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Gimme shelter update: housing purchase affordability

Gimme shelter update: housing purchase affordability

Let’s update one measure of housing prices: comparing of the purchasing power of buyers vs. the price a typical house.  There are at least 3 indexes.

First, here is the N.A.R.’s “Housing affordability index,” updated through May. This compares their estimate of median household income vs. the median price of an existing home:

Note that the data isn’t seasonally adjusted, so there is an annual cycle. Even so, it is clear that affordability is at its lowest in 10 years. But on the other hand, the index is nowhere near its lows of 2005 or 2006.

Second, the private firm ATTOM Data Solutions publishes an index comparing annualized wages to median house prices:

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Further comments about the state of the housing market

Further comments about the state of the housing market

Here are some additional salient comments about the housing market right now.

1. Existing home sales are completely stagnant

Not only did existing home sales fall for the month, not only are they down slightly YoY, but they are now less than 2% higher than where they were 3 years ago:

In May 2015, houses sold at a 5.35 million annualized rate. In today’s repot they were reported as selling at a 5.43 million annualized rate.

This, of course, is at complete variance to the very positive trend of new home sales over the last three years.

2. Not only sales, but inventories of new vs. existing houses have completely diverged

 

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Preponderance of evidence from poor housing permits points to slowdown in GDP

Preponderance of evidence from poor housing permits points to slowdown in GDP

The preponderance of evidence, based on this morning’s report on housing permits and starts, is that increased interest rates and continuing increased prices are beginning to take a bite out of the market.

First of all, let’s take a look at single family permits — the most reliable, least volatile of all the measures — (red, left scale) and total permits (blue, right scale):

Both declined this month, but more importantly, both made 7 month lows. Outside of the expiration of the housing stimulus way back in 2010, this is the first time that single family permits have made this significant a decline — off about 4% — during this expansion.

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Prime age employment participation and wages: not so clear a relationship

Prime age employment participation and wages: not so clear a relationship

In the last couple of months variations of the same graph which is supposed  to “solve” the wage conundrum have been going around. I saw another version this weekend:

Easy to see, there is what looks like a nice, nearly linear relationship between the prime age (25-54) employment to population ratio (left scale) with wages as measured by the employment cost index (ECI)(bottom scale).

While I see some merit to the approach, I don’t think the graph actually means what its purveyors think it does.

First, let me reproduce it with FRED data, which I am able to do through 2001:

Same pretty linear relationship, with maybe a slight bend at area of 79% participation and 2.5% wage growth.

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What to Do about Conservative Rationality in Addressing Climate Change?

What to Do about Conservative Rationality in Addressing Climate Change?

Two business-friendly conservatives, both former senators, Trent Lott and John Breaux, have an op-ed in today’s New York Times announcing the formation of new group, Americans for Carbon Dividends.  Now out of office, they recognize climate change as “one of the great challenges of our generation.”  To counteract it they propose a bipartisan coalition to institute a carbon tax, with all the revenues returned to the public on per capita basis.  The carbon price would cut emissions and spur the development of alternatives to fossil fuels; the rebates would redistribute income progressively and protect the incomes of the majority of the population.

What’s a progressive climate policy activist like myself to do?

Basically, I’d like to say, “Welcome to the party.  Let’s sit down and work out the details.”  While I believe resistance from capital is the underlying reason the last three decades of climate activism have been so dismal, I don’t see any purpose in drawing lines of ideological exclusion.  On the contrary, if the deepest problem is the role of wealth (at risk from rapid shifts in energy prices) and not divergent philosophies as such, we should be happy to form broader coalitions so long as they don’t require unacceptable compromises.

(I don’t subscribe to the Marxist base-superstructure formulation as a matter of theoretical commitment, but I think it applies pretty well to the problem of climate change.  There is no intrinsic conflict between political conservatism and climate action, except insofar as conservative ideology is a cover for the interests of owners of capital—which it typically is.)

I am in full agreement with the two fundamental principles laid down by Lott and Breaux, putting a price on carbon and rebating the revenues through equal dividends to all citizens.  Of course, I differ on other matters:

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War is Peace, Freedom is Slavery, Ignorance is Strength

A piece of work is Professor Walter E. Williams of George Mason University. Back in February, I flagged a column by Williams in which the nimble prof performed the lump-of-labor fallacy shuck and jive. One of the venues for that rendition of Will Automation Kill Our Jobs was David (“Trump is 100% right”) Horowitz’s FrontPage Mag.

Little did I know at the time that just three weeks earlier, Williams had penned a defense of Trump’s (Sessions’s, Miller’s) immigration policy, Immigration Lies and Hypocrisy also published at FrontPage Mag. One may admire the accuracy of article’s heading as a label of its contents until one realizes it is not actually intended as a confession.

I wrote to Professor Williams about the bizarre discrepancy between his January 30th column and his February 20th claims. I don’t really expect to hear back.

Dear Professor Williams,

I appreciate that you “can’t respond to every query” but my question raises urgent questions of morality and intellectual integrity. In February of this year, you wrote an opinion piece decrying the so-called “lump-of-labor fallacy” that you claim lurks behind concerns that automation will “kill jobs.” I noticed that one outlet that carried your syndicated column was David Horowitz’s “FrontPage Mag.”

Today, the Guardian featured an interview with Mr. Horowitz in which he asserted that Donald Trump’s immigration policy is “100% right.” Horowitz, the article notes, was a mentor to Stephen Miller, the Trump advisor who in 2015 authored Senator Sessions’s “Immigration Handbook for the New Republican Majority.” Here are a few excerpts from that document:

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THE DAMNATION OF THE PROFESSIONAL REPUBLICAN POLICY INTELLECTUALS

by Bradford DeLong   (originally published at Grasping Reality with Both Hands)

THE DAMNATION OF THE PROFESSIONAL REPUBLICAN POLICY INTELLECTUALS

I have long known that the thoughtful and pulls-no-punches Amitabh Chandra has no tolerance for fuzzy thinking from Do-Gooder Democrats. He is one of those who holds that not even a simulacrum of utopia is open to us here, as we muck about in the Sewer of Romulus here in this Fallen Sublunary Sphere. ”There are always trade-offs“, he says. “Deal with it“, he says. But here he leans to the other side, and, well, snaps: Amitabh Chandra: “GOP thinktanks https://twitter.com/amitabhchandra2/status/1007261629547982849 are the biggest milksops. From healthcare policy to environmental policy, from national security policy to fiscal policy, they have tacitly endorsed a mountain of anti-market + anti-growth + anti-America policies so as not to not upset their political masters…

…There was a time when I could go to a GOP thinktank and debate Peter Bach or Henry Aaron or Mark Pauly. We agreed on lots of things, and disagreed on many others. Now, it’s completely fine to just shout socialism and markets, disparage expertise, and everyone claps. I don’t consider myself a Democrat, but the quality of the conversation at CAP or Brookings is orders of magnitude richer, and more sophisticated, than what is happening at GOP thinktanks. And I say this is someone who often disagrees with both of them. You still can debate Henry Aaron or Mark Pauly perfectly pleasantly and productively. (I don’t know Peter Bach.) We need to focus on the many intellectually honest folks along the political spectrum and try to ignore the fools. Honestly, my academic discussions haven’t changed…

You could never have a fruitful discussion with people from Heritage. They were focused on (1) political effectiveness for their high politicians and (2) pleasing their funders. Nothing else mattered. And so nothing they said could be taken at its face intellectual value. And no evidence you could bring forward would change their minds—or, rather, would change what they said and wrote. Maybe it did change their minds. But how the hell could anyone ever know, since their words were completely determined by triangulating between their political masters and their funders?

I think Cato, AEI, the American Action Forum, and others have now entered the Heritage zone. Yes, they are happy to have your endorsement to make whatever they say as they triangulate between their funders and their political masters. No, they do not want to listen to any evidence. No, they do not care about policy effectiveness—or if they do still at some level care about policy effectiveness, it is the effectiveness of the policies they will be able to work for two decades in the future after sucking up to funders and political masters has gained them enough credibility that somebody will actually listen to them on the substance. And, no, they are not interested in marking their beliefs to market—because knowing and reflecting on how false their promises were would make them sad without any ability to do anything, because for at least 20 more years they will have no room to do anything other than utter the words that best triangulate between the demands of their funders and their political masters.

Anyone at Cato, AEI, that AAF, or any of the others that this does not describe? Damn few.

Case in point: last winter’s tax cut bill. Professional Republican economist after Republican economist was falling over himself to get a 0.4% boost to annual economic growth in 2018 and 2019 from higher investment triggered by the tax bill. Do the arithmetic and that means an extra 800 billion dollars a year of investment in America. Six months later are we getting that extra investment? No. Are any of the professional Republican economists worried about why we are not getting that extra investment? No. By how much will the fact that we did not get that extra investment they projected change what they write in the future? Zero.

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Children make the bestest hostages

Children make the bestest hostages

Criticisms of Trump in the business press are especially instructive, because they have no obvious partisan motivation. So Josh Barro’s article at Business Insider this morning, castigating his “bully-and-threaten approach to dealmaking,” is particularly noteworthy. He writes:

Donald Trump has a negotiating tactic he really likes: Threaten to do something someone else will really hate, and then offer to stop if they give you what you want.

Call it the “Why are you hitting yourself?” approach to diplomacy.

(More broadly, I would say that Trump threatens settled norms and agreements in all spheres precisely because others have come to take them for granted, and so have let their guards down.)

After noting that he has imposed tariffs on “national security” grounds even against US allies as a tactic to gain concessions renegotiating on existing trade agreements, they turn to the issue of immigration:

… [H]e has threatened to end the DACA immigration program, then ramped up the separation of asylum-seeking immigrant families, in an effort to press Congress to remake immigration law on his terms, including building a wall. ….

Trump’s theory of immigration politics [is that] if he shows a willingness to be more cruel, he thinks that will force Democrats to the table, and that they will essentially bribe him into not mistreating vulnerable people by enacting immigration policies he’s long wanted.

Look at this hostage I’ve taken, he thinks. How could they possibly let me shoot it?

Like Dreamers and SCHIP recipients, the children of migrants are the most vulnerable, innocent, and helpless of all. Deliberately inflicting suffering upon them will call forth tidal waves of sympathy (witness the White House press conference the other day). So to the amoral and those without consciences, they become the perfect hostages. For that very reason, we should expect that children will be targeted again and again and again throughout the Trump presidency, and that once he has pocketed the ransom, the moment that he the ability to renege on the deal, and take the same hostages all over again, he will do so. Thus, for example, already we hear that funding for SCHIP, which was agreed to for 6 years under the February budget deal, is nevertheless again being zeroed out by the House GOP’s proposed budget for next year.

 

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Does Greg Mankiw Know the History of U.S. Trade Policy?

Does Greg Mankiw Know the History of U.S. Trade Policy?

Greg offers us a nice speech by Saint Reagan. While Ronald Reagan preached free trade, Jeffrey Frankel notes that his actual record was rather protectionist. The discussion is an excellent account of how Republicans have been protectionist since 1854. But the really weird thing in Reagan’s discussion was how he claimed the U.S. has been a free trade nation since 1776. Of course Congress passed the Tariff Act of 1789:

One of the major early actions of Congress was the passage of the Tariff Act of 1789, which was designed to: raise revenues for the new government by placing a tariff on the importation of foreign goods (averaging more than 8 percent); encourage domestic production in such industries as glass and pottery by taxing the importation of those products from foreign sources.

Someone at Harvard’s history department should visit Mankiw’s office.

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May industrial production: meh

May industrial production: meh

Industrial production is the ultimate coincident indicator. It is almost invariably the number that determines economic peaks and troughs.

In May it declined -0.1%. While that obviously isn’t a positive, it does nothing to suggest any sort of change of trend:

and is in line with any number of similar monthly numbers during the expansion.

In this second graph I’ve broken it down into manufacturing (blue, left scale) and mining (red, right scale):

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