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Showing posts from March, 2009

Housing Bust

There are a lot of detailed explanations being offered about why the housing market started to collapse sometime around the beginning of 2006. I don't have one of those explanations, but I do have a picture, which may help put some of it into perspective.


I use 1987 as the base year simply because that is the year that the Case-Shiller index started tracking home prices. I use the national home price index and nationwide Census statistics simply because they are easily available. Anyone can recreate this graph for any particular housing market, but I suspect the pattern will be similar regardless of geography.

Surprisingly, the growth in housing stock has only marginally outpaced the growth in population since 1987. By 2006, both had grown between 23% and 24%. During that same time period, the value of that housing stock shot up over 200% (thats more than tripling your money, an incredible return on any bet).

Even before the bust, as prices soared, growth in vacant housing units outp…

Chicago's Best Bet

Question: which city hosted the Olympics in 2002? Do you remember? Do you care? I went to Salt Lake City in 2004 and locals were nearly apologetic for how dreary and lackluster the city had become. They were still talking about how great and exciting Salt Lake City had been in the years leading up to the 2002 Olympics and how since it's been, well... not. In the months after the 2002 games, the LA Times declared that "the post-Olympic blues have hit Salt Lake City hard" and the New York Times wrote:
Alas, downtown Salt Lake City is struggling and has been for some time. Many downtown stores, especially along Main Street, are in deep trouble. Empty buildings that were spruced up and filled with souvenir shops during the Games have ''For Lease'' signs plastered on what are now grimy windows.The situation isn't just specific to the Western United States. The Boston Globe has recently commented on Beijing's fallout from the 2008 summer games. There is …

"Fixing" Traffic Congestion

John Stossel recently featured a 20/20 piece suggesting a means to "fix" the problem of traffic congestion.



While Stossel isn't completely off the mark - he's only hitting the edge of the board. The part he gets correct is that under-priced and "free" roads have caused a lot of the traffic problems we now have to deal with. Market Urbanism draws an analogy to another basic necessity. If free roads are so crucial to the lives of Americans, why don't we demand government hand out free bread to everyone? Why are people more than willing to pay for a fresh loaf at the store but not to zip along on the freeway? I guess if government had always given away free bread and we didn't know any other way, it would be a brutally difficult social adjustment. But if there were a shortage of bread because everyone tried to over consume, we would have a major problem.

The part Stossel gets wrong is that government is doomed to do anything about it. State operated road…

Open-Source Learning

A few months ago I sent out a tweet asking if anyone knew of a good (read: not sleep-inducing) introductory book on game theory - I didn't get any responses. But last week I discovered that Open Yale has a course available on the topic - Econ 159 with Ben Polak. I've only watched the 3 of the 24 lectures so far, but the course seems highly promising.

When it comes to this "open" model for distributing lectures and other education materials - I think it makes a lot of sense and hope that more universities jump on board. I know that MIT has a few free courses posted on iTunes, but they are on more scientifically technical topics that I'm not particularly interested in. It is still pretty slim pickings at Open Yale right now, so hopefully they do add more courses on more topics. Nevertheless, they did recently add a Financial Markets course with Bob Shiller that looks pretty solid.

The cost for universities to record and distribute courses online is very little (thoug…

Hedging Against Recession

Sometimes an economic downturn can affect people in unpredictable ways. It probably wasn't reasonable for people going into the tech industry in the late 90s to expect that the market would quickly go bust - nor was it unreasonable for people earning incredible salaries and bonuses in finance recently to think that it might soon go away forever. What's beyond your control is beyond your control; but is there a way to hedge your bets against economic uncertainty? Don't own a home, the Economist writes:
Some cannot sell their homes at all. Others could, but don’t want to take a big loss on an investment they thought was safe as houses. Either way, they are stuck. If a good job comes up in another town, they cannot take it. This effect is partly offset by the impact of foreclosures. Last month alone 291,000 homes received a foreclosure notice. The newly evicted are not merely free but obliged to move. This is unfortunate, but although jobs are in short supply nearly everywhere…

What Causes Long Commutes?

According to the Census Bureau, New Yorkers have the longest average commute of anyone in America. New York City also has the most comprehensive transit system in America, the most daily riders by a long shot, and the highest percentage of residents who commute via transit in the country. I've seen arguments that the extensive use of transit in NYC is the cause of these long commutes, that transit is slower and less efficient in getting someone from point A to point B, and therefore policy should that attempts to expand transit will only make commutes worse (read more time-consuming). While I can't argue with the first two points, I take major issue with the third.

Using data from the Census's American Community Survey, take a look at the relationship between commute time and transit usage for America's 50 biggest metro areas:


The relationship is similar if I plot the relationship between commute time and individuals who commute by means other than driving (ie. transit, …

End the Online Gambling Ban

Darren Rovell blogs that Americans will wager an estimated $3 billion in March Madness pools this year, and my guess is that only a few of the wagers being made online, thanks to the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006. I didn't say none of the wagers because, despite the law, online gambling is still big business, even in the United States. With Democrats in power of both the executive and the legislative branch, now is a good a time as ever to overturn the law.

The UIGEA is an amendment to the SAFE Port Act, which was passed by a Republican congress and signed by George Bush in late 2006. The ban was championed by Christian-value Republicans like Bill Frist and it arguably had to be part of the SAFE Port Act because the legislation would not have held up on its own merit.

The idea that online gambling should be banned for moral reasons is laughable in light of the existing state of gambling in America. Catholic churches from coast to coast hold frequent bing…

Executive Compensation

It's a hot topic. PBS's Now covered it in January, Vanity Fair had a feature about it in their last issue, and just about everybody seems to have an opinion about it. The recent AIG bonus debacle has only helped fuel the fire. How executives can live with themselves after accepting huge amounts of money while nearly everyone else suffers is not entirely known. Nevertheless, now might be an appropriate time to reconsider a hypothesis that Steven Levitt presented in 2004 (video skips to the appropriate starting point):



I think more research is needed on this question.

The Homeownership Trap

NPR’s Day to Day aired an interesting story last Friday about the impact the recession is having on minorities and other underprivileged individuals. One part of the piece that caught my attention was a conversation with Steve Perry, founder and principal of a high school in Hartford, Connecticut, who suggests that idea of homeownership makes it more difficult for families that are struggling financially to improve their quality of life:

…buying a home was a long term investment, but somewhere around 2004 people began to buy them as a means of, almost a get-rich quick plan, and thinking that they could own a home that was beyond their means; and as specifically as African Americans go, some 63% of our wealth is tied-up in our homes, where, compared to white folks, it’s about 38%. And so when a person is mortgaged to the teeth, they have more house than they can manage, then they find themselves, from a very practical level, spending more time working to pay the bills. Why does that mat…

Viva Hong Kong Transit

World Focus provides an interesting take on what is probably one of the world's most successful transit systems.



I don't know enough about MTR to confidently suggest the model would work in any particular city, but one thing that is clear is that intelligently developing real estate around rail stations is key to the success of the system. Whether the same agency that operates transit or another public-private partnership takes the lead, it's been disappointing to see so many promising transit systems branded as mediocre because no one stepped up and got it done.

Double-Edged Economic Sword

It's amazing to think that less than a year ago the blogosphere (and the rest of the media) was all fired up about stories regarding oil and gasoline prices and the upcoming energy crisis - I certainly took part myself. The energy crisis seems to have taken a backseat to the financial crisis for the time being, but it will be back, because in a lot of ways the financial crisis and the energy crisis are mutually exclusive events.

Politically, it was popular to blame last year's explosion of energy prices on belligerent traders and speculators, but I've always been skeptical of that view. It's entirely likely that the inflation of energy prices was the result of incredible economic growth, particularly in emerging markets like China, where energy usage is still only a fraction of what it is in the Unite States. This growth, of course has recently collapsed, promoting even the World Bank to predict that the global economy will shrink in 2009 - the first time in decades. N…

Transit in Trouble

PBS's Blueprint America has been doing an excellent job covering America's infrastructure crisis, and the two part series on transit that aired this week on Newshour is no exception. Check it out.

Part One from Monday, on the conundrum of system cutbacks despite record ridership :



Part Two from Tuesday, on the role the financial crisis is playing inside transit agencies:

More Skyscrapers, Please

Following up last week's commentary on hybrid vehicles, Ed Glaeser does some research on carbon emissions of urban and suburban lifestyles:
In almost every metropolitan area, we found the central city residents emitted less carbon than the suburban counterparts. In New York and San Francisco, the average urban family emits more than two tons less carbon annually because it drives less... But cars represent only one-third of the gap in carbon emissions between New Yorkers and their suburbanites. The gap in electricity usage between New York City and its suburbs is also about two tons. The gap in emissions from home heating is almost three tons. All told, we estimate a seven-ton difference in carbon emissions between the residents of Manhattan’s urban aeries and the good burghers of Westchester County. Living surrounded by concrete is actually pretty green. Living surrounded by trees is not.This has been anecdotally obvious for a while, but it's nice to see some solid economic r…

Ode to CNBC

I will admit that I used to watch a lot of CNBC. A lot. I could have told you who Rick Santelli was long before the rest of the world gave him his 15 minutes of fame. Regardless, I've avoided blogging about the Santelli rant because I didn't think the guy deserved any extra attention, but John Stewart makes it more than worth it.

The Daily Show With Jon StewartM - Th 11p / 10c CNBC Gives Financial Advice Daily Show Full Episodes
Important Things With Demetri Martin Political Humor
Joke of the Day

Some irony is that when Fox Business Channel launched in October 2007 (did you even know that Fox had a business network?), they tried to sell the new channel as a "pro-business" alternative to CNBC. After all, this strategy was gold for Fox News, which Rupert Murdoch spun as an alternative to the typical "liberal media." The problem, of course, is that when Fox News launched in 1996, cable TV news probably did have a liberal slant. CNBC, the network of Jim Cramer and Lar…

Death to Mutual Funds?

Bethany McLean's new piece in Vanity Fair suggests that the era of hedge fund dominance could be over. Perhaps a major financial crisis was all we needed to convince rich people that incredibly overpriced managed funds that relied on leveraged, illiquid and otherwise high-risk assets just isn't worth it. The less pressing question right now seems to be what might happen to the hedge fund's ugly stepbrother, the mutual fund.

It's well known in investing circles that most mutual funds fail to outperform broad stock market indexes and low-cost index and exchange traded funds. Nevertheless, when times are good, it's easy to justify investing in mutual funds. As long as you're making money, it's acceptable if you don't necessarily outperform comparison indexes. But when times are bad, people start to wonder what exactly they're paying for. Why should some so-called "expert" get a cut of their hard earned money just so they can flush more of it d…

The Urban Family Debate

Cavan Wilk has a thought-provoking post up at Greater Greater Washington:
Car-dependent places design each area for one single land use. They also seem to design for single life stages, too. A large yard may make sense when a child is just learning to walk. However, what happens when children outgrow the yard and want to interact with their peers and explore the world around them? While it is clearly possible to raise children who become successful adults in car-dependent places, it clearly has its shortcomings for pre-teens and carless teenagers. Why does so much "conventional wisdom" claim that suburbia is inherently a better place to raise children? Suburbia has its advantages, but also more than its fair share of shortcomings.

I'm probably going to get a lot of negative feedback in the comments for this, but I suggest that the myth about suburbia being a better environment for children arose from a combination of suburban marketing and our collective attempt to rationa…

The Problem With Hybrids

It's almost ironic that urbanists were ever concerned that Ray LaHood wouldn't be liberal enough to push a progressive agenda in the Department of Transportation, as it was the Obama Administration that nixed LaHood's proposal for a Vehicle Miles Traveled tax in February. The policy really is quite good on paper and Robin Chase, founder of ZipCar and carsharing legend, made the economic case for the VMT tax recently in the Huffington Post. The Overhead Wire lists over 25 excuses floating around the blogosphere for why the VMT tax is a bad idea; admittedly, some are more legitimate than others. The one that caught my attention right away is the argument that a VMT tax punishes hybrid drivers.

While it's true that on-balance hybrids are better for the environment that other vehicle classes, comparisons are rarely so simple. For instance, it would technically be greener for someone to drive a pickup or an SUV one mile each morning to work than for her co-worker to drive a …

Vocabulary Check

Gallup released an interesting survey last week measuring public opinion about potential bank nationalization. When Gallup worded the question to ask if Americans support temporary bank takeovers, the policy is viewed as favorable by a majority of the sample...


And when the question asks about bank nationalization, the policy is viewed unfavorably...


These results aren't particularly surprising; they're part of the reason why talking points are so effective in politics (even despite attempts to reduce all the arguments on one side of the political spectrum to mere "talking points") and they offer somewhat compelling evidence that the result of any political opinion poll might be manipulated by simply changing the wording of the question.