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Article Artículo

The Post is Badly Confused About Housing, Again

The Washington Post, which relied on David Lereah, the chief economist of the National Association of Realtors, as its main and often only source on the housing market, remains seriously confused about housing. An article on efforts by the Obama administration to push banks to increase lending implied that the situation of the bubble years were normal.

It told readers:

"Before the crisis, about 40 percent of home buyers were first-time purchasers. That’s down to 30 percent, according to the National Association of Realtors."

Of course in the bubble years many people were buying homes with zero or even less than zero down payments. (Many borrowers were able to borrow more than the sale price of the home.) It is bizarre that anyone would use this period as a basis of comparison. The current rate of new homebuyers is closer to the historic norm.

The piece later tells readers:

"One reason, according to policymakers [anyone with a name?], is that as young people move out of their parents’ homes and start their own households, they will be forced to rent rather than buy, meaning less construction and housing activity. Given housing’s role in building up a family’s wealth, that could have long-lasting consequences."

Actually renting also increases the demand for housing. Units switch back and forth all the time between being rental units and ownership units (30 percent of rental units are single-family homes). As a practical matter, the main factor depressing construction right now is the fact that the country continues to have a near record vacancy rate. The vacancy rate is the same whether a family is renting or owning.

Dean Baker / April 03, 2013

Article Artículo

Argentina

Latin America and the Caribbean

World

Argentina vs. the Vultures: What You Need to Know

Just ahead of the midnight deadline set out by the U.S. 2nd Circuit Court of Appeals’ three-judge panel, Argentina’s government submitted a letter (view document here) describing how it would go about paying holders of defaulted bonds. The payments would be for creditors who refused to take part in two previous debt exchanges, including the so-called “vulture fund” plaintiffs in this ongoing case, NML Capital, Ltd. V. Republic of Argentina.

Following the letter’s submission, a number of financial analysts quoted in the major media were unimpressed by Argentina’s latest move. The Wall Street Journal noted that one portfolio manager said “There was some hope they would have a more rational approach to this exercise, but that's definitely not the Argentina way.” Financial analyst Josh Rosner predicted to an AP reporter that "Monday morning is going to be a disaster." He also asked, "What if somebody took that new bond, and the Argentine government defaulted the next day?” Rosner may have momentarily forgotten that the South American government has made timely payments on all the bonds issued in the 2005 and 2010 settlements. The gist of the response in the media was “more shenanigans from Argentina.”

But what was lost in most reactions in the media is that Argentina has made significant concessions to creditors that until recently it had vowed, on principle, not to offer. (The plaintiffs, for their part, have shown no willingness to compromise.) Furthermore, the terms offered to NML would represent a sizeable return on the fund’s original investments in 2008 and would satisfy the requirement under the pari passu clause—which is at the heart of the case— that all bondholders are treated equally. Indeed, to offer a sweeter deal would appear to violate that clause at the expense of bondholders who took part in the 2005 and 2010 exchanges and accepted restructured bonds worth between 25 and 29 cents on the dollar.

Jake Johnston and Arthur Phillips / April 02, 2013

Article Artículo

Debt to GDP Ratios: Why Not Make the Numerologists Happy?

Numerology is usually held in low regard in intellectual circles. Unfortunately it is front and center in the debate over national economic policy.

Many economists and political leaders tell the public that we have to keep the DEBT to GDP ratio (capitalized to show reverence) below some magical level. Greg Mankiw professes his adherence to the faith in the NYT on Sunday. The reason that either a specific number or a strict focus on debt to GDP ratios is viewed as silly by people who are not numerologists is that the DEBT to GDP ratio is a completely arbitrary number that tells us almost nothing about the financial health of the government or the country.

First, the debt to GDP ratio is not even telling us anything about the burden of the debt on the government's finances. While the current debt to GDP ratio is relatively high, the ratio of interest payments to GDP is near a post-war low at 1 percent of GDP. (It's roughly 0.5 percent of GDP if we net out the money refunded to the Treasury by the Federal Reserve Board.) By contrast, the interest to GDP ratio was six times as large in the early 90s, at 3.0 percent of GDP.

If we revere debt to GDP ratios, we will have the opportunity to buy back large amounts of long-term debt at steep discounts if interest rates rise later in the decade, as projected by the Congressional Budget Office and others. This exercise would be pointless, since it leaves the interest burden unchanged, but it should make the numerologists who dominate economic policy debates happy. (This debt buyback story is discussed here.)  

Dean Baker / April 01, 2013

Article Artículo

Thomas Friedman Invented His Own Job, Why Shouldn't You?

Imagine getting paid to write things on economics that don't make sense for the New York Times? That job may not exist if Thomas Friedman didn't invent it. Hence the headline of his Sunday column, "Need a Job? Invent It." 

As Friedman tells readers, you need to create your own job because:

"there is increasingly no such thing as a high-wage, middle-skilled job — the thing that sustained the middle class in the last generation. Now there is only a high-wage, high-skilled job. Every middle-class job today is being pulled up, out or down faster than ever. That is, it either requires more skill or can be done by more people around the world or is being buried — made obsolete — faster than ever."

One part of this story is just wrong and the other part is at best misleading.

The wrong part is about jobs being made obsolete "faster than ever." The Bureau of Labor Statistics (BLS) actually measures the rate at which jobs are becoming obsolete, it's called "productivity growth." Over the last five years productivity growth in the non-farm business sector has averaged 1.6 percent annually. That's probably somewhat depressed as a result of the downturn, but even if we go back to 2002 we still only get up to 1.8 percent annually. That's well below the 2.8 percent annual rate from 1947 to 1973.

Dean Baker / March 31, 2013