The economics of politics

[Gan]

It is remarkable how many political "solutions" today are dealing with problems created by previous political "solutions." Three examples that come to mind immediately are the housing market crisis, the wildfires in southern California, and the water shortages in the west.

Congress and the Bush administration are currently vying with each other to come up with a solution to the housing crisis, brought on by widespread defaults on home mortgage loans -- especially defaults by those who took out risky "subprime" loans.

Why were borrowers taking out risky loans in the first place? And why were lenders willing to lend to risky borrowers? In both cases, the government was a prime factor in "subprime" loans.

Many people took out risky mortgage loans to buy a house because housing prices were so high that this was the only way they could own a home. Where housing prices were highest, the most people took out risky loans.

In the San Francisco Bay Area, where housing prices are the highest in the nation, risky interest-only loans went from being 11 percent of all new mortgages in 2002 to being 66 percent of all new mortgages in 2005.

Study after study has shown that housing prices are highest where government restrictions on building are the most severe. That is the ugly result of pretty words like "open space."

Why were lenders lending to people whose prospects of repaying the loans were below average -- that is, "subprime"?

Government laws and policies, especially the Community Reinvestment Act, pressured lenders to invest in people and places where they would not invest otherwise. Government also created the temporarily very low interest rates that made the mortgages seem affordable for the moment.

Now that politicians have created this mess, they are ready to play heroes riding to the rescue.

As for the flames sweeping across southern California, tragic as that is, this has happened time and again before -- in the very same places in the very same time of year, just like hurricanes.

Why would people risk building million-dollar homes in the known paths of wildfires? For the same reason that people choose to live in the known paths of hurricanes. Because the government -- that is, the taxpayers -- will get stuck with a lot of the costs of dealing with those dangers and the costs of rebuilding.

Why is there such a huge amount of inflammable vegetation over such a wide area that fires can reach unstoppable proportions by the time they get to places where people live? Because "open space" has become a political sacred cow beyond rational discussion.

The same severe government restrictions on building that drive home prices sky high also lead to vast areas with nothing but trees and bushes. Where it doesn't rain for months, that's dangerous.

No matter how much open space there is, it is never enough for environmental extremists, who will make political trouble if anyone is allowed to break up those miles and miles of solid vegetation with buildings, even though pavement and masonry don't burn.

In other words, government preserves all the conditions for wildfires and subsidizes people who live in their path.

As for water shortages, they are as endemic to California as wildfires. But when an economist hears about a shortage that persists for years, the first question that comes to mind is: Why doesn't the price rise until supply and demand are equal?

If you said, "the government," go to the head of the class.

The federal government's water projects supply much of the water used in California that enables agriculture to flourish in what would otherwise be a desert.

The government sells this water to farmers at prices artificially lower than the cost of providing it -- and at a tiny fraction of what people pay for water in Los Angeles or San Francisco.

Is it news, at this late date, that people waste things that they get cheap? It's been happening for centuries.

But none of the political "solutions" through drastic water rationing schemes will touch the cheap prices of water that lead farmers to grow crops requiring huge amounts of water in a desert.

- Thomas Sowell

Copyright 2007 Creators Syndicate Inc.

http://www.realclearpolitics.com/articles/2007/10/political_solutions.html

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Excellent article.

[Seran]

As for the flames sweeping across southern California, tragic as that is, this has happened time and again before -- in the very same places in the very same time of year, just like hurricanes.

Why would people risk building million-dollar homes in the known paths of wildfires? For the same reason that people choose to live in the known paths of hurricanes. Because the government -- that is, the taxpayers -- will get stuck with a lot of the costs of dealing with those dangers and the costs of rebuilding.

Why is there such a huge amount of inflammable vegetation over such a wide area that fires can reach unstoppable proportions by the time they get to places where people live? Because "open space" has become a political sacred cow beyond rational discussion.

He's an idiot if he's questioning why grass and undergrowth would deign to grow on hill and mountainsides. To put it sucinctly, the weather in the entire area goes from one extreme to another. Be it a moderately wet, cold winter, to a dry and hot summer, this is not conducive to year round undergrowth. Instead, following the rainy months, wild grass and various other arid-clime plants sprout with wild abandon. During these months, everything is green an beautiful.

Following those month comes 6 months of dry, hot weather than effectively kills or drives dormant any vegetation. What you're left with are millions of acres of dry grass, and small dead'ish bushes. Is it any surprise that a match, or lightning would cause this to burn? No. Is it a surprise that in this unincorporated wilderness that there aren't miles and miles of pavement? No.

The reason there's so much open space is simply cost. It's entirely too expensive for developers, or metropolitain water districts to expand the basic services to these areas to promote growth. Tie in that most of it is relatively dry and ugly, and the terrain is unlevel at best, scrub covered ravines at worst doesn't tweak the interest of home-buyers.



Excellent article.

This guy is no better than some of your foe's at moveon.org, and quite frankily you're not better yourself to quote such sensationalist drivel.

[Latrinsorm]

The same severe government restrictions on building that drive home prices sky high also lead to vast areas with nothing but trees and bushes. Where it doesn't rain for months, that's dangerous.I'm all for asking "why do we pay for rebuilding here over and over", but this part was a little much. We can't just pave over everything that'll catch fire.

It's also odd to have this part in the same article as blasting the government for propogating water shortages. This is an area that is notoriously dry and somehow people are supposed to live and work there? How does that jive?

[Gan]

Awww comeon! You dont like Sowell's article? :(

He cant be all that bad now can he?

I like his explanation of the mortgage crisis we're in now, but he's left out a few things (I mentioned them in my mortgage thread earlier this month).

I think his opinion of building multi-million dollar homes in areas where wildfires are known to happen is pretty pointed towards foolish buying behavior, much akin to building multi-million dollar homes in areas known to frequent hurricanes. The conservative spin was also worth a chuckle. (:chuckle: just for you WB!)

And how can you argue with the logic on his water stance where he said that people tend to be wasteful with things that are cheap (easily afforded)?

You guys just have your liberal panties in a bunch.

:whistle:

[Clove]

And how can you argue with the logic on his water stance where he said that people tend to be wasteful with things that are cheap (easily afforded)?

Tsa'ah can do it, I just know it! :yes:

[Tsa`ah]

Tsa'ah can do it, I just know it! :yes:

You're also a fucking moron with no reading comprehension.

If I think federal flood insurance needs to be re-tooled because morons build on barrier islands and cause the insurance to run in deficit, forcing a bail out from the federal reserve ... what the fuck do you think my stance is going to be on morons building in wildfire zones?

[Kembal]

Gan,

This article is freaking terrible. Sowell's trying to assert that zoning restrictions caused high home prices, which caused risky loans to be taken out, which caused all the subprime defaults. Yet, and as you pointed out in your earlier thread, the actual causation is more predatory lenders convincing people that those homes were within their price range. And the major reason why these transactions can't be unwound (thus stopping the crisis) is the securitization of the loans.

(And blaming the Community Reinvestment Act is just funny. Lenders weren't required to give no-doc or subprime loans under that Act...they chose to.)

Honestly, I'm not a fan of zoning. I like how we have it here in Houston. But trying to blame zoning for the subprime crisis is patently ridiculous.

As for water shortages....eesh. If his solution of paving everything over occurred to fix the fire problem, wouldn't that make the water shortages even worse?

[Warriorbird]

I think this article is muddled. Is he honestly advocating just not living in the West? I don't think most of the Republicans out there would go for it. Of course they're gonna back stuff that makes it easier for people to buy homes and get water...enlightened self interest.

[oldanforgotten]

Granted, the entire article is full of shit, but I can answer a few of those questions:


Why were borrowers taking out risky loans in the first place? And why were lenders willing to lend to risky borrowers? In both cases, the government was a prime factor in "subprime" loans.

A: No, the government wasn?t. The vast increase in cost of housing in recent years, combined with a higher interest rate, combined with the fact that China is buying up a fuckton of the world?s lumber and steel (further driving up housing costs), created a potential for a money supply dip (reduction in loans and investments). The major banking houses figured out an ingenious (sarcasm) solution to resolve this. Offer more and more lowered rate jumbo loans and interest only loans, even in riskier batches, and then cover themselves by selling bonds against the loans to the investment banks. Lumping riskier loans with less risky loans allowed them to keep relatively lower risk bonds with good payouts for investors. Of course, a major correction in the housing market combined with a useless war taking away domestic financial resources caused the bubble to burst.


Many people took out risky mortgage loans to buy a house because housing prices were so high that this was the only way they could own a home. Where housing prices were highest, the most people took out risky loans.

A: Correct, but obvious.


In the San Francisco Bay Area, where housing prices are the highest in the nation, risky interest-only loans went from being 11 percent of all new mortgages in 2002 to being 66 percent of all new mortgages in 2005.

A: Interest only loans are not pre-defined as risky, but they tend to be riskier, so ok, I?ll buy the conservative spin on this one.

Study after study has shown that housing prices are highest where government restrictions on building are the most severe. That is the ugly result of pretty words like "open space."

A: You don?t need a study to determine this, its supply and demand.

Why were lenders lending to people whose prospects of repaying the loans were below average -- that is, "subprime"?

A: See above answer, and why is he asking the same question twice?

Government laws and policies, especially the Community Reinvestment Act, pressured lenders to invest in people and places where they would not invest otherwise. Government also created the temporarily very low interest rates that made the mortgages seem affordable for the moment.

A: This is bullshit. Government does not provide a mortgage rate, and even though a reduction in the bank to bank rate can, over a period of time, reduce interest rates, it does not do so immediately, as those rates are determined primarily through a standardized Black-Scholz equation.


Why would people risk building million-dollar homes in the known paths of wildfires? For the same reason that people choose to live in the known paths of hurricanes. Because the government -- that is, the taxpayers -- will get stuck with a lot of the costs of dealing with those dangers and the costs of rebuilding.

A: Agreed

Why is there such a huge amount of inflammable vegetation over such a wide area that fires can reach unstoppable proportions by the time they get to places where people live? Because "open space" has become a political sacred cow beyond rational discussion.

A: It?s more than open space. It?s logging restrictions. Most governments (including Canada) with that level of forestation promote certain levels of logging, and will in fact, to prevent fires of this magnitude, have logging zones to prevent wildfires from having unlimited room for growth, creating two to three mile gaps in forestation to limit area of effect. It?s not the homebuilders, it?s the treehuggers here.

Can?t really respond to the rest because either a)it makes no sense to me or b)I?m not the googling kind who feels a need to explain how I know everything.
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[Gan]

Gan,

This article is freaking terrible. Sowell's trying to assert that zoning restrictions caused high home prices, which caused risky loans to be taken out, which caused all the subprime defaults. Yet, and as you pointed out in your earlier thread, the actual causation is more predatory lenders convincing people that those homes were within their price range. And the major reason why these transactions can't be unwound (thus stopping the crisis) is the securitization of the loans.
You obviously didnt read my mortgage industry thread. I'm just throwing this article out there with the * that there are several things that Sowell didnt cover in the mortgage bailout we're currently seeing. On this, you're preaching to the choir.


(And blaming the Community Reinvestment Act is just funny. Lenders weren't required to give no-doc or subprime loans under that Act...they chose to.)
+10 points for pointing out one of the things he left out in his hypothesis.



As for water shortages....eesh. If his solution of paving everything over occurred to fix the fire problem, wouldn't that make the water shortages even worse?
Depends on how you managed the runoff water from rainfall. ;)

[Seran]

A: It’s more than open space. It’s logging restrictions. Most governments (including Canada) with that level of forestation promote certain levels of logging, and will in fact, to prevent fires of this magnitude, have logging zones to prevent wildfires from having unlimited room for growth, creating two to three mile gaps in forestation to limit area of effect. It’s not the homebuilders, it’s the treehuggers here.


Sorry but you're wrong there. The area that was burned was covered with nothing but an overabundance of tall grass, and small trees/bushes. This stuff burns because it's flammable. It would be an impossibility to manage the undergrowth in these areas. Visit the areas, you would know.

Now what /did/ make the problem worse is the number of arson set fires that stretched the Forestry Service resources and that of the various counties that sent firefighters. This isn't a first time thing, alot of those mountainsides burn every single year. The sheer number of fires going on at once was the only difference.

[g++]

Hes not wrong local logging restrictions do add to the amount of brush fires. The practice of periodically setting controlled fires on purpose in strategic locations to prevent things like your whole state going up in flames used to be common practice but in many areas of the country it was discontinued because green leaning people dubb areas protected forest meaning your not even allowed to manage them. Sure if you live in a brush area fires are going to happen but to say its impossible to prevent or at least minimize the amount of massive uncontrollable fires flooding into towns and cities is simply not true.

[Warriorbird]

I think there is a continuum between stupid "management" practices (whacking old growth, monoculturing forests) and stupid resistance TO forest management. Unfortunately it seems like it ends up that people either go too far one way or too far another way.

[Sean of the Thread]

I think this article is muddled. Is he honestly advocating just not living in the West? I don't think most of the Republicans out there would go for it. Of course they're gonna back stuff that makes it easier for people to buy homes and get water...enlightened self interest.

Can start by not farming in a desert at the very least.

[Warriorbird]

Damn you, irrigation! You and your civilization starting!

[Clove]

I think this article is muddled. Is he honestly advocating just not living in the West? I don't think most of the Republicans out there would go for it. Of course they're gonna back stuff that makes it easier for people to buy homes and get water...enlightened self interest.

I think he's advocating that consumers pay for what it costs to live in the West.

[Celephais]

http://i169.photobucket.com/albums/u222/GuinnessKMF/20041030.gif
That's about what I got to contribute.

[ElanthianSiren]

Hes not wrong local logging restrictions do add to the amount of brush fires. The practice of periodically setting controlled fires on purpose in strategic locations to prevent things like your whole state going up in flames used to be common practice but in many areas of the country it was discontinued because green leaning people dubb areas protected forest meaning your not even allowed to manage them. Sure if you live in a brush area fires are going to happen but to say its impossible to prevent or at least minimize the amount of massive uncontrollable fires flooding into towns and cities is simply not true.

It's also used in parts of california because a keystone pine species can't survive without controlled burn to open its cones. It was a big problem with the whole Smokey drive. Also, chaparrals/prairie lands utilize fire as the main recycling tool of nutrients.

One of the biggest problems in places like so California firewise is people who unbalance the ecosystem by having to have species that aren't endemic and burn quite fast and hard because they're not succulents aka cam plants. Succulents store water, so if fire hits them, they burn slower. So goes the logic.

[oldanforgotten]

It's also used in parts of california because a keystone pine species can't survive without controlled burn to open its cones. It was a big problem with the whole Smokey drive. Also, chaparrals/prairie lands utilize fire as the main recycling tool of nutrients.

One of the biggest problems in places like so California firewise is people who unbalance the ecosystem by having to have species that aren't endemic and burn quite fast and hard because they're not succulents aka cam plants. Succulents store water, so if fire hits them, they burn slower. So goes the logic.

/signed
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[Parkbandit]

I think he's advocating that consumers pay for what it costs to live in the West.

You are joking right? WB having people take some fiscal responsibility for themselves?

I THINK what you mean is that he's advocating having the rich pay for what it costs to live in the West.

[Warriorbird]

We were discussing the article. I dunno WTF you were doing. As far as tax policy goes...I actually debated in favor of the Fair Tax the other day so I'm not getting where you're coming off from.