Tag: crash

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.

Washington Metro’s Problem: Too Much Money

The terrible Washington Metrorail crash that killed nine people has led to calls for more money for transit. Yet the real problem with Washington Metro, as with almost every other transit agency in this country, is that it has too much money – it just spends the money in the wrong places.

“More money” seems to be the solution to every transit issue. Is ridership down? Then transit agencies need more money to attract more riders. Is ridership up? Then agencies need more money because fares only cover a quarter of the costs.

Yet the truth is that urban transit is the most expensive form of transportation in the United States. Where the average auto user spends about 24 cents per passenger mile, transit costs more than 80 cents per passenger mile, three-fourths of which is subsidized by general taxpayers. Subsidies to auto driving average less than a penny per passenger mile. Where autos carry 85 percent of American passenger travel, transit carries about 1 percent.

When Congress began diverting highway user fees to transit in 1982, it gave transit agencies incentives to invest in high-cost transportation systems such as subways and light rail when lower-cost systems such as buses would often work just as well. Once they build the high-cost systems, the transit agencies never plan for the costs of reconstructing them, which is needed about every 30 years. The Washington Metro system, which was built as a “demonstration project” in the 1970s, is just a little ahead of the curve.

Now over 30 years old, Washington’s subways are beginning to break down. Before the recent accident, some of the symptoms were broken rails, smoke in the tunnels, and elevator and escalator outages.

Now we learn that the National Transportation Safety Board told Metro in 2006 to replace the cars that crashed on Monday because they were in danger of “telescoping,” which is what killed so many people in Monday’s accident. Also, the brakes were overdue for maintenance. Metro responded that it planned to eventually replace the obsolete cars, but didn’t have the money for it.

But it does have money to build an expensive new rail line to Tysons Corner and, eventually, Dulles Airport. Planners had originally recommended running bus-rapid transit along this route, but that wasn’t expensive enough so Metro decided to go with rails instead – at ten times the cost of the bus line.

The simple problem is that we have forgotten about the need to weigh revenues and costs. Instead, transit has become a favorite form of pork barrel and, for the slightly more idealistic, a method of social engineering, meaning a part of the Obama administration’s campaign to “coerce people out of their cars.”

That’s one more government program we can do without.