicians got their wish, yet now the unemployment rate is above 10 percent. Brilliant.