Cafe Hayek

What's Behind Foreclosures?

Don Boudreaux

Writing in today's Wall Street Journal, economist Stan Liebowitz reports the results of his careful study of the data on mortgage foreclosures.  Liebowitz finds that the chief reason homeowners default is negative equity in their homes (and, hence, not upward adjustments in the interest rates owed on ARM mortgage loans, or any other of the alleged culprits).  Here are some key paragraphs:

Many policy makers and ordinary people blame the rise of foreclosures squarely on subprime mortgage lenders who presumably misled borrowers into taking out complex loans at low initial interest rates. Those hapless individuals were then supposedly unable to make the higher monthly payments when their mortgage rates reset upwards.

But the focus on subprimes ignores the widely available industry facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed homes had prime loans, not subprime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for subprime foreclosures. (These percentages are based on the period since the steep ascent in foreclosures began -- the third quarter of 2006 -- during which more than 4.3 million homes went into foreclosure.)

On America's Middle Class

Don Boudreaux

In two of his Forbes columns, NYU's Thomas Cooley challenges - with data - the widespread misunderstanding that America's middle-class is disappearing.  Here, and then here.

(HT Greg Mankiw)  The Terry Fitzgerald work that Cooley mentions was mentioned here at the Cafe a while back.

I raise, though, one objection to Cooley's otherwise excellent columns.  In the first one linked to above, he credits technological change for the explosive economic growth of the 1980s and 1990s.  I don't accept technology as an explanation.  A rush of technology has causes; it must be explained.  Technology is not a variable exogenous to economic growth.

The Psychology of Climate Change and Intervention

Don Boudreaux

Writing in today's New York Times, Nicholas Kristof argues that we're not as frightened of climate change as science counsels that we should be, and that our fear's inadequacy is rooted in our evolutionary past.  We are, Kristof correctly says, evolved to fear immediate, visible threats and not so much those threats - such as climate change - that are more distant, more speculative, and less visible.

Contrary to Kristof's conclusion, though, this fact doesn't necessarily justify climate-change regulation.  The same evolved structure of our brains that causes us to discount relatively distant and speculative climate-change effects also causes us to discount relatively distant and speculative economic effects.  So this economist, trained to see the invisible hand, points out that too many people are insufficiently aware of - and, hence, insufficiently fearful of - those relatively distant and invisible threats posed to a healthy economy by government regulation.

Unintended Consequences

Don Boudreaux

Here' my answer to my pop quiz; it's in the form of a letter-to-the-editor that I sent yesterday to the Washington Post:

You report that the "International Trade Commission recommended on Monday that President Barack Obama impose additional duties for three years on imports of low-cost Chinese tires the panel says are harming U.S. industry" ("U.S. trade panel favors stiffer duties on Chinese tires," June 29).

Such a move by Mr. Obama would not save U.S. jobs on net, because fewer dollars spent on imports means fewer dollars that foreigners have to spend on U.S. exports or to invest in the U.S.

More importantly, in this case higher duties would actually kill people.  Higher duties mean higher tire prices, and higher tire prices will prompt many motorists to ride longer than otherwise on tires that are threadbare.  Because riding on older tires is more dangerous than riding on new tires, Mr. Obama will have blood on his hands if he accepts the I.T.C.'s recommendation to stiffen duties on low-cost tires.

Sincerely,
Donald J. Boudreaux

Thanks to all of you who answered the quiz in the comments section of my previous post (or in e-mails to me), and congrats to the many of you who earned A+.

Hi! Don Boudreaux Here for Free Markets!!!

Don Boudreaux

It's easy for Very Smart People to poke fun at the likes of television pitchmen such as the late Billy Mays.  But John Stossel explains why such disdain is unwarranted.

Tired Protectionism

Don Boudreaux

The U.S. International Trade Commission recently recommended to President Obama that he raise import duties on low-priced automobile tires from China.

Pop quiz: If Mr. Obama accepts this recommendation, why will he have then have blood on his hands?

Does Fee-for-Service Explain Rising Health-Care Costs?

Don Boudreaux

I argue here that rising medical-care costs are not explained by the fee-for-service method of delivery.

Treason Against Reason

Don Boudreaux

John Stossel challenges Paul Krugman's over-the-top assertion that oppostion to climate-change legislation is "treason against the planet.

I also challenge Krugman in a different, but complementary, way.

I Don't Want Those People to Have a Say in How I Live My Life

Don Boudreaux

Here's a letter that I sent yesterday to the Detroit Free Press:

28 June 2009

Editor, Detroit Free Press

Dear Editor:

Mitch Albom is correct that "We're wacko in how we view Jacko" (June 28).  But not all of us are wacko.  I, for one, am no more touched by Mr. Jackson's death than I am by the death of any of the thousands of other Americans who died last week, all of whom - like Mr. Jackson - are strangers to me and to the vast majority of people now so self-indulgently and flamboyantly grieving for a man they never met.

Americans' proclivity to mass hysteria causes me to want government to have as little power as possible.  I neither can nor wish to stop other persons from doing with their lives as they wish.  But I also damn sure despise the fact that, through their votes, so many persons prone to such childish sentiments and displays have a say in how I lead my life.

Sincerely,
Donald J. Boudreaux

On the Sanford Affair

Don Boudreaux

Here's a letter that I sent yesterday to the Boston Globe:

Dear Editor:

Scott Lehigh argues that "infidelities shouldn't end political careers" (June 26) - to which I say: it depends.

A politician who holds himself or herself out as a savior - as such a paragon of virtue that he or she can be trusted with vast swaths of our lives and property - certainly should not be suffered to remain in office once that person is revealed to be simply another ordinary human being, as faulty as the rest of us.

In the case of Gov. Mark Sanford, however, he's that rare politician who does not fancy himself to be more sagacious or virtuous than the rest of us.  While not excusing Mr. Sanford's broken promises to his wife and family - or his use of public funds to finance his trysts - I regret the likely loss to the public of an official who never posed as being worthy to lord it over ordinary human beings.

Sincerely,
Donald J. Boudreaux

Mr. Sanford's use of public funds to pay for his tryst-inspired trips is the far worse offense to the public.  As for the much-commented-upon fact that Mr. Sanford disappeared without letting any other South Carolina officials know of his whereabouts, well, Mr. Sanford understands that states are not really governed by governors -- that if a high-ranking government official is absent, dead, or comatose, the society will still continue along productively.  The idea that the people of South Carolina were in some sort of danger because their governor was AWOL is absurd.

Having said that, I doubt that Mr. Sanford's political philosophy played much of a role in his excuse-making for his secret trips.  Mr. Sanford no doubt had only one thing on his mind and he behaved irresponsibly and immorally -- chiefly to his family.

The Dangers of Regulating Exectutive Pay

Don Boudreaux

Yesterday's edition of the Washington Examiner ran (after severely editing) this op-ed on regulating executive pay that I wrote for the Virginia Institute.

Pitiless

Don Boudreaux

Here's a letter that I sent recently to USA Today:

Although you suspect that Steve Jobs received special consideration to move to the front of the line of the many Americans seeking liver transplants, you agree that "Paying for organs is properly banned in the U.S." ("Wanted: organ donors," June 25).

What's proper about a policy that reduces the supply of life-giving transplant procedures and, thus, artificially raises the cost of such procedures?  What's proper about condemning tens of thousands of people to lives of misery, and very often to premature death, when many of them would otherwise save their lives by agreeing to mutually beneficial exchanges with willing donors?  What's proper about allowing real people to suffer real agony and real death simply to protect an aesthetic sensibility that is hostile to certain kinds of voluntary commercial contracts?

Far from being proper, this ban on organ sales is pitiless.

Sincerely,
Donald J. Boudreaux

Globalization

Don Boudreaux

Canada's wonderful Fraser Institute honored me by asking me to write a short essay on globalization, and then to participate in an on-line Q&A session with students on this topic.  Here's the result.

Doctors as symptom

Russell Roberts

Greg Mankiw writes:

For obvious reasons, I have been thinking a lot about healthcare recently. One important question is, why does the United States spend so much more on healthcare than other nations do?

There are surely myriad reasons for the international differences, but part of the answer can be gleaned from this passage by Uwe Reinhardt, Gerard Anderson, and Peter Hussey (via an old post of Ezra Klein)

He then quotes a passage about how much doctors are paid in the United States relative to the rest of the world. They're paid a lot more.

But doctors' incomes are not a cause of higher spending. Doctors incomes being high are a result of the same underlying forces that cause higher total spending in the United States relative to the rest of the world—an increase in the demand for medicine driven by third party payments--governmental and private (with the latter tax-subsidized by government).

Doctors pay in the US is also affected by supply limitations imposed by licensing and medical school accreditation. This keeps prices from equalizing internationally as there are barriers to foreign doctors practicing here.

My wife and I celebrate our 20th wedding anniversary today

Russell Roberts

I am happy to report that I am not in Argentina. (Neither is my wife.)

George Will on Green Jobs

Don Boudreaux

George Will is always worth reading.

I, Toaster

Don Boudreaux

Whenever I hear or read someone proclaim that "the market doesn't work," I try (if the situation permits) to ask him or her how is it that an ordinary pencil exists.  Its production requires the cooperation of literally millions of people from around the world.  Not one in one-thousand of these people know each other.  Many of them, were they to meet, would positively hate each other.  And yet, pencils exist in appropriate abundance, and can be acquired almost free of charge.  (If you're in the United States, go up to strangers on the street, in shopping malls, or at your school or workplace and ask for a pencil.  You'll not wait long before someone gives you one without expecting it to be returned.  I do this experiment frequently; it works.)

It's an amazing fact.  An impersonal process directed largely by prices, with each step along the way created and operated by entrepreneurs and producers seeking chiefly their own betterment, results in incredibly complex coordination that very well satisfies consumer demands -- and at a cost to consumers astonishingly low, when you consider the complexity of the process and the millions of persons whose creativity and efforts are necessary to make it a reality.

This, of course, is the Leonard Read's account of "I, Pencil."

Reason's Radley Balko finds a recent effort that (however inadvertently) drives home the importance of Read's theme.

More Bruce BDM on Iran

Russell Roberts

His TED talk is here. Filmed last February and with three predictions about Iran. How did he do?

Where does power lie in Iran?

Russell Roberts

Reader and EconTalk listener, Lance Wiggains writes in response to Bruce Bueno de Mesquita's claim in this podcast of about a year ago that the President of Iran, Ahmadinejad, is perhaps only the 17th most important person in the Iranian pwer structure:

If it's true that the president is only the 17th  or so most important person in Iran, then why are so many Iranians upset about his reelection? It seems like a blatant contridiction. I assume that so many people would only be upset if he truly was important and powerful, otherwise why expend the resources protesting.

It's a good question and Lance's email isn't the only one I've received wondering the same thing. I hope to get Bruce back on EconTalk in the near future, but the answer, I think, is in understanding the protests. My understanding is that Mousavi isn't radically different from Ahmadinejad. After all, Mousavi was approved as a candidate by the mullahs. It's not like he's promising a western democracy. I see the protests against the heavy-handedness of the mullahs in declaring a victory for Ahmadinejad before the ballots could have been counted. The protesters want liberalization. They were unlikely to get it had Mousavi won. They are fighting now not for Mousavi per se, but for some more freedom and less oppression. That's my reading. Hope to get Bruce's.

Baseball graphics

Russell Roberts

If you like baseball, graphic design, and the presentation of information, you will like this (HT: mark Lanoue).