The Liberal Order

To Whom Should You Listen About Real Estate In Wake County, NC?

David Bracken of the News & Observer reports that now is a great time to buy. (Notice how Bracken quoted only real estate agents in his story. I regard articles printed in the Real Estate section of newspapers as nothing more than paid advertisements of the real estate lobby.)

Damon Darlin refers to advice such as that provided by the real estate agents quoted in Bracken's article as "famous last words." 

“IT’S a great time to buy a home.”

Real estate agents were saying that in 2001, as home prices were rising. They also said it when home prices peaked in 2005 — in fact, David Lereah, former chief economist of the National Association of Realtors, published a book that year titled “Are You Missing the Real Estate Boom?”

And many real estate agents said it was time to buy as prices began to drop — and continued to say it over the past several years as prices fell by an average of 33 percent in America’s 20 largest cities.

Mr. Lereah would acknowledge that he had gotten it wrong. But from the perspective of many real estate agents, it is always a good time to buy.

“What they are really saying is that it is a good time to be involved in a transaction that generates a commission,” says Barry Ritholtz, C.E.O. and director of equity research at FusionIQ, a quantitative research firm. He’s also author of “The Big Picture,” an irreverent blog on markets.

I've made where I stand on this issue pretty clear. (And here. And here. And with regards to the perverse incentives of real estate agents and home buyers, this here.)

Further Proof of the Benefits of Short Selling

In his book, Too Big to Fail, Andrew Ross Sorkin explains how David Fuld, then CEO of now defunct Lehman Brothers, lobbied Chris Cox, then head of the Securities and Exchange Commission, to ban the short selling of stocks. Fuld complained that the short selling of Lehman stock was responsible for driving down its price, which made it impossible for Fuld to find an investor to purchase the investment bank or extend it capital required to survive, which further eroded the price of its stock.

Sorkin discuses the tenacity of David Einhorn, the president of Greenlight Capital, who was the largest short seller of Lehman stock. Einhorn believed that Lehman was falsifying the value of its assets, which meant it was grossly under capitalized and its stock price therefore artificially high. He kept selling the stock short and profited handsomely.

Regardless, Fuld won out in his pleadings with Cox, who temporarily suspended short selling in the stock market.

Now we find out that Lehman was indeed cooking the books and Einhorn's actions served to expose this discrepancy.

Markets are a means of revealing information - that information comes in the form of prices and profits. By short selling Lehman's stock, thus driving down its price, Einhorn exposed the information investors needed to make better decisions, and as I said earlier, he profited handsomely. That was a good thing. By thwarting short selling in an effort to protect Lehman, the information needed by investors to make sound decisions was no longer available.

Fortunately, the ban came too late to save Lehman, thus minimizing the loss to potential investors. Had the ban occurred sooner, more innocent people would have incurred great losses rather than Fuld and Lehman's stockholders, whose actions caused the demise if the investment bank and who deserved to pay the price for its demise. Short selling, which drove down the price of Lehman's stock, thus revealing pertinent information to potential investors, provided the requisite information needed by investors to keep them from being suckered into Lehman's ruse.

Americans and Retirement

Published this week, the 2010 Retirement Confidence Survey, EBRI's 20th annual version of this poll, finds that a majority [of U.S. residents] -- 54% -- have less than $25,000 in total savings and investments (not including their primary residence) [saved for retirement], and 27% have less than $1,000.

Story here.

I recall about ten years ago there was the warning that 50% of Americans aged 50 and older had less than $50,000 (not including real estate) saved for retirement. The situation obviously hasn't improved.

Bastiat Lesson #2

Just as in the first example (i.e., Bastiat Lesson #1), these praises for the auto bailout are wrongheaded in that they ignore opportunity cost.

New York -- Former White House auto czar Steve Rattner said Wednesday the state of Michigan and the city of Detroit would have been forced into bankruptcy if the Obama administration hadn't rescued General Motors and Chrysler last year.

Detroit almost "certainly would have gone bankrupt," said Rattner, who spoke at a bankruptcy conference sponsored by Dow Jones.

"The state of Michigan would have declared bankruptcy," he said.

First, in bankruptcy liquidation, those resources would not have just languished.

And then,

Rattner said the government's $50 billion investment in GM is now worth $40 billion to $45 billion-- a vast improvement over prior estimates that suggested the government would lose $20 billion on its bailout of the Detroit automaker.

I don't buy the rosier scenario. Only in Washington is a negative $10 billion return on a $50 billion investment regarded as praiseworthy.

More importantly, how else could those resources have been used? Propping up a failed company means these same resources could not be used by another company that would operate profitably. Detroit may certainly have been "saved" from failures of its own making, but at what cost?

Bastiat Lesson #1

"Cash for Clunkers: Better than we thought"

This headline from CNN Money. The story goes on to discuss recent polling data from Maritz.

Maritz estimates that a total of 765,000 new vehicles were sold because of the program. Those cars wouldn't have rolled off dealer lots without the offer, they say.

That's more than double the Department of Transportation's estimate of 346,000 sales that wouldn't otherwise have been made.

Maritz' estimate of additional new car sales resulting from the program is actually even larger than the total number of vehicles sold under Cash for Clunkers.

Government records indicate that a total of 677,000 new vehicles were purchased under the program.

According to Maritz, 542,000 of those sales were made to people who didn't plan to buy a car otherwise. Additionally, another 223,000 people were lured into dealerships by the program, learned they didn't qualify for the benefit, but purchased a car anyway.

It's that last paragraph that proves part of the economic cost of the Cash for Clunkers program. The fact that people who owned cars with which they were perfectly satisfied, were lured into destroying these cars in order to take advantage of the subsidy. Any subsidy produces economic waste.

Second, the money spent purchasing new cars, especially by those who had no intention of buying a car, is money that was not spent elsewhere in the economy, therefore destroying jobs elsewhere.

Why I Ban Laptops From the Classroom

I began banning laptops in the classroom after the spring semester of 2007. Too many students with laptops were distracting others around them, including one group viewing a soccer tournament during a lecture. The complaints about this ban never cease, with some students imploring me to make an exception in their case since, as one student in the article (linked below) argues, it's what she's accustomed to.

The Washington Post explains this growing trend of banning laptops in the classroom.

A generation ago, academia embraced the laptop as the most welcome classroom innovation since the ballpoint pen. But during the past decade, it has evolved into a powerful distraction. Wireless Internet connections tempt students away from note-typing to e-mail, blogs, YouTube videos, sports scores, even online gaming -- all the diversions of a home computer beamed into the classroom to compete with the professor for the student's attention.

"This is like putting on every student's desk, when you walk into class, five different magazines, several television shows, some shopping opportunities and a phone, and saying, 'Look, if your mind wanders, feel free to pick any of these up and go with it,' " Cole said.

I don't know what infuriates me more about this . . .

One recent semester, [an associate professor of humanities at UC Boulder, Diane E.] Siebert [sic] tracked the grades of 17 student laptop addicts. At the end of the term, their average grade was 71 percent, "almost the same as the average for the students who didn't come at all."

. . . the fact that the laptops are so distracting or that a student in a humanities class at UC Boulder can still earn a passing grade even if they "didn't come at all."

The next obstacle to overcome is text messaging during class.

Mortgage Recoveries On the Rise

Even for those who walked away from their mortgage obligations via a short sale with the bank accepting a payout less than the loan balance, the debtor is not disavowed from his or her obligation for the loan, as well as any other costs (i.e., taxes, homeowner's association fees, etc.) incurred by the bank before and after the sale.

"In a couple of years down the road, you will see a lot more of the collections on these debts," Greiner said.

According to the Federal Deposit Insurance Corp., mortgage recoveries rose 85%, to $1.5 billion last year, compared with 2008. Recoveries are up 187% from 2006.

Greece, California, and the Road to Serfdom

Canadian David Warren offers an excellent analysis of the state of the states in our welfare states.

Yet when we speak of "entitlements," or more precisely, against them, the first thing we face is public sector entitlements -- in Canada as in every other western or quasi-western country. The troubles the Greeks are now experiencing with their civil service, which is in a position to bring the country to a halt, is a warning for the road ahead.

And forget Greece, look at California. There one may see in clear North American daylight what a vast unspeakable public bankruptcy looks like. It was not an inevitable thing. Gentle reader need only compare, candidly, California with Texas -- which is flourishing, and whose voters know why. Economic decline is a choice, not a fate, and it has everything to do with big, intrusive government.

- - - -

Cutting public sector pay -- relative to private sector -- is more than a fiscal necessity. It is also a moral necessity, though using that word more in the sense currently conveyed by the word "morale." With money, job security, and administrative power, comes prestige. We need to reduce that.

This is one of the points that was grasped in the earliest stages of turning India around, by such as the late Rajiv Gandhi. The argument was that business and all other private activity suffered, because the country's "best and brightest" were magnetically attracted to the prestige of so-called "public service." It was what upwardly mobile parents prepared their children for.

But through that "public service" came the self-serving blindness and arrogance of India's "ruling caste." These were people who did not have to stoop to pleasing the labouring masses, in the way capitalists must, if they are going to sell anything. Instead they acquire the attitudes that I have found here, too, in almost every encounter with a "public servant," dressed in a little authority.

HT: Luke Froeb at Managerial Econ

Alice In Wonderland

Here is one of the best reviews I've read of Alice in Wonderland.

I couldn't help but think of Pixar's John Lassiter explaining how the Disney Co. lost its way following the death of Walt Disney. Without this visionary who emphasized the importance of the story, the Disney Co. continued to perfect the craft, but lost the story, at least for the next fifteen years.

I felt the same way watching this movie. Tim Burton is a master of special effects and has even told some very interesting stories (James and the Giant Peach, Edward Scissorhands, Beetlejuice and Pee Wee's Big Adventure). But in the case of this movie, he ignored the importance of storytelling. Not that he had to rehash the same story verbatim as Dickens wrote it or as it has already been told numerous times before (most other attempts having combined parts of Alice's Adventures in Wonderland with Through the Looking Glass). No, retelling it with a different angle would actually have been welcome. It's just that he failed to tell a meaningful story.

Johnny Depp did not work well in his role as the Mad Hatter, coming off more like your creepy Uncle Harold than the whimsical character that defines the role and would have worked better and had been better suited here.   

Alan Rickman did an admirable job as the voice of Absolem, and most other characters were at least not disturbing. That is, other than the Dormouse, whose special talent was using its straight-pin sword to poke out the eyeballs of animals. The movie just had too much of a creepy and sick twist to it to make it satisfying, especially for a kids movie.

Diversity, Neighborhood Schools, or Academic Needs School Assignments

With even national attention focused on the vitriolic battle here in Wake County over the recently elected school board majority's voting out school assignments based on socio-economic diversity in favor of neighborhood schools, both ideas seem to miss the larger point of focusing on the interests of the kids and their parents.

The biggest problem of mass public education is the disparate quality of schoolchildren and the desire to force them all through the same faux college prep curriculum. I'd like to see families have the choice of which school their child attends regardless of neighborhood, which simply serves to drive up home prices in some neighborhoods while driving them down elsewhere. Let's get away from bureaucrats selecting school assignments based on their personal preferences.

This type of competition would force schools to discover market niches that serve the interests of the parent-student-customer, lest they find themselves shut down as parents refuse to send their children there.

Some schools would specialize in a college prep curriculum, some in remedial education, others in vocational education such as technology and business disciplines, while others still could specialize in more specialized vocations such as pharmacology production and materials sciences. You would better serve the individual interests of the students by allowing for greater innovation in establishing curriculum and the delivery of education services, while providing education services that meet the specific talents, needs, and desires of the children/parent customer, and not the whims of the education bureaucracy and leadership.

My guess is that it would also cut down the prevalence of cliques and the animosity towards specific groups unfavored within larger groups. (i.e.,The result would be better sorting.) But alas, since this would expose to children that they are different from one another, which is antithetical to the mindset and interests of the education bureaucracy and leadership, it's not likely to ever happen.