Prediction Tuesday - Housing Slumps

Across the US, housing statistics are beginning to reflect the sharp slowdown over the past year. Many sectors of the economy are affected by the housing market: appliances and furnishings, building materials, the finance industry.

The slowdown in housing was even blamed when Ford shut one of its pickup assembly operations: Contractors use a lot of pickups. An economy which has floated on cheap money and housing construction is settling down into the sea of red ink.

EPI's Snapshot last week highlighted some of the indicators:

• Sales of existing homes fell to near 2004 levels.
• New home sales are well below last year's level.
• Inventories -- homes currently on the market -- are at record highs.
• Supply? Demand? Of course prices are softening.
• Jobs directly related to housing contributed 14.1% of employment growth in 2004, 15.4% in 2005, only 4.5% this year.
• This does not count jobs related to household goods, such as appliances, or other ancillary employment
• Residential construction's contribution to GDP growth dipped to -0.4% in the second quarter of 2006, after peaking at over 1.0% a year earlier

As Bernstein and Bivens of EPI say, "Even more important in terms of dollars pumped into the economy is the appreciated home values, which have been an important source of stimulus over the past few years."

This last point corrects a claim I copied Sunday from the Center for American Progress, which said that increased personal debt is arising from purchase of big ticket items, not consumer debt.

This is less true by the amount of home equity that has been withdrawn to finance current purchases, the "home as a piggy bank," factor.

Depreciating housing values will have the effect of stopping the home equity stimulus. If the disparity between sagging home values and the amount loaned is "called in" by the lender, it could begin to act as a real drag.

Dean Baker of the Center for Economic and Policy Research was even more blunt in an op-ed in Tom Paine entitled "The Coming Housing Crash."

"This is a very different picture from a year ago," he says.

• Sales of new and existing homes are both down more than 10% from last year
• Mortgate applications are down 20%
• Sales prices are barely above last year, and actually down in real (inflation-adjusted) terms


• The vacancy rate for ownership units has hit a new high, along with inventories of both new and existing homes

Baker made his reputation in being one of the very few economists to peg the dot.com bust. There he concentrated on the historic trend in price/earnings ratios. Here he's applying a similar historical trend analysis to the housing market:

"Ordinarily, house prices rise at roughly the same rate as other prices. Nationwide, house prices stayed virtually even with the overall rate of inflation from 1950 to 1995. However, in the last 10 years they rose by more than 50 percent, after adjusting for inflation. This created more than $5 trillion in housing bubble wealth."

With the bubble finally deflating, we're looking not just at lost paper wealth, but at the loss of millions of jobs. The fallout will be severe. As Baker puts it:

"The crash and post-crash world will not be pretty. Millions of people will lose their jobs and their homes. Unfortunately, the economists who led us down this path are not likely to be among the ones who suffer severe consequences."

The Census Bureau/HUD Residential Construction Release on August 16, had the following tidbits:

• Building permits for all housing units were 21% lower than a year earlier; 30% lower in the West;
• Single familiy units were 23.5% lower overall; 33.5% lower in the West;
• Housing starts for all units were 13.3 percent lower than a year earlier; 13.9% lower in the West;
• Single family units started were 16.6% lower overall; 25.8% lower in the West;
• Housing completions were 2.3 percent above one year ago; but they were 16.2% lower in the West;
• Single family completions were 1.2% higher overall; but a full 19% lower in the West.

The National Association of Home Builders (NAHB) and Wells Fargo produce the Home Builders Housing Market Index. A number over 50 indicates that more builders view sales conditions as good rather than poor.

• The August HMI index was its lowest since February 1991; the index has fallen for seven consecutive months;
• The single family home sales segment fell to 36, the sales expectations segment fell to 40, the sales traffic segment fell to 21;
• The total HMI index fell to 15 in the Midwest, to 41 in the South, and to 42 in the West.

Drowning in Debt

America's GDP growth is predicated on a rising tide of personal and federal debt. With rising interest rates and stagnating incomes, with retiring baby boomers and outsourced industries, it remains to be seen whether the economy can withstand a storm on this sea of red ink.

We've posted on the enormous federal deficits and their relation to growth. (See the "Net GDP" post.)

Now, according to a recent report by the Center for American Progress:

"America's middle class is drowning in debt. A typical middle income family earning around $45,000 a year saw its debt burden grow by 33.1% between 2001 and 2004, even after adjusting for inflation. Debt relative to income rose even more, to 33.9%, during this period for middle income families. Personal bankruptcies among these households are rising steeply.

"The reasons for greater economic distress among middle class households are not hard to pinpoint. Slow income growth ... has not kept pace with the rising cost of big ticket items such as housing and education loans, medical expenses and transportation...."

Increased debt is being generated not by profligate credit card spending, as noted, but by borrowing for big ticket items -- homes and education. For the first time debt has exceeded income, and in spite of low interest rates, debt payments are higher. Highly indebted households continue to grow in number, with one in seven households making debt payments greater than 40 percent of income.

Mexican recount and local spin

As edited by the letters troll at the TNT, here is a letter on the ongoing crisis of the Mexican elections. On the plus side, the standoff in one of our closest trading partners has gotten a bit coverage from the paper in recent days, first a paragraph on page three, then an editorial (which was the raison d'etre for the paragraph), then a highly edited letter (mine) published Friday.

On the minus side,the most accurate account of the situation appeared in the letter. And better than the one they published was the one I wrote. You judge.

Original:

Dear Editor,

We've been having quite a few disputed elections in recent years, and every once in awhile one of them makes the pages of the News Tribune.

This one was the July 2 presidential election in Mexico. It got more ink in Wednesday's editorial column than it has on the news pages, but at least you acknowledged it. You made much of Lopez Obrador's similarity to Hugo Chavez, and didn't spare any vitriol in denouncing Obrador as a whiner and a sore loser, but in your editorial he somehow becomes the cause of the emigration into the US, although he is trying to oust the ruling party and the policies that are emptying out Mexican villages.

Missing from your pages is any account of the largest peaceful mass action since Corazon Aquino and the people of the Philippines toppled Ferdinand Marcos decades ago. Former mayor Lopez Obrador and millions of his closest friends have occupied Mexico City for six weeks.

Also missing is an explicit statement of what Obrador and his partisans are calling for: a vote by vote recount of the very close, and in spite of your assurances, far from fraud-free election. Why not a complete recount? If Calderon wins, case closed. He has legitimacy. What is the rationale against a recount? Opposing a total recount means either you're either afraid Calderon will lose or you're afraid massive fraud will be uncovered, or both.

TNT version:

What'’s to fear by holding a true election recount?

ALAN HARVEY; Tacoma
Re: "Lopez Obrador: Sore loser or worse"” (editorial, 8-30).

The July 2 presidential election in Mexico got more ink in the editorial column than it has on the news pages, but at least it was acknowledged.

The editorial made much of Andres Manuel Lopez Obrador'’s similarity to Hugo Chavez and didn'’t spare any vitriol in denouncing Obrador as a whiner and a sore loser. But in your editorial he somehow becomes the cause of the emigration into the U.S., although he is trying to oust the ruling party and the policies that are emptying out Mexican villages.

Missing is any account of the largest peaceful mass action since Corazon Aquino and the people of the Philippines toppled Ferdinand Marcos decades ago. Former mayor Lopez Obrador and millions of his closest friends have occupied Mexico City for six weeks.

Also missing is an explicit statement of what Obrador and his partisans are calling for: a vote-by-vote recount of the very close, and in spite of your assurances, far from fraud-free election.

Why not a complete recount? If Calderon wins, case closed. He has legitimacy. What is the rationale against a recount? Opposing a total recount means either you're either afraid Calderon will lose or you're afraid massive fraud will be uncovered, or both.

My Life Among the Neoliberals

Members of the Tacoma Revenue Tax Force may be surprised to hear the word "liberal" associated with themselves, but these are the folks to whom I am referring, and the term is "Neoliberal."

It derives from 19th century England, free trade and laissez-fair economics. The alternative term that I feel fits the practice of Neoliberalism is "Corporate Capitalism."

Others might use "Free Market Capitalism." All of the terms are misnomers, for the school is not liberal, it ignores the dominance of corporations, and its practitioners may have the hymns of the free market memorized, but ignore fully half of them in practice.

Beyond this, in order to get the concept to fully function, you have to ignore reality -- the reality of government except as a distortion and the reality of empirical data which demonstrates the whole scheme simply does not work.

Seeing glazed eyes among my readers, I return to the point at hand.

The last session of Tacoma's Revenue Task Force concluded Wednesday evening with the adoption of a truly singular document, a report containing three proposals:

• A non-revenue proposal, which prescribes a system of fines for excess police and fire calls.
• A non-new proposal, the "levy lid lift," which is a measure newly revived by court action. Cities can now raise the property tax to 106 percent of current revenue, as opposed to 101 percent.
• A political non-starter. The city manager's original idea for a city services tax minus the only element that would have given it a chance to work -- extending the tax base to nonprofits. This last proposal was adopted a month ago, then analyzed (in a Queen of Hearts order of things), and finalized Wednesday amid some jocular acknowledgement of its absence of political appeal.

The people on the Tax Force are good people who -- aside from one notable exception -- will not gain financially should this report's recommendations survive. But most are where they were at the beginning, anti-tax. These are frugal folks who manage money and operations well and accept the economics of the times as if it were an extension of this frugality and competence.

And the economics of the times is Neoliberalism. Government produces no value and only rides on the backs of the private sector. Taxes are a good way to bleed a vibrant economy. Etc.

As a city, this ultimately means that the services of police and fire protection are less valuable than those of beer truck drivers or hairdressers, no disparagement intended.

It means that production of roads and bridges is of less economic value than production of whatever private infrastructure you want to put in this blank. And it means debating particular policies is ultimately frustrated by the acceptance of the general myths.

Thus the dominating advantage Neoliberalism or Corporate Capitalism or Free Market Hypocrisy has over reality-based economic schemes -- everybody knows the tune. It is familiar. So familiar it is sometimes referred to as "common sense."

(Just as, I suspect, the tenets of communism and the rule of the proletariat were once referred to as common sense in the USSR, even as overt bureaucratic corruption brought down the system.)

For the advantage of familiarity there is no easy cure. The New Deal Keynesianism responsible for the enormous prosperity between World War II and the rise of Reaganomics was well understood by policy-makers, but never found a popular expression, partly ....

Oops, more glazing.

So the problem facing us at the Tax Force and forums like it is how to debate good policy particulars while avoiding easy answers based on demonstrably wrong -- but widely popular -- assumptions.

I have no answer to this. If I did, I would have used it at the Tax Force. I suppose it could begin with -- in the case of taxes -- challenging the fallacy that there is no economic value to public goods.

In fact, public goods have enormous value, real direct economic value, which is not recognized by the market because it is broadly shared and the market only recognizes a transaction value. Still, the second bridge to Key Peninsula is generating astronomical gains in property values, dollar gains to private economic actors.

Primary and secondary education produces six times or more its cost in value to the educated, their employers and the society benefited and not burdened. Courts provide the essential arbitration of private market contracts without which a market economy would unravel. And so on.

This is a simple concept which is easy to corroborate and blows up the theory that supply and demand in a private market produces all value. But since it lies outside the current framework, it is viewed with the suspicion that it is somehow a trick or plot against the status quo.

Another angle might be the direct look test -- to simply point at the corporations domination of the private marketplace.

These do not exist in Free Market Hypocrisy. A company which can manipulate demand, or coerce labor, or rig the rules with government? It cannot happen in a system where everything is competition, free markets, and supply and demand.

Housekeeping

• The final document ended the last evening at the Tax Force without my signature. That will be applied to a Minority Report, which will detail the eight or ten different ideas that have some practical application to revenue and a couple ideas to mitigate the B&O, not all of which were mine. The Minority Report will be available through NPI beginning the week of August 12, and will contain a context appendix (process, this question, the fact that the same problem is in front of all cities, etc.) and a technical appendix. We'll put up the official Tax Force version, too, so you can see if I'm blowing smoke or not.
• The Alternative to Neoliberalism is a Post-Keynesian view -- less familiar, but no more complicated. It's major advantage is that it works in the real world. Briefly, output depends on aggregate demand (a proposition sometimes borrowed by others when tax cuts for the wealthy need a fig leaf of justification). Government provides infrastructure, public services, structure and enforcement. Corporate power is offset by institutional mechanisms such as the minimum wage, union organizing power, regulation, and so on. Supply and demand market operations are supported where their built-in incentives can efficiently supply private goods (supported in the sense of keeping the rules fair, e.g., curbs on monopoly).

There is, of course, a lot more to this discussion, but although it is Miles Davis to me, I understand it is polka bands to the rest of you. A more complete discussion can be got at Thomas I. Palley, "From Keynesianism to Neoliberalism: Shifting Paradigms in Economics," 2004.

Prediction Tuesday: GOP will cave on sales tax deduction

Several weeks ago Maria Cantwell charged up the blogosphere when she posted here at NPI ("Washington State's Working Families Deserve Better") explaining her vote on the minimum wage bill. Senator Cantwell pegged a gratuitous gouging of tipped workers in the bill for what it was, a cynical Republican ploy.

But that bill was called the "trifecta" by its sponsors because it also included a bill eviscerating the estate tax and another, the "extenders," which was an extension of several actual tax breaks for actual Americans that might actually help somebody besides the rich -- namely the R&D credit, the higher education expense deduction, and the state and local sales tax deduction.

This last part - the sales tax deduction - is worth hundreds and thousands of dollars to individual Washington taxpayers. Residents of most other states have long enjoyed deduction of their state taxes, because most have an income tax, and state income taxes have been deductible since they were invented. Citizens of states without income taxes got deductibility of their sales taxes only recently.

The prediction this Tuesday is this: When this pathetic Congress reconvenes in a few days, if it does nothing else, it will pass out the extenders. Harry Reid (D-NV), Senate minority leader, has promised to move the bill. Whether he gets a chance or it becomes sweetening for another Republican poop pie is a matter of arcane Senate rules that are beyond my ability or interest to fathom.

I do know, however, that among the other states in the same boat with Washington are Texas, Florida and North Carolina. And I know that in the spring Republicans used some of those arcane Senate rules to extend a dramatic reduction in dividend and capital gains taxes [which apply if you are too rich to use a 401(k)] out to 2011. Will they really go home in an election year having to explain they were so busy taking care of the rich they couldn't deliver actual value to their constituents?

Also, a repeat of a late addition to the last Prediction Tuesday: Anyone who wants to explore apprenticeship opportunities in Washington should start at the Labor & Industries website that shows a full listing of the programs and application procedures. If you want a career with a future in a skilled trade, check it out.

A word in favor of "corporate subversion"

"From a marketing point of view, you don't introduce new products in August"

- Andrew Card, White House Chief of Staff, September 2002, on the rollout of the Iraq War.

What "product" the Bush machine has in mind for us this election season remains to be seen. But I am ignoring Card's advice and rolling out my own product without waiting for the end of August. That product: "Corporate Subversion."

Yes, I know, the term has undoubtedly been used before, but I feel it deserves special attention and incorporation into our lexicon this season and for the rest of our political lives. The term can be an antidote for many things and a convenient catch phrase to fall back on when we need time to gather our thoughts. In this way it is similar to the Right's "tax and spend," "cut and run," and "activist judges."

"Corporate Subversion," however, has benefits not possessed by the Right Wing's subriquets:

• It is true. Corporate interests have subverted virtually every aspect of the government and the society. (See list below.)


• Most Americans agree. Poll after poll shows a substantial majority of Americans believe corporations exert far too much influence -- subverting the government and the society. This sense becomes particularly active around clear examples of corporate malfeasance, for example, the Enron collapse and subsequent trials. This anti-corporate sentiment is a key to the progressive majority which is the base for resurrecting our democracy.


• It applies across the board. As above, and below, corporate subversion is ubiquitous and disastrous. Thus, using this term virtually anywhere is appropriate.


• Raising awareness of and countering corporate subversion will make a difference. This is more or less a corollary to its being true. The difficulty with the Right's hot buttons is that they are only good for agitation value. You can hit the button a million times, but it doesn't fix anything and usually only makes matters worse. This is the problem with being dissociated from reality. "Corporate Subversion" is connected to reality.
  

Use it early, use it often:

Corporate subversion of the election process
Corporate subversion of campaign finance
Corporate subversion of health care
Corporate subversion of foreign policy
Corporate subversion of rebuilding Iraq
Corporate subversion of energy policy
Corporate subversion of environmental controls
Corporate subversion of media
Corporate subversion of Agriculture
Corporate subversion of transportation systems
Corporate subversion of trade policy
Corporate subversion of scientific research
Corporate subversion of government
Corporate subversion of education
Corporate subversion of the economy
Corporate subversion of tax laws
and so on.

Bonus Phrase: In honor of Dick Cheney, who four years ago today said:

"There is no doubt that Saddam Hussein now has weapons of mass destruction. There is no doubt he is amassing them to use against our friends ... and against us,"

This corner is giving a sneak preview of

"Brutal Stupidity."

This phrase is still in its developmental stage, but it promises to be the perfect antidote for "cut and run" and "weak on terrorism" and lead the conversation into torture, erosion of civil rights, and lack of results from enormous expenditures of blood and treasure.

(Special thanks to Mother Jones.)

Raid the Red Zone with Richard Wright

WA-04 is an opportunity to elect an independent Democrat and get rid of a Republican party hack. Doc Hastings is known for little else but rolling over for corporate interests and the party bosses.

He was directly complicit in the Medicare Part D drug fiasco, having personally held the vote open long past its appropriate conclusion so additional lawmakers could be frogmarched into the chambers to pass the thing.

The result: Eight months of needless confusion followed by endless years of billions in excess profits to pharmaceutical corporations.

Who was the chairman of the House Ethics Committee during the past two years, years of unparalleled corruption, corruption that brought down the once-invincible "Hammer" DeLay?

It was Doc Hastings, from right out there in Central Washington. Friend to Jack Abramoff. Yes, lovable Doc Hastings. That's not a farmer's tan he's wearing.

You'd think Hastings would have gotten some goodies for his home district with all this abetting of corporate subversion, but no.

Hanford remains a problem. NAFTA -- which Hastings was told to vote for, so he did -- has burned Central Washington farmers who can't compete with the low-wage countries.

Doc is just warming a seat for the GOP until he can move out onto K Street in the other Washington.

Hastings web site is featuring his bill on the Kennewick Man. Any real platform is hard to find. Iraq is AWOL. On trade, he has managed to translate "mealy-mouthed" into print.

If you want answers on agriculture, talk to Peter Goldmark in the 5th.

Hastings' photo ops are in front of V.A. facilities at the same time he's supported the Bush budgets which screw veterans. And he's the last man alive who still professes to believe the Bush garbage about Social Security.

Hastings has no answers except the tried and true. Blame it on activist judges, he told a recent water resources meeting, and he proceeded to call out the "activist" Portland judge. Cut taxes, is a favorite. Never mind exploding debt or high-priced wars.

Perhaps his highest profile issue is tax cuts. He has wrapped himself in the estate tax. Who in his district is subject to the estate tax, I don't know. Likely less than .00001 percent of the voters. (Farms are exempt.)

Why do I know Richard Wright will be independent? Because he has not gotten the support he deserves from the Democrats, either state or national. It's as if they think Central Washington is too dumb to hold Hastings to account.

This is the year when lock-step Republicans get walked off the plank -- it's in the polls. But with support from the party absent, Wright will have little incentive to hold too close to the party line when he's elected. Voila, independence! That may be a good thing considering his district.

This next month is critical. Support the Wright campaign at the official site. Or if you want to wake up the DCCC, write in Wright at the DCCC's site. That is, click on the link and type "Richard Wright (WA-04)" in the "Other" space.

The picture is Doc fresh from his official House web page.