Tag Archives: economy

What’s government for?

In the simplest terms, our country was founded on an idea that every person has a right to “life, liberty, and the pursuit of happiness.”  This was derived from John Locke’s similar belief in “life, liberty, and property.”  It is the government’s duty to protect these rights.   Police protect our lives and property domestically, and the armed forces protect us from foreign threats.  But the government is so much more that just police and military.  Forming and living in societies has allowed us to move away from hunting and gathering and subsistence agriculture.  By division of labor, we’re able to specialize in a trade, send our young to schools, and have more leisure time.  Currency developed to make transactions simpler (What you don’t want my chickens?)  Government has grown to regulate agriculture, balance the rights of laborers and corporations, preserve our natural resources, monitor food and drug safety, provide a social safety net, and on and on.

Today, among recession, unemployment, skyrocketing health care and education costs, multiple foreign wars, growing support for LGBT equality, and many other issues, we’ve seen the rise of the Tea Party.  Now, I used to be an objectivist/Libertarian.  I thought “The Fountainhead” and “Atlas Shrugged” were brilliant.  But those books showcase an unrealistic utopia.  No one had a sub par education because they were born in the wrong neighborhood, there wasn’t a stay at home mom left with nothing when her husband decided to abandon his family, mental illness didn’t exist.  The Tea Party wants to cut government spending so they can have lower taxes.  Too bad for you if you don’t have insurance or want to marry your same-sex partner.  The Tea Party supports a strict adherance to the Constitution, nevermind that the preamble specifically says to “promote the general Welfare.”  Our country wasn’t founded to create millionaires or laud people who were lucky enough to be born into healthy, wealthy, intelligent families.  America is for everyone.

If you’ve ever played a sport or were part of any type of team, you’ve probably heard the saying that a group is “only as strong as the weakest link.”  If our country is a team, the homeless, unemployed, ill, etc are our weakest links.  We cannot progress as a whole and leave these less fortunate behind.  Our country supports public education because an educated populace is important for a functioning democracy, our economy needs trained workers, and academically engaged children are less likely to become teen parents or criminals.  I think this rationale extends to other government-run social welfare programs.  We cannot expect people to be good citizens when their basic needs such as housing, food, and health care are not met.  Of course we must find a balance in these programs to make sure we are teaching men to fish, not just handing out fish.  And yes, there are charities that care for these needs but they’re not in every community and not everyone is welcome (for example, some shelters turn away gay or transgender people).

I hate myself for saying this, but I do agree with the Tea Party on one of their points.  We should be auditing government for waste.  Are consultants overpaid?  Do politicians need the lavish offices and expense accounts they have?  Are we sending Social Security checks to dead people?

For me it comes down to this fundamental question: Can government achieve what liberals and progressives want for a price that conservatives can accept?


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An epic lack of foresight

Because our country didn’t seriously pursue alternative energy sooner:

We are facing global warming and poor air quality.

We are dangerously entangled with the Middle East.

The Pentagon needs a bigger budget. For example, a Stealth Bomber gets 0.7 miles per gallon.

Fuel prices for airlines are also out of control, and they are taking a number of measures to compensate. They’ve started charging for every little extra: the snacks onboard, checking your luggage, headphones for the movie. My ticket for going from Seattle to St. Louis at Christmas this year cost 20% more than last year’s and I bought it months in advance. American Airlines is cutting many of it regional flights on the American Eagle network. American is also asking flight attendants to go on voluntary unpaid leaves to avoid having to make layoffs.

Home health care workers aren’t getting reimbursed for their driving expenses at a high enough rate, so many are reconsidering their careers to go to work in hospitals and other facilities closer to their homes. As a result it will be harder for the sick and elderly to stay in their own homes.

Food prices are rising because fuel is required for planting, harvesting, and distributing food. Other consumer products will probably follow.

NPR talked to a homeowner in the Northeast who will probably give up her home because she can’t afford her mortgage payments plus the cost of heating oil this winter.

The sudden, intense demand for biofuels is reducing the price difference between organic and conventionally-grown crops. Since raising organics doesn’t produce such a premium for farmers anymore they are switching back to the conventional methods of growing to have a bigger yield and sell to biofuel refiners. This is shortening the supply of organic food choices, which I believe is healthier for our bodies and the environment.

Lots of businesses, not just the ones I mentioned above, are suffering by uncontrollable fuel costs, so they’re cutting what they can cut: labor costs. And anytime that workers are being paid less, they spend less, which is no good in America where consumer spending makes up 1/3 of the entire economy.

I’ve lost my faith in the forces of the market. It’s true that now that gas is four and a half dollars a gallon people are driving less and getting more fuel efficient cars, but it’s pretty much too late for Detroit’s Big 3. I heard yesterday that of the three, Chrysler is likely to fail. There’s a lag in research and development. Truck and SUV plants are closing down, because they’re not ready to turn them into factories for plug-in hybrids just yet. Only a few months ago, I heard an industry representative insist that powerful cars like the Ford truck series and the Dodge Magnum are “what Americans want.” Gas prices are proving that there’s a difference between what Americans want and what they can afford to have. Why didn’t Detroit see it coming?

On the bright side:

Rising fuel costs are finally forcing conservation and innovation. And hopefully rising food prices could help out our obese population. Too bad the cheapest foods are the most processed…

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Why the mortgage crisis matters to everyone

Yesterday I explored how a least a little bit of blame for the mortgage crisis lies with our entire society. Today I will take on why it matters to our entire society.

Problems for communities

Cities like Detroit, Cleveland, and Buffalo have been hit hard by foreclosures. Houses taken over by the banks are vacant and their yards neglected. Squatters may move in. Not only is it hard to sell a run-down house, but just having them around lowers the value of neighboring houses. Houses bought up by absent investors sometimes don’t fare any better. Vacant houses also don’t generate real estate taxes for cities. So at the same time tax coffers are being starved of revenue, citizens displaced by foreclosure often require social services. There’s an interesting BusinessWeek article on the topic. If foreclosed houses aren’t quickly bought and turned into rental properties, displaced residents will begin to strain rental markets as they look for new places to live.

The credit crunch

Banks have written down billions of dollars for bad mortgage investments. They’ve learned their lesson about handing out money to the less-than-deserving. But maybe they’ve tightened up a little too much. A few lenders are even saying they won’t give educational loans to students in community college or schools with high drop-out rates.

Construction Jobs

New construction starts are falling for a few reasons, the mortgage market has tightened up making it harder for people to buy new homes and the housing market has been flooded with foreclosed homes. Construction is a huge force in the economy with how many workers they employee and all the various materials and supplies they buy from all over the world for their building. Not only is residential construction slowing down, so is public building. Governments won’t be building so many new buildings when their tax revenues drop and citizens need social services–going back to what I said above.


So I guess what I was forgetting to say when I originally posted this was why I was making an argument that this problem affects more than just banks and homeowners.  I wrote this blog in response to comments I’ve heard from my roommate and others that the government shouldn’t bail out people who made irresponsible decisions.  My position is that due to the reasons I listed above, we would be in a worse situation if thousands of people lose their homes than if governments at every level created programs to help these people stay in their homes, such as offering interest-free loans to catch up with mortgage payments or passing laws to force banks to lower interest rates or anything else to make more favorable terms.  Basically, I’d rather spend a little tax money to help people stay in their homes than pay for the fallout of extensive foreclosures.–added 7/3/08

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The Mortgage Crisis–whose fault?

The short answer: Everyone.

Several weeks ago I listened to an episode of “This American Life” while Ira Glass explored every level of the mortgage crisis. First off, the amount of money worldwide that people want to invest has doubled in only a few years, creating more demand for investment products. They seemed to like mortgage-backed securities and lenders scrambled to meet the demands. At the same time, mortgage brokers were (and still are) getting paid 1% origination fees on loans they had no stake in–if the buyer defaulted, it didn’t affect them at all. For brokers, the bigger the loan they could sell, the bigger their cut. Then there were the buyers. The buyers had a variety of problems. They were uneducated about loan products, they didn’t have a realistic view of their budgets and what they could afford, maybe they were simply greedy.

Suze Orman, Michelle Singletary, and probably many more lesser-known personal finance advisors say that one of the most common dangers surrounding debt is a person’s overestimation of their future earnings. People take take out loans or use financing counting on future raises, promotions, or advantageous job changes. They don’t count on layoffs, medical emergencies, or divorce.

We also know that WAMU had appraisers who were overvaluing houses, which led to buyers getting big loans and when they tried to sell, the house would be revalued at an amount less than what they still owed.

A few days ago on “Weekday,” Steve Scher’s guests offered further insight to the breakdown of the mortgage system. Not all states require licensing for brokers. The market boom made mortgage brokering a lucrative business and it attracted lots of new brokers. These brokers weren’t all necessarily greedy, some were just grossly undereducated and working without much oversight, if any. Some didn’t know what they were offering any more than the buyers understood what was being offered to them. Banks couldn’t even keep up with the onslaught of loans. Thousands of mortgage were were signed off on and approved with no review by a loan officer.

So up to this point, you’re probably thinking I am blaming the mortgage crisis on everyone in the lending/real estate industry and the buyers. But it goes even further. I really mean society as a whole. Home ownership is “The American Dream.” Renting is for the young and low-income. Our government gives tax deductions for mortgage interest and real estate taxes. Get-rich-quick schemes and cable TV shows revolve around the wealth to be had in real estate investing and flipping. I know there’s more but that’s all I feel like for tonight, maybe I will add more later.


Yesterday I heard that Countrywide Home Mortgages told people incorrect information about the terms of their loans. If you’ve ever gotten a mortgage before, you know that it’s practically a 2″ stack of papers and I can bet that–no matter how responsible a buyer you think you are–you didn’t read that entire thing. Before all this news about what a mess the industry is, if your broker told you that you were getting a fixed rate loan, would you even fathom that he was lying to you? And that is exactly what they did to some buyers.

I also wanted to to add a little to that “American Dream” concept. I personally bought into that. I seized upon the idea that “paying rent will never build equity.” Well paying closing costs doesn’t build equity either, and the amount of closing costs my ex and I spent on our condo could pay my current rent for two and a half years. Another problem I had was that I am from central Illinois. Out there, a mortgage payment is about the same as rent (without the landlord). It’s totally worth it, and I just applied that way of thinking to Seattle, which is an entirely different market. When we got that condo, I considered myself a pretty financially savvy person: I’ve always had a good credit score, I was putting 10% of my gross income into an IRA when I was 20, at 24 I’d never carried a balance on a credit card, the only debt I’d ever had was $350 to Carle Hospital that my insurance didn’t cover (I could have paid it off faster but I didn’t want to stop putting money in my IRA). What I’m trying to say is that I’d always been smart with money but was still irrationally drawn into homeownership. I can totally understand how people could be swept in by the ideal of owning their own home along with the deception of brokers & appraisers and real estate agents’ assurances that housing would keep appreciating at 20% a year.—added 7/3/08


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