We know how to help the economy: Aid distressed homeowners

I found this recent magazine article very interesting. Here are a couple of key paragraphs from it:

Underwater homeowners can’t refinance at today’s rock-bottom interest rates, because they’re considered bad credit risks. They can’t move to where jobs are more plentiful or the pay is better, because if they sell their home, they end up owing the banks a bundle. But if they lose their job, their wages drop. If they have a medical emergency, they may fall behind on their mortgage payments and be foreclosed upon. If that happens, they and their family can lose both their home and their credit rating.

We don’t need another stimulus to fix what ails the economy. We need to fix the housing market. And the way to do that is to allow a mortgage cramdown in the context of a personal bankruptcy. Put simply, someone who owes $450,000 on a house worth $300,000 isn’t going to be helped that much by a lower interest rate. He would be helped​—​as would the housing market and the larger economy​—​if the lender could be compelled in a bankruptcy proceeding to write down the loan amount to $300,000, which is all the lender would recover in any case were it to foreclose on and then auction off the property.

Oops! That's actually two different magazine articles—the first paragraph comes from Robert Reich's piece in November's American Prospect, a liberal magazine. The second—and this is kind of shocking—is from Ike Brannon, writing in the conservative Weekly Standard.

Reich and Brannon have slightly different approaches to the issue, but their bottom line is roughly the same: Distressed homeowners should have their mortgages written down to reflect the post-bubble value of their homes—so that those owners don't owe more than what the house is worth. Banks make no less money than they would if they were forced to foreclose, but owners gain back some of their money and freedom to move to a new job.

Free those underwater homeowners, and they might start buying stuff again. When people start buying stuff again, demand will rise and the people who make and sell stuff will likely start hiring more people to make and sell that stuff. The economy would get new life.

Smart people on the left and right can see this. Yet a serious effort to help these homeowners doesn't seem to be in the offing, either from the president, his GOP rivals for the office, or Congress. Why not?

Blog news

First of all, a thank you to everybody who reads this blog regularly: October was the best traffic month I've had since returning to this Blogspot site after leaving Philadelphia Weekly. It's more gratifying to write this stuff when people are actually reading it.

Second of all: I'm certain I won't break that record in November. I have my (knock on wood) final diverticulitis surgery on Nov. 8, and preparations are already consuming my time and mental energy. I won't be here quite as much this month. I'm sorry about that. My hope is that being restored to full health allows me to write and opine more vigorously than before.

I had thought, for a little while after the first of my three surgeries, that I might abandon political blogging entirely. What I've discovered in recent months is that I have a passion for understanding and making sense of how the country is run, and how it might be run better. I want the blog to reflect my other interests, too: Parenting, cooking, reading, movies. But the core of it will continue to be learning and thinking about policy and politics. My hope is not to hew to orthodoxy, but to be an independent thinker. Maybe even "original thinker" on occasion, but I'll settle for independent at the least.

So I hope you're still here when I come back. Thanks again for reading.

Even Paul Krugman thinks Max Boot sounds like Paul Krugman

I've poked fun at conservative defense writer Max Boot lately because of Boot's recent assertions that cutting defense spending would end up cutting American jobs in a soft economy. I noted that Boot sounded like liberal columnist Paul Krugman, and suggested that "mainstream conservative Republicans—whatever their fiscal rhetoric—have long favored the soft socialism of big defense spending."

Krugman sounds the same theme this morning, not mentioning Boot specifically, but otherwise making the same point. He calls this crowd "weaponized Keynesians," a term borrowed from Barney Frank.

First things first: Military spending does create jobs when the economy is depressed. Indeed, much of the evidence that Keynesian economics works comes from tracking the effects of past military buildups. Some liberals dislike this conclusion, but economics isn’t a morality play: spending on things you don’t like is still spending, and more spending would create more jobs.

Beyond that, there’s a point made long ago by the Polish economist Michael Kalecki: to admit that the government can create jobs is to reduce the perceived importance of business confidence.

Appeals to confidence have always been a key debating point for opponents of taxes and regulation; Wall Street’s whining about President Obama is part of a long tradition in which wealthy businessmen and their flacks argue that any hint of populism on the part of politicians will upset people like them, and that this is bad for the economy. Once you concede that the government can act directly to create jobs, however, that whining loses much of its persuasive power — so Keynesian economics must be rejected, except in those cases where it’s being used to defend lucrative contracts.

Right. I don't mind that Boot and his fellow hawks are making an economic argument for defense spending. I just wish they'd apply that same logic to the rest of government.

Shut up and be happy, you ungrateful Occupy Wall Street protesters!

A conservative friend posted this to Facebook a couple of days ago, and it's been gnawing at me a bit:

The suggestion here being that the Occupy Wall Street crowd is selfish and ridiculous to be protesting.

This is both right and wrong. We should all be grateful in a cosmic sense for what we do have, of course. But "being a starving baby with ribs showing" shouldn't be the only grounds for complaint. (If it is, the Tea Party might want to pipe down as well.)

If you believe that your betters are tilting the playing field not through luck, not through accident, not merely through hard work, but through the greasing of palms and the escaping of the same rules that apply to you—then I think it's fine and appropriate to speak up.

This is a similar logic to those who suggest (say) American women shouldn't complain about disparities in the United States because, hey, Afghanistan! Burkhas! It's a logic that allows the people at the top to deflect the complaints (merited or not) of people in the middle and even people near the bottom—in in deflecting, serves those people at the top quite well.

It's also a logic at odds with the American Founding that conservatives like to claim as their unique heritage: The Founders might've been taxed without representation, but they were doing pretty well under the British, by and large. My conservative friend replies to this point that the Founders were concerned with "representation and consent of the governed. It wasn't simple materialism."

Well, exactly.

There are many Occupy Wall Street critics who have convinced themselves that the protests are, at foundation, envy by the poor of the rich. Perhaps there's some of that at work. But the most common complaint, as I understand it, is about governance. The fact that government is supposed to be accountable to people, but seems to be more responsive to moneyed interests—in ways that disadvantage many of us.

No: Things don't suck as much here as they might in other parts of the world. They might not suck as much as they did 100 or 200 years ago for many people. But it's not irrational to look at one's own time and place and ask if we could or should be doing better—and it's not selfish to push for that improvement if you can identify it.

The flat tax is bad

So says I in this week's Scripps Howard column with Ben Boychuk:

The flat tax is Republican-led class warfare. It makes the rich richer and the poor poorer, for no better purpose than making the rich richer and the poor poorer.

We have progressive taxation -- in which people with higher incomes pay a higher tax rate than those at the lower end of the scale -- for a reason: People on the low end are less able to pay. Flat taxes invert that logic, giving the rich a huge tax break and often burdening the poor.

The Tax Policy Center says a low-income family making $31,000 a year would lose its $5,147 tax return under Perry's plan, for example.

(Herman Cain's plan is worse. Nearly everybody making under $50,000 would see a huge tax increase.)

Perry's plan was unveiled the same day as a new Congressional Budget Office report showing economic inequality is widening in this country.

From 1979 to 2007, people in the richest 1 percent grew their after-tax income by 275 percent. The three-fifths of people in the middle class saw less than 40 percent income growth during the same period -- and the bottom fifth grew incomes just 18 percent.

The gap is getting bigger. Even before the recession, the middle class was being left behind. Perry's plan would exacerbate the problem -- and likely balloon the deficit even further.

"But I don't care about that," Perry says. He should.

In the new book "The Darwin Economy," economist Robert H. Frank points to research that high levels of income inequality are correlated to slow economic growth. "Larger shares (of income) for poor and middle-income groups were associated with higher growth rates," Frank writes.

Flat taxes burden the poor, make income inequality worse, and in so doing put a stranglehold on an already-strangled economy. Other than that, Mrs. Lincoln, how did you like the play?

Ben, in his portion of the column, points out that Perry's plan would let people opt to stay under the current tax structure. Fair point. The likely result of that is top earners would choose the flat tax and lower earners would stick with the current tax structure—meaning the Perry plan is to make the rich richer, and let the poor spin their wheels. That's not quite as awful as the picture I paint, but it seems kind of pointless—particularly in an era of ballooning deficits. Nobody's made a serious suggestion that I'm aware of that the problem with the economy is that rich people don't have enough money; I'm skeptical that such a plan would actually deliver good results for the rest of us.

Rich Lowry: The poor have only themselves to blame

I wondered where National Review editor Rich Lowry was going with this. He spends the bulk of his column conceding that, yes, the American Dream is "raggedy around the edges," that if you're born poor in America, you're all too likely to stay poor, that "picking the right parents" seems to make more of a difference here than it does in (say) Finland for your future economic prospects.

So, God bless Lowry for providing some conservative reality-based pushback to Paul Ryan's fantasy of an economically mobile society.

But Lowry arrives at the end of his column—just two paragraphs to go!—and concludes that despite all this, one shouldn't blame America's economic structure—really, the poor have only themselves to blame:

This stagnation is less a statement about the structure of America’s economy than about its culture. As Ronald Haskins, also of the Brookings Institution, wrote in an essay for National Affairs, “economic mobility is constrained above all by personal choices and behaviors.” He argues that society’s leaders “should herald the ‘success sequence’: finish schooling, get a job, get married, have babies.” If Americans finished high school, worked full-time at a job that matched their skills, and married at the rate they did in the 1970s, the poverty rate would be cut by 70 percent.

These old-fashioned bourgeois virtues, and particularly marriage, rarely figure in the public debate. Everyone is more comfortable talking about taxes or the banks, as the America Dream frays.

Let's unpack this a bit, using Finland—Lowry's comparison—as our guide a bit.

First of all, marriage, since that's the item that got my attention. While it's true that the marriage rate in the United States had declined in recent decades, it's also vastly truer that the marriage rate in the United States is much higher than in Finland: 7.5 marriages for every 1,000 people in the population in 2005, compared to Finland's rate of around 5 marriages per 1,000 people in the same year. The decline in marriage rates has happened in just about every developed country around the world (except Sweden, where the rate wasn't that high to begin with) but the United States remains one of the most marrying countries of them all. To a great extent, "old-fashioned bourgeois virtues" have held on tightly here—only it doesn't seem to make much of a difference in our economic mobility rates.

Maybe it's just the poor who aren't married? Nope. A 2004 study from the MDRC suggests that "through their early 30s, economically disadvantaged adults actually are more likely to marry than advantaged adults." The poor are attempting, at least, to embrace old-fashioned bourgeois virtues—but it's also true that those marriages more often end in divorce. That does give rise to a chicken-and-egg question, I suppose: Are the poor economically disadvantaged because they can't build stable marriages? Or can they not build stable marriages because they're economically disadvantaged? I don't know the answer to that question, but I have a hunch. But the overall point is this: The United States is a marrying country, and our poor are a marrying people. The evidence seems weighted against Lowry's point.

I'm going to skip the baby-making part, except to note that having a kid hasn't done anything to improve my economic prospects. Kids eat!

Let's focus on education, instead: It's true that the high school graduation rate in the United States is shamefully low—72 percent, compared to Finland's 92 percent. (It's worth noting that Finland also has a much higher rate of college graduates: 48.5 percent compared to America's 36.5 percent.) I'm skeptical Lowry and his fellow conservatives would recommend adopting the Finnish education system—it's European!—but I could be wrong.

For those who do graduate high school, how easy is it to find a "full-time job that matches their skills?" It's much more difficult these days than it was in the 1970s to find such a job that will pull you out of poverty. We already know that between the 1970s and now, the American economy shifted pretty radically, shedding manufacturing jobs and pushing more people to the service industry. Generally speaking, that's meant a shift to not-as-well-paying jobs: In September, a manufacturing-sector job in the United States paid $980.98 per week; a private-sector service job paid $756.96—provided you weren't in retail, which paid $496.12 per week. These are average wages, not median wages—which would provide a better picture of what a typical worker in those sectors make. Generally speaking, though, the type of full-time job that matches the skills of a high school graduate has shifted away from well-paying to not-as-well paying. That's assuming the jobs exist; the high unemployment rate suggests that's not always the case.

Making babies won't change that dynamic.

Maybe it doesn't make sense to blame taxes and bankers for that shift, but the issue is definitely one of economics—not just or even mostly, as Lowry tries to suggest, about poor people having bad habits. The numbers indicate that the poor are trying; the opportunities aren't there. Whose fault is that?

Surprise me

Forgive me a brief, personal interlude, but something I've noticed about myself: I enjoy reading conservative writers like David Frum, Conor Friedersdorf, Rod Dreher, and Nicole Gelinas because, frequently, they stray off the reservation. I thought I just appreciated un-orthodoxy, but now I suspect that I enjoy reading them (too) because they sometimes agree with and confirm my own personal biases.

I'm trying to think of any writers I enjoy who might be described as A) liberal and B) unorthodox. No names come to mind. And that worries me about my own writing here, to be frank: I try to be on guard against hackery and tribalism, but it's damned hard to avoid those temptations when writing about politics.

Contrarianism for its own sake is just as lazy as any other unthinking ideological conformity, of course. But who can I read who will surprise me? How can I train myself to surprise myself on occasion?