Thursday, August 27, 2009

Greed and Gravity: Always there, so what causes crashes?

In Democracy in America, Alexis de Tocqueville worried that free, capitalist societies might develop so great a “taste for physical gratification” that citizens would be “carried away, and lose all self-restraint.” Avidly seeking personal gain, they could “lose sight of the close connection which exists between the private fortune of each of them and the prosperity of all” and ultimately undermine both democracy and prosperity.

So begins a long but fascinating article in City Journal by Steven Malanga, Manhattan Institute Scholar and author of The New New Left, and the article heats up from there:

What would Tocqueville or Weber think of America today? In place of thrift, they would find a nation of debtors, staggering beneath loans obtained under false pretenses. In place of a steady, patient accumulation of wealth, they would find bankers and financiers with such a short-term perspective that they never pause to consider the consequences or risks of selling securities they don’t understand. In place of a country where all a man asks of government is “not to be disturbed in his toil,” as Tocqueville put it, they would find a nation of rent-seekers demanding government subsidies to purchase homes, start new ventures, or bail out old ones. They would find what Tocqueville described as the “fatal circle” of materialism—the cycle of acquisition and gratification that drives people back to ever more frenetic acquisition and that ultimately undermines prosperous democracies.

I agree with much of the writer's sentiment, and I recommend a full read. I don't know if I fully buy every example he lists, but I did find interesting the anecdote about how virtue became separated from work and replaced by politically correct gestures, even in board games:

When the Milton Bradley Company reintroduced “The Checkered Game of Life” in a modern version called “The Game of Life” in the mid-1960s, it abandoned the notion of rewarding traditional bourgeois virtues like completing an education or marrying. What was left of the game was simply the pursuit of cash, until Milton Bradley, criticized for this version, redesigned the game to include rewards for doing good. But its efforts produced mere political correctness: in the new version, recycling trash and contributing to save an endangered species were virtuous actions that won a player points. Such gestures, along with tolerance and sensitivity, expanded like a gas to fill the vacuum where the Protestant ethic used to be.

The article stands on its own, but I would like to make a couple of tangential points. First, there is a huge difference between hard work and honest work. We have plenty of the former. Does anyone doubt that bankers, lobbyists, corporate executives, and their attorneys don't work tirelessly? It is the lack of virtues that corrupts hard work and ingenuity to give us the over-leveraged, loop-holing, back-room dealing, government-dependent, shortsighted society we find ourselves in.

That said, greed, dishonesty, and envy are not new to the human condition. So what has changed? How did we evolve into such a Machiavellian (Exhibits A & B = Survivor & Big Brother) and narcissistic (Exhibits C -= 99% of reality shows and pop/hip-hop music) culture?

It's not media, technology, business, or government, but the lack of accountability and community that pervade not only these institutions, but our interpersonal relationships as well. We are no longer personally invested in our neighbors, friends, family members, or even ourselves. As much as we would like to recast the parable of the good Samaritan into the parable of the good Samaritan government, or the good Samaritan economy, it doesn't work that way. It only works when we take personal behavior personally, and then surround ourselves with others who share those same principles and will hold us accountable.

Monday, August 24, 2009

A More Man--Tastic World

From Men's Health A wish-list of 25 steps towards a better world:

1. No more bathroom attendants. They're just creepy. And hell, no more charging money for stuff that used to be free. Now give us our little bag of peanuts, airlines.

2. Carpentry, plumbing, and electrical courses would be mandatory for all boys in middle school.

3. Scarlett Johansson would replace Jackson on the $20 bill.

4. Basketball players wouldn't be able to call a timeout as they're heading out of bounds. They'd need to be in total control. Come to think of it, timeouts would be banned entirely. Life doesn't have them.

5. All base runners would score on a ground-rule double.

6. All of the following would be tax deductible: TV sports packages; alcoholic beverages; mechanical timepieces; shoe shines; and all costs related to the pursuit of sex, up to and including Porsches.

7. Icing the kicker or free-throw shooter would be outlawed. Just play the damn game.

8. Caddies would be prohibited on the PGA Tour. No other athlete has a butler/shrink on the field with him. Conning out distances is a fundamental skill of the game; so is picking the correct club. We'd deep-six the 150-yard marker, too.

9. If you bathe your coach in Gatorade, you also forfeit the game.

10. Men would be permitted to admit uncertainty, and women would find this hot.

11. Movie reviewers would be forbidden to call a flick the funniest movie of the year until the following year.

12. Women would start with the climax of their stories, and then go back to fill in the details (if we ask).

If you setout to climb Mt. Hood wearing shorts and sandals, and then have to be rescued by 12 men, two helicopters, and a team of huskies, your marginal tax rate would be raised to 81 percent until you've repaid the cost of being an idiot.

14. All cable providers would carry a Salma Hayek channel.

15. Those little ketchup and mustard packets would be twice as big.

16. A 25-handicapper would not be allowed to pace off approach-shot yardage. (Just put the ball in the air, bucko.)

17. All gutters would self-clean.

18. Parents would strive to give their children self-reliance instead of self-esteem.

19. Singing "Happy Birthday" at the office (with or without cake) would result in immediate termination.

20. Every fifth year would be free of federal income taxes.

21. Volunteering to slather sunscreen on women in the park would finally be seen for what it is: community service in cancer prevention.

22. Dads would stop complaining that refs never call traveling.

23. Alternatively, refs would start to call traveling.

24. A 20-yard field goal would be worth 3 points, but a 50-yarder just 1. Try throwing the ball, coach!

25. Parent-teacher nights would come with nachos and tequila shooters.

I never thought I would have a reason to link to Men's Health on this blog, but I have to admit I like several of these! In fact, the only one I may object to is #6, and only because I don't believe in government-sponsored incentives.

Thursday, August 20, 2009

Home Ownership: American Dream or Nightmare?

The Wall Street Journal makes a case for a renter society:

For most Americans, until the recent past, home ownership was a dream and the pile of rent receipts was the reality. From 1900, when the census first started gathering data on home ownership, through 1940, fewer than half of all Americans owned their own homes. Home ownership rates actually fell in three of the first four decades of the 20th century. But from that point on forward (with the exception of the 1980s, when interest rates were staggeringly high), the percentage of Americans living in owner-occupied homes marched steadily upward. Today more than two-thirds of Americans own their own homes. Among whites, more than 75% are homeowners today.

Yet the story of how the dream became a reality is not one of independence, self-sufficiency, and entrepreneurial pluck. It's not the story of the inexorable march of the free market. It's a different kind of American story, of government, financial regulation, and taxation.

We are a nation of homeowners and home-speculators because of Uncle Sam.

It wasn't until government stepped into the housing market, during that extraordinary moment of the Great Depression, that tenancy began its long downward spiral. Before the Crash, government played a minuscule role in housing Americans, other than building barracks and constructing temporary housing during wartime and, in a little noticed provision in the 1913 federal tax code, allowing for the deduction of home mortgage interest payments.

Until the early 20th century, holding a mortgage came with a stigma. You were a debtor, and chronic indebtedness was a problem to be avoided like too much drinking or gambling. The four words "keep out of debt" or "pay as you go" appeared in countless advice books. As the YMCA told its young charges, "If you can't pay, don't buy. Go without. Keep on going without." Because of that, many middle-class Americans—even those with a taste for single-family houses—rented. Home Sweet Home didn't lose its sweetness because someone else held the title

Mrs. Hommes and I have a mortgage on a house. Emotionally, we both like the house, the neighborhood, the history, and share an optimism about the home's possibilities. Where we disagree is that I, in retrospect, look at our decision to purchase the house, or any house for that matter, as a hasty, if not mistaken, financial decision.

Don't get me wrong. We are (thankfully) able to handle the finances, and prices in our area seem to be holding up remarkably well in the current environment. I even think in the long run we may benefit. Still, I confess that I was drawn in by the lure of "ownership" without properly weighing the benefits, consequences, and timing of such an important decision. We basically bought a house because we assumed that's what newlyweds were supposed to do.

Helping me to realize my foolishness was Mr. Financial Doom himself, Peter Schiff. Specifically, it was a speech he gave last year for the Austrian Scholars Conference in which he made a very important and foundational point about real estate that is all too often not understood - real estate is a function of rents! The transcript from the speech can be a little difficult to follow because of Schiff's erratic style, but he makes the point well through heavy use of example and sarcasm:

During the real-estate bubble, I remember, I was renting houses — and I'm still renting my house now in Connecticut — and I would go and I would go to houses for rent.

And I remember one time I went and there was a house for rent. I looked at it and the realtor was there. And, apparently, the person who was renting it out was an investor who just bought the place.

And I asked them what was the rent. I forget what it was. Maybe it was $4,000 a month, whatever it was for this place. And I knew. I said, "Well, what'd the guy pay for this? What'd he pay?" I said, "Well, how could he make any money renting it out to me? Isn't this going to lose money? Doesn't he have negative cash flow?"

He said, "Well, yeah, he loses a couple thousand dollars a month." And I said to him, "But you recommended this as an investment?" He said, "Yeah."

"But why would you recommend, as an investment property, a property that has a negative cash flow? Why would you have him buy it?"

And he said, "Well, you don't understand, this property's going to appreciate. This property could double in the next couple years."

And I said, "Why? Why would it double? You can't even cash flow it positive at the price it's at now. How's it going to go up in value?"

And I said, "Real estate is a function of rents." And then the guy said to me — same thing — he said, "You don't understand real estate." He was telling me that rents don't matter to real estate.


I did the same thing, when I rented my apartment. After I got divorced, I was renting an apartment in Stamford, and — beautiful apartment, right on the water. I had my boat there. Beautiful views of the Sound. Right on the corner.

Great unit, beautiful building. I had a concierge. It had a pool; it had covered parking; it was a security building; it had racquetball courts, had a gym with a trainer on staff; a lot of amenities.

Right next door, there were maybe 20-year-old townhomes for sale. And I went to one of the open houses just for kicks.

And there was a unit on sale, whatever they wanted, five or six hundred thousand dollars for this unit, that was about the same square footage as what I was renting, but it had no view of the water; it was dark, it was old, there was no security; it had none of the amenities. Yet the property taxes and maintenance fees alone were like a thousand dollars a month.

And by the time I would have paid the mortgage, if that's how I financed it, I would have been spending more money per month to live in one of these little places than this really nice apartment that I was renting, right next door.

And I asked the realtor, I said, "Why would anybody buy this place? You can just rent right next door. There's more units available; I know, I just rented." And the lady said to me, "Well, but when you rent, when you move out, you're not going to have any equity."

I said, "Well, what do you mean?" She says, "Well, when you buy this property, then it appreciates, and then you can sell it when you move out and you make money."

And I said, "Well, why the hell should it appreciate? Didn't you understand? It's already overpriced; you can rent right next door. Why should it go up?" And she said, "Well, that's how real estate works."

I said, "So, you mean the way real estate works is I have to sacrifice; I have to turn down the opportunity to live in a really nice place; I live in this dump for a while and because I did that, I make money. And somebody else is going to come to me a year or two from now and overpay by even more and say, 'I don't want to live in that nice place next door, I'd rather pay more to live here because this is going to appreciate'."

And they totally forgot what real estate meant. Real estate's a place to live. But everybody thought it was going to go up, so they were all crazed.

After thinking about this a while, I took a look at the Hommes budget and calculated how much we paid in interest, property taxes, home insurance, maintenance, and oh yeah, let's not forget that minuscule amount that actually goes to principle, and it started to sink in. Either (a) We will be making these payments for the next 20 or so years (give or take), at which point we will be the proud owners of an 80 year old house, or (b) we will move at some point and be fortunate to recapture a small percentage (especially after all fees and commission) of all the payments made.

Please forgive my pessimism. I do love my house. BUT in a society that has the average family moving every 5-6 years, what are the chances we will stay in the same place for the length it takes to pay the mortgage and then longer? And how much major work and updating will it require along the way?

Doing the math is hard, especially because of the complication of taxes and incentives, but it seems to work out in most cases that by renting modestly, and then squirreling away all the money that would have gone to the taxes, maintenance, commissions/fees, etc., a disciplined couple can save enough money to retire earlier that they otherwise would have, and pay cash for a house wherever they want to grow old and die.

Sure this takes away the possibility of winning the real estate lottery and owning a property that appreciates exponentially, BUT by renting provides a lot of flexibility, requires a lot less responsibility, and someone else pays for the new water heater when the old one gos kaput.

Renting may indeed be a sensible and more low-risk path to the American dream.

Wednesday, August 19, 2009

C.S. Lewis and the Bible

C.S. Lewis aficionado Mark Sommer wrote an article for Examiner in which he presents the Lewis' views on scriptures:

Conservative theologians have classified him [C.S. Lewis] as liberal, liberal theologians have classified his as conservative. The truth is somewhere in the middle. Perhaps anyone who has read his books have disagreed with him on more than one occasion. But this is perhaps how it should be. God has apparently chosen to use imperfect human beings to show himself to the world. It is only natural that imperfect people will disagree. God's intention seems to be that we should learn to learn from each other rather than using our differences as an excuse to build walls between us.

Lewis spoke about the mythical nature of the Bible. By this he did not mean that the Bible was untrue, or full of "fairy tales," but that it has a certain quality that is found in pagan mythology. He believed that God used mythology to reveal himself to the pagan world before Christ. As Christensen explains:

All the pagan myths were merely premonitions of "Nature's Original," as Lewis calls Christ. When the Word became flesh, when God became man in Jesus Christ, the process of myth was actualized and revelation was complete. Pagan myths, motifs, and rituals were noble yet inadequate vehicles of divine revelation--distorted reflections of the real thing. ... "Myth became Fact," ... God's progressive revelation, which appeared only faintly in the great myths, had culminated in historic fact. [p.75-76]

Realizing that the modern conception of "myth" is far from what Lewis meant, Christensen suggest the term "literary inspiration" for Lewis's view of the way the Bible is inspired. "The Bible is to be approached as inspired literature. Its literary element--images, symbols, myths and metaphors--are actual embodiments of spiritual reality, vehicles of divine revelation." This does not mean that the significance of a passage should be dismissed. As Lewis wrote:

Some people when they say that a thing is meant "metaphorically" conclude from this that it is hardly meant at all. They rightly think that Christ spoke metaphorically when he told us to carry the cross: they wrongly conclude that carrying the cross means nothing more than leading a respectable life and subscribing moderately to charities. They reasonably think hell "fire" is a metaphor--and unwisely conclude that it means nothing more serious than remorse. They say the story of the Fall in Genesis is not literal; and then go on to say ... that it was really a fall upwards--which is like saying that because "My heart is broken" contains a metaphor, it therefore means "I feel very cheerful." This mode of interpretation I regard, frankly, as nonsense. [Miracles, cited by Christensen, p. 77-78]

Liberals often claim that the Bible is not the Word of God in itself, but becomes the Word of God when God speaks to the individual through it. This subjective approach Lewis apparently rejected. The Bible should be accepted at "face value" just as any other piece of literature.

Some Conservatives, on the other hand, ignore the fact that the Bible is literature, and should be read as such. The vast majority of scripture is in Story form. God did not dictate to us a systematic theology textbook, but truth conveyed through narrative and poetry. There are exceptions, such as the Epistles and the Laws given to Israel. These direct statements help us to keep us from coming to the wrong conclusions about what is being taught in the narrative passages. But the narratives connect the doctrinal teachings to our life and emotions, giving flesh to the dry bones of Theology.

I can't confirm whether the writer justly presents the views of Lewis, but I found it interesting in light of recent discussions here on the blog. Like most readers of Lewis, I take some and leave some of his positions, but it is always good food for thought.

Tuesday, August 18, 2009

Environmental Quote of the Day

Via New Majority:

Many laws protecting environmental quality have promoted liberty by securing property against the destructive trespass of pollution.
-Ronald Reagan

Quote aside, which I completely agree with in principle, I completely disagree with the particulars of the linked article as it relates to Carbon Dioxide. Scientific evidence is mounting against anthropogenic global warming models, and there is little if any credible evidence that human-released Carbon Dioxide is a primary cause of temperature shifts. Changes in Carbon Dioxide levels in the atmosphere may well be a trailing indicator of climate change instead of a cause, and studies are showing that the Earth is largely maintain equilibrium by releasing more heat into space and by adjusting the levels of atmospheric water vapor. I am sure the politicians have already thought about taxing clouds...

Still, returning to Reagan's quote for a minute, I am very much for regulation that would protect those who would "trespass" by worsening the quality personal and shared (air, water, soil) property of others through pollution.

Monday, August 17, 2009

Protests: 2009 Health Care vs. 2005 Social Security

Via The Next Right, Krugman, progressive economist, NYT columnist, and expert in the use of selective memory, asserts:

A number of people in the news analysis business seem to be equating the role of liberal activists in making trouble for Republicans back in 2005, during the debate over Social Security privatization, with that of conservative activists in making trouble for Democrats over health care reform. [...] Seriously, I’ve been searching through news reports on the Social Security town halls, and I can’t find any examples of the kind of behavior we’re seeing now. Yes, there were noisy demonstrations — but they were outside the events. That was even true during the first month or two, when Republicans actually tried having open town halls. Congressmen were very upset by the reception they received, but not, at least according to any of the report I can find, because opponents were disruptive — crowds booed lines they didn’t like, but that was about it. [...]

So please, no false equivalences. The campaign against Social Security privatization was energetic and no doubt rude, but did not involve intimidation and disruption.

Except for:

  • NW Progressive Institute, March 2005: "a boisterous crowd which frequently interrupted the discussion with shouts and hard nosed questions. ... Democrats in the audience who were interrupting the panel.... the crowd erupted in anger... Democrats in the audience started shouting him down again."
  • Savannah Morning News, March 2005: "By now, Jack Kingston is used to shouted questions, interruptions and boos. Republican congressmen expect such responses these days when they meet with constituents about President Bush's proposal to overhaul Social Security."
  • USA Today, March 2005: "Shaken by raucous protests at open "town hall"-style meetings last month ... Santorum was among dozens of members of Congress who ran gantlets of demonstrators and shouted over hecklers at Social Security events last month. Many who showed up to protest were alerted by e-mails and bused in by anti-Bush organizations such as and USAction, a liberal advocacy group. They came with prepared questions and instructions on how to confront lawmakers."

Tuesday, August 11, 2009

Troll Alert

I promise I will get back to more regular posting as soon as I settle into some new responsibilities that are taking up many more hours a day, but for now, you can catch me being a troll on someone else's site. The question posed, in the end, was:

Can we reconcile free-trade economics to our quaint, but truly conservative, localism? If so, how? Or is “protectionism” the answer?
My comment:


I am 90% right there with you. Röpke, virtue, community, and a limited government that is of, by, and for the people instead of corporations, lobbyists, and lawyers. I try to put limits on the demonizing of BIG, however. Your position is tenuous when you clamor against big companies on one hand and would seek ways to limit/regulate them, yet on the other hand you clamor when those same companies move their jobs overseas. If, and that may be a very big if, but if a company can succeed without government help, and without externalizing its social and environmental responsibilities to the public, who are you or anyone else to say they are too big for their britches?

I am very much a believer in subsidiarity and localism, but that does not mean we can forgo participation in a global community. To further James’ and Bruce’s comments above, I may have my own ideas about tariffs, but I would not label myself as a protectionist, but as one seeking to even the playing field among other countries that compete unfairly.

American workers and American businesses still need to compete with the products and services of a global marketplace, and I believe we can do so if government would end corporate welfare and enact more sound and efficient tax, regulatory, and monetary policies. This would be creative destruction of an altogether different sort.

Nathan's response:


Your position is tenuous when you clamor against big companies on one hand and would seek ways to limit/regulate them, yet on the other hand you clamor when those same companies move their jobs overseas. If, and that may be a very big if, but if a company can succeed without government help, and without externalizing its social and environmental responsibilities to the public, who are you or anyone else to say they are too big for their britches?

I, as is probably obvious, shall not fully concede this point — because that I think that inherent virtue (perhaps I’m playing a little too loosely with that word presently — in smallness. You do, however, make a fair point — and offer a very important caveat with that “very big if”.

I briefly read your bit about tariffs, and while I’m not comfortable with the fundamental point, where you agree with Kristof about sweatshops, I’m not unaware of the at-least-partial truth in the point, and, more relevant, I think that I probably fall in the same boat as you respecting tariffs. Parity matters.

believe we can do so if government would end corporate welfare and enact more sound and efficient tax, regulatory, and monetary policies.

Sign me up.

The distinction between parity and protectionism is an important one. I would like the US Government to have a carrot & stick approach to both improving the economies of the world's poorest countries and ensuring American businesses and workers compete on a fairly level playing field. I think tariffs can be used as a tool in this regard, as long a large portion of the tariffs is used to bring good regulatory/legal frameworks to less developed countries.