I promise

I just realized that the Economist article is dated March 19, 2009, which is the same day I made my post. But I didn't read that article until this morning, I promise.

Sometimes I get it right

If you pay attention to dates it is clear that "The Economist" is reading this blog and using it for ideas. My most recent post criticizes the American People for their reluctance to move. Well, apparently thats not just hot air. This article from March 19, 2009 not only reiterates the points that I made, a) Americans do not move as much as they used to and b) that mobility is an important aspect to a free labor market, but they go farther and explain why those things are happening. Apparently home-ownership has a negative side you may never have thought about, it lessens your mobility.

http://www.economist.com/world/unitedstates/displayStory.cfm?story_id=13331109

Labour mobility
The road not taken

Mar 19th 2009 | WASHINGTON, DC
From The Economist print edition
Americans used to move to where the jobs were. But now home-ownership and health insurance freeze many of them to the spot

NEELY WHITES bought a former crack house in New Orleans and fixed it up. It was looking really nice when Hurricane Katrina struck. In the storm’s aftermath the neighbourhood where she lived turned even rougher than before. Weary of drive-by shootings, Ms Whites moved to Long Beach, Mississippi, and bought a house there in September 2006.

It was not the best timing. The property market promptly crashed. After fleeing a city that was literally under water, Ms Whites is now stuck in a home that is figuratively so. She would like to move closer to her new job as a financial consultant, cutting the daily commute from an hour each way to something less onerous. But she cannot sell her home. A nearly identical one on her street has been on the market for ages at $125,000 and found no takers. Ms Whites’s mortgage is over $160,000. To make matters worse, she is in the middle of a divorce. Not being able to sell the house prolongs that painful process.

Mobility is part of the American dream. In “The Grapes of Wrath”, when Tom Joad’s farm in Oklahoma was repossessed he packed up his family in a sputtering truck and set off for California. Things didn’t work out so well for John Steinbeck’s hero. But throughout history, Americans have dealt with economic shocks by picking themselves up and moving on. Their mobility underpins America’s flexible, dynamic labour market. Now it faces two threats.

One is the housing bust. House prices have collapsed by 27% since their peak in 2006. By December last year a fifth of homeowners with mortgages owed more than their homes were worth. Such people are only half as likely to move as those whose homes are above water, estimate Joseph Gyourko and Fernando Ferreira of the Wharton School of business.

Some cannot sell their homes at all. Others could, but don’t want to take a big loss on an investment they thought was safe as houses. Either way, they are stuck. If a good job comes up in another town, they cannot take it. This effect is partly offset by the impact of foreclosures. Last month alone 291,000 homes received a foreclosure notice. The newly evicted are not merely free but obliged to move. This is unfortunate, but although jobs are in short supply nearly everywhere, being mobile at least increases the odds of finding one.

A decade ago Andrew Oswald of the University of Warwick in Britain argued that excessive home-ownership kills jobs. He observed that, in Europe, nations with high rates of home-ownership, such as Spain, had much higher unemployment rates than those where more people rented, such as Switzerland. He found this effect was stronger than tax rates or employment law.

If there are few homes to rent, he argued, jobless youngsters living with their parents find it harder to move out and get work. Immobile workers become stuck in jobs for which they are ill-suited, which is inefficient: it raises prices, reduces incomes and makes some jobs uneconomic. Areas with high home-ownership often have a strong “not-in-my-backyard” ethos, with residents objecting to new development. Homeowners commute farther than renters, which causes congestion and makes getting to work more time-consuming and costly for everyone. Mr Oswald urged governments to stop subsidising home-ownership. Few listened.

America subsidises more than most. Owner-occupiers typically pay no tax on capital gains and can deduct mortgage interest from their income-tax bills. Fannie Mae and Freddie Mac, two government-backed mortgage firms, have squandered a fortune promoting home-ownership among the uncreditworthy.

The other threat to mobility is health insurance. A company can buy health insurance for its employees with pre-tax dollars; an individual can buy it only with after-tax dollars. So although soaring premiums are prompting many firms to drop or restrict coverage, most Americans still get their health insurance from their jobs.

This makes it hard for anyone with a sick child to quit and start a new firm. It also makes it harder to switch jobs, despite a law helping employees to stay in company plans for 18 months after they leave. Scott Adams of the University of Wisconsin-Milwaukee found that married men with no alternative source of insurance were 22% less likely to switch jobs than those who, for example, could get covered by their wife’s employer.

Tying health care to a job can tie people to jobs they hate. Gerry Stover, who now runs a doctors’ group in West Virginia, recalls a time when his wife was pregnant and he couldn’t get health insurance at a private firm. He became a prison guard. As a public employee, his family was covered. But the job was neither pleasant nor a good use of his talents. “You have a radio and you’re put in a room with 70 criminals and told: ‘If they get you round the neck, press the [panic] button’,” he says. Some people even get stuck in bad marriages because they need their spouse’s health insurance. As Alain Enthoven of Stanford University puts it, this gives new meaning to the word “wedlock”.

The recession seems to have slowed internal migration. Only 11.9% of Americans moved house between 2007 and 2008—the most sluggish pace since records began in the 1940s. But not everyone has been immobilised. The postal service helps employees move by buying their homes and selling them at a loss. A postmaster in South Carolina recently sold his pad to his employer for $1.2m. “No wonder stamps cost so much,” grumbles a blogger.

Go West Old Man! Or east, south or north.

A theme through all my complaints and rants about the economic crisis has very little to do with Wall Street or the government. Most news outlets have enough of that to go around. I like to focus on something that nobody else does, the American People. They are getting off without any criticisms, and its frustrating the shit out of me. The American People that are losing their jobs and maybe even their entire industries are hypocrites. I doubt that you would find many communist (or even socialist) sympathizers in the UAW. But as soon as things start getting bad for them they want the government to help. If you asked them, in an abstract sense, do they think its good when the government intervenes to help out business, or do they think that its good to have a big government, I'm sure the majority would say, "hell no!". But as soon as that argument becomes concrete and no longer abstract they change their tune. I suppose there is nothing all too bad about this, we are all hardwired for self-interest, and that's what this boils down to. But there is a fatal flaw for many blue-collar workers. They want capitalism. They love it. They love America more than anyone else, and they'd be damned if we had to live like those Ruskies, or even those French. But they don't really mean it. They want the government to intervene, they demand it. Try moving or closing a military base that's in a small town. Even if it means shrinking government. Even if it means growing the economy as a whole. The people of that town will freak out and protest. Try shutting down a factory because its more beneficial to make some product overseas, and watch the people wave the American Flag and claim that the big company is a traitor for moving their operations overseas. The company is being as American as Apple Pie. They are participating in capitalism, the thing that all the blue collar-types supposedly love. Its a hypocrisy that has its roots in the fact that people of this country want everything. And as soon as they get it, they want more or they complain about why they didn't get it sooner.
The mobile, mostly Y.U.PPy types get it. They realized from high school that they weren't going to have one career their entire life, they were probably looking 3 or 4 different ones. They certainly knew that they were going to have to move around, all over the country and possibly to another country. This is capitalism. It is fast, dynamic and unpredictable. Most of the world agrees that capitalism is a good thing, but few stop to think what it really means. It means that you have to be ready to move and be mobile, both literally and in your thinking. And the days of getting a job at the plant after high school and staying in one town for your whole life making a great living are gone. does that mean that things are worse off? Not by a long shot, for those who embrace the world as it is, as people claim it ought to be things are much better. The good old days weren't always so good.
The next time you wave a flag and bad mouth those lazy Europeans, think for a minute what it really means to have a free market.

If you're so smart, why aren't you rich?

That was a common phrase form a Kurt Vonnegut book, I think it was "Cats Cradle". Vonnegut is probably my favorite writer, nobody captures irony and the death of the American Dream better (maybe Hunter S. Thompson, but in a very different way). Beyond the American Dream, however, Vonnegut is probably better than anyone else ever has been at seeing huge faults in humanity, that, in his gloomy view of said species end up wreaking massive pain and suffering.
I love that expression, not because I agree with it, but because I think it summarizes everything I hate about this world. Many people, of all social standards, actually believe that you should be extremely wealthy if you're smart and that if you're not extremely wealthy you're not smart and, the worst of all possible corollaries, that if you're extremely wealthy you must be quite smart. But whatever happened to the good old fashioned American notion that all the wealthiest people are likely absolute crooks in some way or another?
This, more or less, was the subject of a recent column by recent Nobel Prize in Economics winner Paul Krugman http://www.nytimes.com/2008/12/19/opinion/19krugman.html?partner=permalink&exprod=permalink.
This column basically laments how the financial industry has screwed us over by taking peoples money, investing it in high yield, high risk stocks, taking the bonuses and high salaries when things are good and than walking away when the investments all turn sour. --

--from Krugman:

Meanwhile, how much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?

Most of all, the vast riches being earned — or maybe that should be “earned” — in our bloated financial industry undermined our sense of reality and degraded our judgment.

Think of the way almost everyone important missed the warning signs of an impending crisis. How was that possible? How, for example, could Alan Greenspan have declared, just a few years ago, that “the financial system as a whole has become more resilient” — thanks to derivatives, no less? The answer, I believe, is that there’s an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume that they know what they’re doing.

I especially like that part about the lure of money pulling people away form jobs that actually do things, like science. Which brings me to the solution for a "world gone madoff": changing peoples minds and values. Policy will not help us on this one. This is the thing that not many people are free to say, because in essence it amounts to saying that its the peoples fault. The populists won't tell you that because it undermines their entire ideology. The elected officials won't tell you that because they're afraid of losing votes and the elite won't say that because it will call attention to how elitist they are. But I have nothing to lose so I'll say it. Any Rand says never trust the person that asks you to sacrifice. So I won't use that exact word. But instead I'll stick with another expression, "you reap what you sow". If Americans live by the adage, "if you're so smart, why aren't you rich?" they are always going to value money over intelligence, substance or stability. And I'd like to think that those are the elements of a strong economy that can maintain its strength over decades. People made bad decisions that didn't look past the next fiscal quarter and other people made them CEOs. People went into financial services and took jobs knowing that they had no clue what they were doing and took salaries that were knowingly way too high to be reasonable (see the book "Liars Poker" for more on that). And still other People gave the former people the money to do that.

The country's economy is in tatters and nobody knows exactly how bad its going to get before it gets better. But everyone has an opinion on why we are here. Maybe, so far as the recovery is concerned it doesn't matter who's fault it is. But it certainly does matter who's fault it is to prevent it from happening again. And the answer is, every time you did something foolish with your money or made life decisions based on getting rich as quickly as possible and not on actually doing or creating something, its your fault.

Adam Walsh and repercussions good and bad.

Every now and again things happen that change the world. And often they can be relatively minor. This thought occurred to me when I saw that Adam Walsh's case was solved. I lived in South Florida 2 years after his abduction became national news. In fact, I lived in Miramar, Fl, which borders or is at least very close to Hollywood, Fl, the place where the abduction happened. Whats more, I have been in that mall and the Sears where it happened. Of course, I was only about 8 years old at the time.
I didn't realize it at the time, but this abduction had a huge impact on our (my generations) parents, specifically moms. Our generations parents could be considered the safety first generation. Our parents created safety belt and helmet laws (bicycle and motorcycle), M.A.D.D. and our parents were probably the first ones to teach their children to be afraid of strangers. My mom freaked out about that abduction and literally drilled into my head what to do if someone tried to abduct me. I can remember her telling me to kick and scream and yell and bite and any number of the nastiest things an 8 year old boy can do to hurt and adult and/or attract attention. The attention drawn to abductions and child safety by John Walsh (Adam's father) has been an amazing help. His TV show, America's Most Wanted, has been shown to save over 1000 children from abduction alone. And I read that his association and the work they've done may have saved 100,000 children since the early 80s.
I could never question the benefits of such organizations and awareness. But lets remember that nothing comes without a price. What are the consequences of a generation that is taught as young as they can remember to never trust a stranger? It has to sow the seeds of cynicism, bitterness, and contempt for our neighbors. I wish I could have known my fathers world where a 10 year old boy could cruise around Niagara Falls, NY with a bus pass and his parents were never concerned. I'd love to live in a world where a parent could see some other adult spanking their child and assume that the child deserved it and actually apologize instead of launching right into litigation and possibly criminal actions.
What happened in the last 20 years that such horrible things can happen to children like Adam Walsh, which seem to be a minor occurrence before? But more importantly, even though most of your neighbors share your values and are generally good people why would you not trust them to discipline your children? And why don't we think that spanking is a good idea anymore?
This all may seem disjointed but there's a connection between all these things to what is happening to our economy and possibly our entire society and way of life these days. I think that one can look at all symptoms and draw many conclusions. One may be in favor of increased policy or no policy or smarter policy. However, at some level you can't legislate human behavior, but it can change. Is it possible that the economic meltdown isn't a financial issue at its heart but instead the chickens coming home to roost from years of f-d up values?