Wintery Knight

…integrating Christian faith and knowledge in the public square

My conversation with a leftist friend about basic economics and rent control

My conversation with a leftist friend about “Basic Economics: A Common Sense Guide to the Economy, 4th Edition“, by Thomas Sowell.

Him: I remember why I stopped reading that book when you asked me to read it.

Me: Why did you stop reading it?

Him: Because of the chapter on rent control.

Me: Chapter 3 is the chapter on price controls. It talks about rent control.

Him: I expect an economist to present both sides of rent control. He has to present the arguments for and against rent control.

Me: There are not two sides to rent control. There is only one side to rent control. He chose that because it is a clear cut example of the problems caused by price controls. Economists universally condemn rent control, across the ideological spectrum.

Him: No they don’t.

Me: The chair of the Department of Economics at Harvard University, Greg Mankiw, reports in his economics textbook that 93% of professional economists agree that rent control reduces housing supply and housing quality. It is the most agreed upon position among economists across the ideological spectrum, number one in his list of facts on which professional economists agree. And obviously they have reasons for agreeing on that, specifically the experience of trying rent control policies in different times and places. It has always failed.

Him: Somebody must like rent control, because they have it in New York city.

Me: Politicians and low-information voters support rent control. It makes politicians feel good, and it gets them elected, too – if the voters are economically illiterate enough, as they are in New York city.

Him: But what about global warming then? Isn’t the consensus against you there?

Me: There has been no global warming in the last 17 years, according to the New York Times. They were reporting on findings by the UN IPCC in 2013.

Him: The UN never said that. The New York Times never wrote that.

Me: Yes, they did. And I have the sources I can send them to you.

Him: I’ll bet you do. (walks away in a huff)

This is the relevant quote from the Greg Mankiw post from his survey of economists that appears in his textbook:

  1. A ceiling on rents reduces the quantity and quality of housing available. (93%)
  2. Tariffs and import quotas usually reduce general economic welfare. (93%)
  3. Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
  4. Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)
  5. The United States should not restrict employers from outsourcing work to foreign countries. (90%)
  6. The United States should eliminate agricultural subsidies. (85%)
  7. Local and state governments should eliminate subsidies to professional sports franchises. (85%)
  8. If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
  9. The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
  10. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%)
  11. A large federal budget deficit has an adverse effect on the economy. (83%)
  12. A minimum wage increases unemployment among young and unskilled workers. (79%)
  13. The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
  14. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)

And this is the relevant quote from the New York Times article, dated September 2013:

The global warming crowd has a problem. For all of its warnings, and despite a steady escalation of greenhouse gas emissions into the atmosphere, the planet’s average surface temperature has remained pretty much the same for the last 15 years.

As you might guess, skeptics of warming were in full attack mode as the Intergovernmental Panel on Climate Change gathered in Sweden this week to approve its latest findings about our warming planet. The skeptics argue that this recent plateau illustrates what they always knew — that complex global climate models have no predictive capability and that, therefore, there is no proof of global warming, human-caused or not.

The author of the NYT article (a leftist) goes on to attempt to explain he is not concerned by the 17 year period of no significant warming, but the point is that the 17 year (not 15 year) period of no significant warming is A FACT acknowledged by the UN IPCC that has to be explained by those who believe in catastrophic man-made global warming. The IPCC may not like the temperature measurements, but those facts are not in doubt. The global warming crowd might make predictions about the future, but they made predictions about the past before, and we now know for a fact that those predictions (polar ice caps melting, Himalayans melting, significant global warming, etc.) were FALSE. They have been falsified by evidence, and that’s not in doubt.

Economic illiteracy is the problem

When people on the left voted for Barack Obama in 2012, they did not know based on evidence that they could keep their doctors and keep their health plans and that insurance premiums would drop $2500. They did not know it because the economic studies contradicted Obama’s words. They even believed Obama when he said that the Benghazi incident was caused by a Youtube video. Obama-supporters had a sincere belief in the words of his passionate speeches. They were impressed by the visuals of him talking to large crowds of young people. They believed him because they had feelings about him. And voting for him made them have good feelings about themselves. They felt that they were going to achieve good things by voting for this good man. They meant well, but they did not know. They did not have evidence.

Before the 2012 election, people on the right pointed to evidence from studies (like this one) showing that Obama was lying, but his supporters were apparently not interested in economic studies. They want to preserve the feelings of being good people. They want to preserve the belief that you can embrace policies that sound good, and that words that sound good will necessarily lead to good results for people who are at a disadvantage. I don’t question the motives of people on the left – they mean well. But meaning well doesn’t produce good results without knowledge of economics. In economics, policies that sound appealing to well-meaning liberals (rent control, tariffs, protectionism, minimum wage, trillion-dollar deficits) actually produce bad results for poor people. And we know this for a fact from our experience across different times and places.

If we can get people to accept the authority of our observations of policy experimentation in different times and places over and above their feelings and intuitions, then we can save this country.

Filed under: Commentary, , , , , , , , , , , , , , , , , , ,

Are House Republicans doing anything wrong by refusing to fund Obamacare?

Economist Thomas Sowell

Economist Thomas Sowell

Thomas Sowell explains separation of powers.

Excerpt:

The Republican-controlled House of Representatives voted all the money required to keep all government activities going — except for ObamaCare.

This is not a matter of opinion. You can check the Congressional Record.

As for the House of Representatives’ right to grant or withhold money, that is not a matter of opinion either. You can check the Constitution of the United States. All spending bills must originate in the House of Representatives, which means that Congressmen there have a right to decide whether or not they want to spend money on a particular government activity.

Whether ObamaCare is good, bad or indifferent is a matter of opinion. But it is a matter of fact that members of the House of Representatives have a right to make spending decisions based on their opinion.

ObamaCare is indeed “the law of the land,” as its supporters keep saying, and the Supreme Court has upheld its Constitutionality.

But the whole point of having a division of powers within the federal government is that each branch can decide independently what it wants to do or not do, regardless of what the other branches do, when exercising the powers specifically granted to that branch by the Constitution.

[...]When Barack Obama keeps claiming that it is some new outrage for those who control the money to try to change government policy by granting or withholding money, that is simply a bald-faced lie. You can check the history of other examples of “legislation by appropriation” as it used to be called.

Whether legislation by appropriation is a good idea or a bad idea is a matter of opinion. But whether it is both legal and not unprecedented is a matter of fact.

Perhaps the biggest of the big lies is that the government will not be able to pay what it owes on the national debt, creating a danger of default. Tax money keeps coming into the Treasury during the shutdown, and it vastly exceeds the interest that has to be paid on the national debt.

Even if the debt ceiling is not lifted, that only means that government is not allowed to run up new debt. But that does not mean that it is unable to pay the interest on existing debt.

The House Republicans have been passing bill after bill in order to fund essential responsibilities of government. It’s their decision to fund whatever they want, because that’s what the House does. But the Senate has been rejecting most of these bills. If parts of the government are “shut down” it’s the fault of the Senate Democrats. But then again, they are no more obligated to approve whatever the House wants than the House is obligated to approve what the Senate wants. Or what the President wants. That’s why there is a separation of powers: checks and balances.

Filed under: Commentary, , , , , , , ,

New housing bubble: Obama proposes lowering mortgage-lending requirements

I must have blogged a million times about how the Democrats caused the recession by forcing banks to make bad loans to people who couldn’t pay them back. Although the Republicans got blamed for the crisis, they were the ones who tried to regulate Fannie Mae and Freddie Mac, but they were shut down by Democrats. Well, guess what? The Democrats didn’t learn their lesson the first time, and they want to start another housing bubble, just like the first one that gave us the recession.

Take a look at this article in the leftist Washington Post. (H/T ECM)

Excerpt:

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.

[...][A]dministration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.

Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps.

Obama pledged in his State of the Union address to do more to make sure more Americans can enjoy the benefits of the housing recovery, but critics say encouraging banks to lend as broadly as the administration hopes will sow the seeds of another housing disaster and endanger taxpayer dollars.

“If that were to come to pass, that would open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from,” said Ed Pinto, a resident fellow at the American Enterprise Institute and former top executive at mortgage giant Fannie Mae.

And if that was not enough,the Democrats also have another bubble being inflated. They nationalized the student loan industry, and now taxpayers are going to have to bail out those risky unpaid student loans as well.

Excerpt:

America’s now-nationalized student loan industry just reached a value of $1 trillion, according to Citigroup, growing at a 20 percent-per-year pace. Since President Obama nationalized the industry (a tacked-on provision of the Obamacare bill), tuition has gone up 25 percent and the three-year default rate is at a record 13.4 percent.

[...]With many young people unable to pay their loans (average graduating debt is about $29,000), Citigroup and others are speculating that this industry might be ripe for a bailout.

To pay off all the current defaults, Citigroup says it would cost taxpayers $74 billion. However, this number doesn’t include those who will default in the coming years, and, when the government rewards the defaulters, it will encourage more borrowers not to pay their debts.

And liberals in Congress have proposed forgiving all student loans via “The Student Loan Forgiveness Act 2012,” costing taxpayers $1 trillion.

Adding another $1 trillion dollars to the national debt isn’t exactly “forgiveness” for young people—it’s prolonging the payoff. In fact, student loan bailouts are a catch-22 for young people because they’re going to be held accountable for paying off the national debt and interest payments.

At least the young people who voted for Obama are going to be the ones to get the bill for his socialist economic policies.

Related posts

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Thomas Sowell: Guns can be used defensively to save lives

Economist Thomas Sowell

Economist Thomas Sowell

Thomas Sowell’s latest column is up at National Review. If you’ve ever read any of Dr. John Lott’s books, you’ll know that his central argument is that allowing law-abiding citizens to own and carry firearms has a net positive effect, when compared with restricting or banning gun ownership. How could that be? What good effect could there be to allowing people to own guns? Well, that’s what Tom Sowell – a former pistol marksmanship instructor – is going to explain to us in his article.

Excerpt:

We all know that guns can cost lives because the media repeat this message endlessly, as if we could not figure it out for ourselves. But even someone who reads newspapers regularly and watches numerous television newscasts may never learn that guns also save lives — much less see any hard facts comparing how many lives are lost and how many are saved.

But that trade-off is the real issue — not the Second Amendment or the National Rifle Association, which so many in the media obsess about. If guns cost more lives than they save, we can always repeal the Second Amendment. But if guns save more lives than they cost, we need to know that, instead of spending time demonizing the National Rifle Association.

The defensive use of guns is usually either not discussed at all in the media or else is depicted as if it means bullets flying in all directions, like the gunfight at the O.K. Corral. But most defensive uses of guns do not involve actually pulling the trigger.

If someone comes at you with a knife and you point a gun at him, he is very unlikely to keep coming and far more likely to head in the other direction, perhaps in some haste, if he has a brain in his head. Only if he is an idiot are you likely to have to pull the trigger — and if an idiot with a knife is coming after you, you had better have a trigger to pull.

Surveys of American gun owners have found that 4 to 6 percent reported using a gun in self-defense within the previous five years. That is not a very high percentage but, in a country with 300 million people, that works out to hundreds of thousands of defensive uses of guns per year.

Yet we almost never hear about these hundreds of thousands of defensive uses of guns from the media, which will report the killing of a dozen people endlessly around the clock. The murder of a dozen innocent people is unquestionably a human tragedy. But that is no excuse for reacting blindly by preventing hundreds of thousands of other people from defending themselves against meeting the same fate.

Although most defensive uses of guns do not involve actually shooting, nevertheless, the total number of criminals killed by armed private citizens runs into the thousands per year. A gun can also come in handy if a pit bull or some other dangerous animal is after you or your child.

 

This is an important article that expresses the central argument for allowing law-abiding citizens to protect themselves and their families from criminals.

It’s worth noting that both Thomas Sowell and John Lott are economists, and economists use quantitative methods to evaluate policies. It would be great if everyone who talked about policies like gun legislation argued from logic and evidence, like economists do. We need to ask what effects and incentives are created for all groups of people when policies are adopted. And that’s what economists do.

Filed under: Commentary, , , , , , , ,

Thomas Sowell: could a Cyprus-style confiscation of private savings happen here?

Thomas Sowell, an economist for the people

Thomas Sowell, an economist for the people

Surprise! It already is happening here. Thomas Sowell explains in the American Spectator.

Excerpt:

One of the big differences between the United States and Cyprus is that the U.S. government can simply print more money to get out of a financial crisis. But Cyprus cannot print more euros, which are controlled by international institutions.But could similar policies be imposed in other countries, including the United States?

Does that mean that Americans’ money is safe in banks? Yes and no.

The U.S. government is very unlikely to just seize money wholesale from people’s bank accounts, as is being done in Cyprus. But does that mean that your life savings are safe?

No. There are more sophisticated ways for governments to take what you have put aside for yourself and use it for whatever the politicians feel like using it for. If they do it slowly but steadily, they can take a big chunk of what you have sacrificed for years to save, before you are even aware, much less alarmed.

That is in fact already happening. When officials of the Federal Reserve System speak in vague and lofty terms about “quantitative easing,” what they are talking about is creating more money out of thin air, as the Federal Reserve is authorized to do — and has been doing in recent years, to the tune of tens of billions of dollars a month.

When the federal government spends far beyond the tax revenues it has, it gets the extra money by selling bonds. The Federal Reserve has become the biggest buyer of these bonds, since it costs them nothing to create more money.

This new money buys just as much as the money you sacrificed to save for years. More money in circulation, without a corresponding increase in output, means rising prices. Although the numbers in your bank book may remain the same, part of the purchasing power of your money is transferred to the government. Is that really different from what Cyprus has done?

I noticed that Brian Lilley had an article about whether Cyprus-style confiscations could happen in Canada. The short answer: yes – for amounts above $100,000 Canadian.

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