Complete Whimsy, Deficits, Dubiously Free Trade, Trust

The Left Reaches Really, Really Far on Detroit Bankruptcy

So MSNBC’s Melissa Harris-Perr said the following about Detroit’s recent bankruptcy filing (and general state of awfulness):

This is what it looks like when government is small enough to drown in your bathtub, and it is not a pretty picture

See for yourself:

I honestly don’t even know how to respond to someone who can’t see the difference between reducing taxes and having a reduced tax base. I just don’t know.

So I’ll give up and let Reason sum it up:

Detroit has been a “model city” for big-government! All Detroit’s mayors since 1962 were Democrats who were eager to micromanage. And spend. Detroit has the only utility tax in Michigan, and its income tax is the third-highest of any big city in America (only Philadelphia and Louisville take more, and they aren’t doing great, either).

… Home loan subsidies, public housing, stadium subsidies, a $350 million project called “Renaissance Center” (the city ended up selling it for just $50 million), an automated People Mover system that not many people feel moved to use (it moves people in only one direction), endless favors to unions — if a government idea has failed anywhere in America, there’s a good chance it failed in Detroit first.

But yeah, it was probably Ayn Randian libertarianism that brought Detroit down… I mean why not?

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Individual v. Collective, Live and Learn, Trust

Yes, Liberals are “Anti-Science” Too

So Michael Shermer made a bit of a splash earlier this year when he wrote there was a “liberal war on science” in addition to—not instead of—a conservative war on science. As he says:

The left’s war on science begins with the stats cited above: 41 percent of Democrats are young Earth creationists, and 19 percent doubt that Earth is getting warmer. These numbers do not exactly bolster the common belief that liberals are the people of the science book. In addition, consider “cognitive creationists”—whom I define as those who accept the theory of evolution for the human body but not the brain. As Harvard University psychologist Steven Pinker documents in his 2002 book The Blank Slate (Viking), belief in the mind as a tabula rasa shaped almost entirely by culture has been mostly the mantra of liberal intellectuals, who in the 1980s and 1990s led an all-out assault against evolutionary psychology via such Orwellian-named far-left groups as Science for the People, for proffering the now uncontroversial idea that human thought and behavior are at least partially the result of our evolutionary past.

He continues:

There is more, and recent, antiscience fare from far-left progressives, documented in the 2012 book Science Left Behind (PublicAffairs) by science journalists Alex B. Berezow and Hank Campbell, who note that “if it is true that conservatives have declared a war on science, then progressives have declared Armageddon.” On energy issues, for example, the authors contend that progressive liberals tend to be antinuclear because of the waste-disposal problem, anti–fossil fuels because of global warming, antihydroelectric because dams disrupt river ecosystems, and anti–wind power because of avian fatalities. The underlying current is “everything natural is good” and “everything unnatural is bad.”

Arsenic, I should note, is natural.

Chris Mooney, the author of The Republican War on Science, replied saying there is absolutely no liberal war on science to see here, by irrefutable points that “considerably fewer Democrats than Republicans get the science wrong” and liberal “anti-science doesn’t get mainstreamed” and “doesn’t shape public policy.” Well the liberals love Head Start and it’s blank-slatism despite it proving to be a failure over and over again, so maybe liberal scientific views, err, anti-scientific views do “shape public policy.” And what about the hubbub over fracking? Or the fact that Germany banned GMO corn? He makes no mention of these things of course. Anyways, he finally ends with the most-scientists-are-Democrats appeal to authority fallacy (and of course he’s citing a poll of university and government scientists, whose income derives from the government… no conflict of interest there). Indeed, does the fact that engineers are more likely to be Republicans make Democrats anti-engineering?

Ronald Bailey of Reason Magazine decided to put this whole issue to the test and went through a handful of major scientific matters to see who is more pro, err, anti-science. He compared poll results among Republicans and Democrats and compared them to what can best be gathered as the scientific consensus. The results were as follows:

Climate Change: It’s happening and mostly human caused, see here: Advantage Democrats

Evolution: It’s real, see here: Advantage Democrats

Nuclear Power: It’s relatively safe, see here: Advantage Republicans

Biotech Crops: They’re safe, see here: Advantage Republicans

Synthetic Chemicals: They’re mostly safe, see here: Advantage Republicans

Guns: Banning them won’t help, see here: Advantage Republicans

Vaccines: They’re safe and don’t cause Autism, see here: Advantage Draw

Video Games and Violence: There’s no connection, see here: Advantage Democrats

Fracking: It’s mostly clean and has huge upsides, see here: Advantage Republicans

Organic Food: It’s safe, see here: Advantage Republicans

Sex Education: Abstinence only education is counter-productive, see here: Advantage Democrats

In the end, the Republicans actually win 6 to 4 with 1 draw! And furthermore, Bailey doesn’t even go into the blank slate, cognitive denial (see here) or the anti-animal research movement (see here) or the ridiculous claim that men and women are effectively the same (see here). All of those would also favor Republicans. Of course, gayness cannot be cured. so score one for the Democrats (see here). Now I would guess people who believe in Astrology are more likely to be liberal too, but then again, those who believe in miracles are probably more likely to be Republican. Indeed, is believing God speaks to you any more ridiculous than believing it would be best to forego civilization and go back to our hunter-gathering roots (a la Jared Diamond) only without the hunting since we should all be vegetarians of course?

Now there are a few problems with all this score tallying. Does being wrong on sex education really equate to being wrong on evolution? Are those matters of equivalent value? Probably not. Furthermore, these are shades of grey. For example, one poll showed that while 65% Republicans hold either intelligent design or creationist views, 52% of Democrats did the same. Is that really a win for the Democrats? Furthermore, are these creationist view equivalent? Should believing that God exists and uses evolution (intelligent design) count as being an evolution denier?

The other major problem is that this method assumes that the scientific consensus (or in some cases, just where science is leaning) is correct. I for one, am a bit skeptical not about whether humans contribute to global warming, but how much and what is the cost/benefit analysis of dealing with it. The only one I really hear talk about that is Bjorn Lomborg. I also have some doubts about GMO crops and am not a huge fan of gratuitous violence in video games. And I remember sitting through sex education classes with an almost unending desire to eye roll and face palm. Does that make me anti-science?

Heterodox science is extremely important, as is a degree of humility. If we just went with the scientific consensus and called it good, we would still believe in blood letting, the Phlogiston theory of fire and phrenology. Indeed, the problem with the American public’s view of science isn’t really a right/left thing (they’re both anti-science), it’s an ideological problem. As Ronald Bailey’s title and subtitle make clear: “Why Do People Believe in Scientifically Untrue Things?” Well it’s obvious; “Because to do otherwise would be immoral.”

Indeed, it’s as the political questions in the United States’ have moved toward questioning conservative beliefs (global warming, evolution) and thereby conservative faith in science fallen. As Gordan Gauchat notes:

But only conservatives showed a change over time. At the beginning of the survey, in the 1970s, conservatives trusted science more than anyone, with about 48 percent evincing a great deal of trust. By 2010, the last year survey data was available, only 35 percent of conservatives said the same.

Science is politically neutral (or at least it should be, I’m looking at you Chris Mooney”). And we have to be open to the possibility that what we believe ideologically and philosophically may be wrong on a scientific level. That’s what the scientific method is all about. Testing new theories and existing one’s ruthlessly without preconceived notions. And it is in lacking that, not the individual scientific issues mentioned above, that is the real problem the American people have with regards to science. But to prove this has more to do with than individual issues being addressed rather than the entire philosophy being espoused, one need only look across the pond (well both to be accurate). Gauchat again:

Interestingly, public opinion on science in Europe and Japan skews differently than in the United States, Gauchat said. There, skepticism about the scientific community usually comes from the left. The reason may be that the issues on the scientific forefront in Europe (genetically modified food, nuclear power) tend to push liberals’ buttons, while those in the United States (climate change, stem cell research) tend to bother conservatives more.

So what’s the lesson here? Being anti-science is not being against what is considered the mainstream position in science, nor is it simply about being on the right or the left. Being anti-science is being against the scientific method and believing that because something adheres to your ideology, it must be true, or because it is contrary to it, it must be false. Regardless of our biases, the truth of the matter must be tested against the evidence. And we must be humble enough to admit we might be wrong. What we want to be true is irrelevant. Both the right and the left can fall into this trap. And both the right and the left do.

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Photo Credit: www.SodaHead.com

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Complete Whimsy, Deficits, Obama Says

Why the Debt Ceiling Debate is Stupid

We could, after all, still pay interest on the debt if we don’t raise the ceiling. Nick Gillespie for Reason Magazine gives the top three reasons this whole debate is ridiculous:

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Deficits, Dollar, Dubiously Free Trade, Taxes, Trust

The Next Financial Crisis

Are we approaching another financial crisis that could dwarf the last one? Economist Johan Norberg, author of Finacial Fiasco, thinks so. Here ReasonTV’s Michael Moynihan speaks with Martin Borgs, the director of Overdose: The Next Financial Crisis, which was based on Johan Norberg’s book.

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Individual v. Collective, Live and Learn

DDT: Toxic Chemical or A Life-Saving Excellent Powder?

Donald Roberts and Richard Tren, authors of The Excellent Powder, discuss the scientific and political history of DDT as well as taking on the insane ban (or more appropriately, the effective ban) on DDT in much of the world. They blame much of the resurgence of malaria, especially in Africa, on its ban:

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Deficits, Dollar, Federal Reserve, Obama Says, Trust

A Second Mortgage Meltdown?


As we all know, the recession is over. Joe Biden told us so. Ben Bernanke said the same. Obama’s chief economic officer Lawrence Summers even said “everybody agrees that the recession is over.” (1) Honestly, how could anyone disagree? After all, the Dow Jones is up almost 50% over the last year and we only lost 36,000 jobs last quarter, which is apparently great.

So we’ve had a jobless recovery because our economy grew 2.2% last quarter. Unfortunately, as Anthony Randazzo points out in Reason Magazine, most of that “growth” is based on temporary government programs:

“Consider that 37 percent of the third-quarter GDP growth was due to motor vehicle purchases, which were stimulated almost entirely by the Cash for Clunkers program… Another 20 percent of third-quarter GDP growth came from new residential investments, propped up largely by the First-Time Homebuyer Credit… Overall, government support accounts for roughly 77 percent of economic growth in the third quarter of 2009, according to my analysis of Commerce Department statistics. This means that non-Washington GDP growth was closer to 0.34 percent from July to September 2009, instead of 2.2 percent.” (2)

He concludes, “This is not real growth. It’s the national equivalent of a credit-card buying spree, with the bills—in the form of debt service and unfunded liabilities—to be paid off later. It is a faux recovery.”

Still, 0.34 percent growth, and continuously shrinking job losses does, potentially, show signs the recession will be over soon. The key word is ‘potentially.’ Regrettably, the fundamentals of our economy are still way out of whack. Stimulating home purchases just prolongs the needed correction in the vastly overinflated housing market and stimulating car purchases is just a way to increase consumer spending when Americans desperately need to rebuild their savings.

These programs also add to our immense national debt. The deficit for 2009 alone was $1.4 trillion, which was put on top of the $12.6 trillion in national debt. Some have estimated unfunded liabilities at over $100 trillion. (3) Sooner or later, we are going to have to pay back these debts. Or even worse, foreigners may stop lending to us, or even start liquidating our debt, which would cause a run on our currency. Furthermore, the Federal Reserve has more than doubled the monetary base which could have massive inflationary consequences if lending and velocity of circulation ever pick up. (4) And if the Fed tries to stop inflation by increasing interest rates, it would surely throw the economy back into a recession.

As bad as all that sounds, it ignores the dire situation we are facing in a very familiar setting: the housing market. Contrary to popular wisdom, the ‘toxic assets’ have not been cleaned out. It is very likely we are heading for a second mortgage meltdown.

A fantastic website called DoctorHousingBubble.com, has compiled a vast array of data on housing trends and the future looks bleak. Most of this data is for California, but much of it illustrates a larger trend in the country. The following chart shows when California mortgages are timed to reset from a low ‘teaser’ rate to an actual adjustable rate. See if you notice anything disturbing:

Source: DoctorHousingBubble.com

California is moving straight into some very dangerous territory. While most of the subprime loans have reset, most option ARMs have yet to reset. Option ARMs are even more dubious than the infamous interest-only loans, which allowed homeowners to pay none of the principle and simply rely on appreciation (i.e. inflation) to gain equity. Option ARMs allow homeowners to pay even less than the full amount of interest due each month (called negative amortization), which then just pads the unpaid interest onto the principle of the loan. And these teaser rates are about to disappear en masse.

Given the recent fall in housing prices, it is no surprise that the vast majority of Option ARMs are attached to houses that are severely underwater (the owner owes more than the home is worth). 73 percent of Option ARMs are severely underwater as compared to 50 percent of subprime and 25 percent of prime loans. (5)

Given all that, it should be no surprise that the percentage of Option ARMs becoming delinquent is skyrocketing. The following graph shows the percentage of Option ARMs in California that are delinquent:

Source: DoctorHousingBubble.com

Fortunately, only four states have major exposure to Option ARMs; California, Arizona, Florida and Nevada. (6) Unfortunately, what happens in these states can reverberate throughout the country. And even more unfortunately, as far as properties being underwater, it’s not as if California is the only state facing this problem. Not by a long shot:

Source: DoctorHousingBubble.com

There’s another problem in the housing market looming beneath the surface. Banks are not clearing out bad debt nearly as fast as it is coming across their desks. Loss mitigators are overloaded with case files and can barely keep up with them. Stephanie Armour of USA Today concludes, “Banks dealing with a surge in refinancing, mortgage modifications and defaults are overwhelmed with demand, so it can take longer to initiate a foreclosure sale.” (6)

Furthermore, banks have at least a short-term incentive to not recognize losses. If a loan is not performing, the loan is still recognized as an asset on the bank’s balance sheet. However, if the property is brought to foreclosure, that asset disappears. And banks typically lose the majority of their investment in the foreclosure process. Thereby, taking a property to foreclosure may be the right financial decision for a bank, but it makes their income statements look worse, which in turn makes their stock look worse.

What we see is a massive glut of ‘shadow inventory.’ These are properties in the process of being foreclosed on or sold by short sale (when the bank agrees to discount a mortgage so a property can sell). The following graph shows that not only are delinquencies continuing to increase, but there has been a massive increase in shadow inventory:

As you can see, while the foreclosure-in-process rate mirrors the 90+ day delinquency rate, the REO rate does not. REO (real estate owned) are properties that were foreclosed on but did not sell at auction. These are properties the bank owns and must sell to recoup as much of their original investment as possible (usually a relatively small fraction). In essence, it means there is a large glut of soon-to-be-foreclosed properties, which haven’t flooded their way into the market yet. According to the Amherst Securities Group, another 7 million properties are set to be foreclosed (as compared to 1.27 million in 2005).(8) Furthermore, based on data from the Lender Processing Servicers database, 7.5 million loans are delinquent and another 1 million are REO’s. The number of delinquencies has risen by 25% from January of 2010 as compared to January of 2009, while 31 percent of delinquent loans have been delinquent for over six months without a foreclosure process being initiated and 22.8% over 12 months. (9)

Sooner or later, these properties will have to go to market. At that point, the additional glut of housing on the market will create an oversupply of homes. This, in turn, will further reduce housing prices and cause even more homes to go underwater, meaning fewer homeowners will be able to refinance or sell a home without doing a short sale.

Some would argue this requires government action to stimulate the housing market. I would say that is like treating a heroin addict with heroin. Housing was artificially inflated and it’s going to come down, whether we like it or not. Furthermore, attempts at re-inflating bubbles usually end up inflating other bubbles. For example, the attempt to re-inflate the stock market after the dot-com bust brought much more inflation into housing than it did into the stock market.

Policy prescriptions are a moot point here, however. The big point is it appears we are heading straight into a second mortgage meltdown. Of course, that’s assuming the first one ever ended.
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(1) George Stephanopoulos, “Summers: Job Growth by Spring,” ABC News, December 12, 2009, http://blogs.abcnews.com/george/2009/12/summers-job-growth-by-spring.html
(2) Anthony Randazzo, “The Myth of the Recovery,” Reason Magazine, March 10, 2010, http://reason.com/archives/2010/03/10/the-myth-of-the-recovery
(3) For the deficit, see Brian Faler and Julianna Goldman, “CBO Projects 2009 Deficit Will Reach $1.85 Trillion,” Bloomberg, March 20, 2009, http://www.bloomberg.com/apps/news?pid=20601103&sid=aA8lChe4zUQU, for debt, see “U.S. National Debt Clock,” Last update March 22, 2010, http://www.brillig.com/debt_clock/, for unfunded liabilities, see Pamela Villarreal, “Social Security and Medicare Projects,” National Center for Policy Analysis, June 11, 2009, http://www.ncpa.org/pdfs/ba662.pdf
(4) George Melloan, “We’re All Keynesians Again,” Wall Street Journal, January 13, 2009, http://online.wsj.com/article/SB123180502788675359.html
(5) “California Sending out Approximately 475,000 Notice of Defaults for 2009 yet Overall Foreclosures Declining, Shadow Inventory, Q3 Defaults, Toxic Loans, The State of the National Housing Market, DoctorHousingBubble.com, October 21, 2009, http://www.doctorhousingbubble.com/california-sending-out-approximately-475000-notice-of-defaults-for-2009-yet-overall-foreclosures-declining-shadow-inventory-q3-defaults-toxic-loans-the-state-of-the-national-housing-market/
(6) “Option ARMs Enter the Eye of the Hurricane: The $189 Billion Recast Problem Targeted Directly at the California Housing Market, Of $189 Billion in Securitized Option ARMS $109 Billion in California,” DoctorHousingBubble.com, October 30, 2009, http://www.doctorhousingbubble.com/option-arms-enter-the-eye-of-the-hurricane-the-189-billion-recast-problem-targeted-directly-at-the-california-housing-market-of-189-billion-in-securitized-option-arms-109-billion-in-california/
(7) Stephanie Armour, “Another wave of foreclosure looms, USA Today, 11/19/2009, http://www.usatoday.com/money/economy/housing/2009-11-19-shadow19_ST_N.htm
(8) Ibid
(9) “Lender Processing Services’ February 2010 Mortgage Monitor Report Shows Pace of Delinquencies Slowing, But Delinquency Rates At All-Time Highs,” Lender Processing Services, February 2010, http://www.lpsvcs.com/NewsRoom/Pages/20100315.aspx

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