Category Archives: Economics

Miscellaneous economy stuff

30-Year Mortgages

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Patrick Brenner, Southwest Public Policy Institute President, thinks these have been terrible ideas. I disagree. Central to his thesis this:

The 30-year mortgage locked families into a lifetime of interest payments that cost the borrower far more than the original price.

However, he never mentions a Critical Item that also obtained throughout his period of interest, the post-WWII mobility, both geographically and economically upward, of the American working force/homeowner population.

Two personal examples illustrate, and I claim our examples are typical, not unusual.

When my wife and I were starting out, as Lieutenants in the USAF, we were able to buy our first house courtesy of one of those “dangerous” shorter term balloon payment loans. We were highly mobile as USAF officers, but that mobility, as I claim, wasn’t unusual—the civilian work force also was highly mobile, and that mobility allowed homeowners to sell their homes, pursuant to their mobility, before the balloon came due, and buy another home in their new location, now with a variable rate loan (fixed for a period of years, then floating with the market), 15-year fixed mortgage, or an evil 30-year mortgage, with interest rates favoring the variable rate and the 30-year. Again, mobility allowed most homeowners to sell their homes before the variable rate reset, along with selling their 30-year mortgaged homes long before being “locked in for life.”

It also was the case that many of these balloon mortgage homeowners refinanced into a new variable rate loan or into a 15-year or 30-year mortgage. Banks expected these sorts of refinances and smoothed the path.

Many years later, as my wife and I were long established civilians and approaching retirement, we bought our current house with a 30-year mortgage. We’ve since refinanced that mortgage a number of times as interest rates went down, and currently have a monthly payment a bit over half that original payment.

So much for ever being locked in for life with a high-rate mortgage. With that mobility, very few homeowners actually paid more in aggregated principal and interest than the value of their homes—they refinanced down, or they sold and moved on.

The only thing in the way now is a greatly reduced mobility in our homeowner population. There are a number of reasons for that reduction in mobility, but the key here is that reduced mobility. Being “stuck” in some way with a 30-year mortgage is a symptom of relative immobility, not a cause of affordability. That immobility also contributes heavily to the lack of houses on the market while demand for homeownership remains high—that’s excess elevated pricing for homes.

Whose Shutdown Is It?

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The Progressive-Democrats in the Senate—nearly all of them, led by Minority Leader Chuck Schumer (D, NY)—have closed the Federal government over their demands to get their minority party way entirely. Senator Tim Kaine (D, VA), as cited by The Wall Street Journal,

said he could vote for a spending bill with a promise to extend the ACA subsidies later, provided that he could get a commitment from the White House to impose a moratorium on firings and spending cuts.

So much for Party’s blather about demanding negotiations on the subsidies as a condition of reopening the government. Now, it’s Party demanding an outright guarantee of the extension, no negotiation at all.

So much, too, for any possibility of the Progressive-Democratic Party ever being interested in cutting spending, only constant increases.

Senator Angus King (I, ME) made even more explicit who is responsible for closing the government:

the vote’s result (Friday’s Senate vote on the House-passed clean CR) “demonstrated that a vague promise about conversations about the ACA isn’t going to be enough to induce my colleagues to end the shutdown.”

This is King’s acknowledgment that it’s Party that has shut the government, and it’s Party that insists on keeping the government shut. With their determined closure, it’s Party that’s harming ordinary Americans with their cutoff of project funding that leads to private sector jobs being HIAed, even as Party bleats that it’s Republicans who are responsible.

Party ignores the fact that the Republicans in the House, despite Party’s best efforts, passed a clean Continuing Resolution—no pork for either party, just funding for seven weeks of government operations—and sent it to the Senate. It’s Party in the Senate that is demanding a Christmas tree worth of Party pork be added to the CR or they’ll leave the government closed, those projects unfunded, and those jobs HIAed.

A Glittering Generality

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This one is from Republican candidate for Ohio Governor, Vivek Ramaswamy:

Instead of viewing AI as competition, the next generation should own a stake in improving America’s economic productivity. If every child has $10,000 invested in the S&P 500, every one of them would be a millionaire well before retirement.

From where would that initial $10k stake come? If it’s handed to “every child” from outside (vis., government), that child would have no skin in that game, and he would not find himself at pains to protect that stake by actively participating in improving our economic productivity—for instance, by getting a job and working to his employer’s goals or starting his own business and working to make it grow and prosper. The money would just be found money of no personal value.

On top of that, Ramaswamy did not address another aspect of this “plan:” what does he think the value would be of those millions of dollars in the child’s end game of retirement after a long and fruitful life of doing…something? An increase of all that nominal wealth without a concomitant increase in the supply of goods and services, will simply drive up the cost of those goods and services, which is otherwise known as inflation. Those millions of dollars may well wind up with the purchasing value of today’s thousands of dollars.

This is a plan that sounds good in its base outline, but it badly wants cold, clear-eyed fleshing out with facts; hard logic; and clear, publicly measurable steps to be taken. Especially, but not exclusively, the steps needed to keep productivity growth up with S&P 500 growth in an environment where today’s and lots of prior year’s S&P 500 growth—its price to earnings ratio—has been outstripping goods and services—productivity–growth.

Yes and No

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A letter-writer in Tuesday’s Wall Street Journal Letters section wrote,

As he [Joseph Schumpeter] wrote in Capitalism, Socialism, and Democracy: “Every successful corner may spell monopoly for the moment.” Yet technological change upends whole industries, creating new, previously unimaginable services and “goods, the new methods of production or transportation, the new markets, the new forms of industrial organization.” Each dislodges the monopoly position of incumbent firms wedded to the old ways of doing things.

Not entirely.

I submit that the real problem, the one of which the above is merely symptomatic, is the fact that the monopoly’s moat is as much a barrier trapping the monopolists inside, limiting their ability to innovate, as it is a barrier keeping competitors in the monopoly’s established, old ways, venue from getting started.

From this, other startups, in closely associated but not the same venues as the monopoly, not being stultified by the safety that moat seems to provide, easily can out innovate and bypass the both the monopoly’s moat and the monopoly.

Second Verse Same as the First?

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The last time France tried a wealth tax, just a few years ago, it lost a lot of economic income, and the associated tax revenue on it, as the tax-targeted wealthy pulled up stakes and headed to other nations.

Now it looks like the French government is fixing to try that again.

France’s slide into political and fiscal dysfunction is generating a groundswell of support for a sweeping wealth tax that would represent a radical break from the pro-business agenda of President Emmanuel Macron.
The proposal is the work of French economist Gabriel Zucman, a former adviser to US Senators Bernie Sanders [I, VT] and Elizabeth Warren [D, MA]. He wants to impose a 2% tax on the assets of people with net wealth of 100 million euros, equivalent to $118 million, or more.

Here, though, it’s not just the politicians who have trouble even saying the words “cut spending.” The French unions continually demanding their cushy short work weeks and their even cushier pensions are actively aiding and abetting the government’s wastrelly profligate spending and those politicians who push that spending.

This is a tax that won’t end well for France.