Book Review:  Concrete Economics, by Stephen S. Cohen and J. Bradford DeLong

This isn’t a normal book review, because I’m not going to plug this book.  More the opposite, actually.

Concrete Economics is in most respects a traditional work in that field.  For openers it is literally a cure for insomnia.  I read at night before bed – in bed – a practice most sleep experts say is likely to ruin your nocturnal regimen, and I have had more than a few nights “ruined” by the likes of Michael Lewis and Oliver Sachs.  After a few pages of Cohen and DeLong I was usually more than ready to turn out the light.  At 170 pages, this tome that should have been a one-sitting read for me took nearly a month to finish.  Even by the standards of the Drear Science, this book was a slog.

The authors’ style is heavy with one paragraph sentences, multi-syllable words and overly formal vernacular.  For example: “The East Asian Economies were eager to build up their manufacturing capacity and capability, and our ideologically motivated redesign of the American economy told us that we didn’t really care, because we didn’t really want those sectors.”  Did I mention the mixed metaphors?  “Alexander Hamilton: the only individual who may have been more than the tip of the spearhead of the heavy shaft of an already-thrown, near-consensus view on pragmatic economic policy.”  I nearly fell asleep typing that.

The book came highly touted by Paul Krugman, Nobel laureate and oracle of Progressive economics, so I expected to disagree with much if not all of the content.  I was (mostly) wrong.

Lost style points aside, the authors make a fair case that some economic planning by the Federal government is essential to the success of the Republic (italics mine, certainly not Krugman’s).  Early on they discuss the formative post-Revolutionary policies of Hamilton, who pushed the fledgling US government to assume the colonies’ war debt, establish a central bank and, most crucially, pass a series of tariffs designed to protect America’s emerging manufacturing sector.  The only way the country could gain real economic independence, argued Hamilton, was to industrialize. The plan worked well.  US makers were soon thriving and the tariffs protecting them were the government’s main source of revenue until the advent of the income tax.

Hamilton’s protective tariff model was adopted by Japan and, later, China as those countries struggled to join the Industrial Revolution.  Contemporary fans include our current president, who would also appreciate the authors’ use of words like “huger.”  I think they meant, “more bigly.” Continue reading

Flood Insurance Needs Tough Love

I’m going to say something that may sound heartless – it’s time to stop insuring properties that repeatedly flood.

This morning I listened to a report on NPR from Marketplace. The Federal flood insurance program is $20 billion in debt and Congress must take up reauthorization next year. It’s time for a change.

A mere 0.6% of properties have received 10% of payouts. These are properties that flood repeatedly – one property had flooded – and received payment – 40 times. It’s insane to keep paying owners to build in high risk flood plains. And taxpayers must also cover the costs of emergency responders and infrastructure repair.

Now I’ll sound a little less callous. There is a proposal for the Federal government to simply buy an insured flooded property at its pre-flood value. Demolish structures, remove expensive utilities, and return it to whatever sort of landscape nature intended – this last bit is from me. This would save money in the long term and keep faith with owners whom we – the government speaks for us – lured into building in flood plains with below-market-priced insurance.

I propose the buy-out and get-out approach be extended to all Federal flood insurance, and I’d include wildfires – allow private insurance companies to charge whatever they want to re-insure properties that burn. I say this as a person and volunteer firefighter living on the edge of the Gila National Forest, in the wildland-urban interface (the WUI or woo-e as it’s called.) I could be one of those people forced out if a wildfire sweeps through my area – though I do practice Defensible Space.

I can hear my liberal friends saying what I propose would destroy neighborhoods – it would be cruel to allow circumstances to force people away from the homes they love. I can hear my right-wing friends, too – the government wants your land – they want to force everyone into high density cities. I hear these concerns and an honest debate can address them. Just keep in mind that at some point nature will win, and it will be better for everyone if we plan ahead of disaster.

As sea levels rise and droughts intensify, marginal locations become more dangerous. Here’s where I’ll claim some moral high ground. Artificially low insurance premiums lure people into harm’s way. Recovering from a flood is painful and stressful as well as expensive. And people die in floods and fires.

We need to find a decent way to back out of the problem we’ve created.

BTW – There’s a second meaning of Defensible Space that has more to do with urban neighborhoods. It’s interesting enough that I have to mention it, even though it’s off topic: https://en.wikipedia.org/wiki/Defensible_space_theory.

Decline or Rise of a New Prosperity?

Manufacturing is dying in America, and the middle class that was built on post-WWII GI bill education and manufacturing is going with it. Jobs move overseas to cheap labor markets thanks to trade deals that favor a powerful elite. Millions around the world are rising from extreme poverty at the price of the Western World’s middle class – which might look like a good tradeoff to aliens watching from space, but isn’t so good if you happen to be losing. We should all be sad and angry.

I’ve heard that a lot and I guess I believe it. Just look at the tags in my tee shirts – all manufactured overseas.

I also tend to think of the Christian Science Monitor as a reputable news source, so I read their recent article carefully.

The surprising truth about American manufacturing

“United States manufacturing output is at an all-time high, worth $2.2 trillion in 2015, up from $1.7 trillion in 2009. And while total employment has fallen by nearly a third since 1970, the jobs that remain are increasingly skilled.

“Across the country, factory owners are now grappling with a new challenge: Instead of having too many workers, as they did during the Great Recession, they may end up with too few…

“In western Michigan… unemployment here is low (around 3 percent)… For factory owners, it all adds up to stiff competition for workers – and upward pressure on wages.” CSM

The situation isn’t all rosy: “Employment in manufacturing has fallen from 17 million in 1970 to 12 million in 2015. The steepest declines came after 2001, when China gained entry to the World Trade Organization and ramped up exports… In areas exposed to foreign trade [like my tee shirts], every additional $1,000 of imports per worker meant a $550 annual drop in household income per working-age adult.” CSM

Despite job openings, lots of young workers don’t want to work in manufacturing. They watched their parents shoulder large amounts of overtime only to get laid off in the Great Recession, see the overall downward trend, and are being pushed into college instead of trades by parents, schools, and the government.

I checked Wikipedia, which seems like a decent place to get an overview.

“In 1990, services surpassed manufacturing as the largest contributor to overall private industry production, and then the finance, insurance and real estate sector surpassed manufacturing in 1991. Since the beginning of the current economic downturn in 2007, only computer and electronic products, aerospace, and transportation have seen increasing production levels…

“A total of 3.2 million – one in six U.S. factory jobs – have disappeared since the start of 2000. The manufacturing sector of the U.S. economy has experienced substantial job losses over the past several years.” Wikipedia

Continue reading

Water from the Sky, Water from the Ground

 

I grew up in New York State. If a stream ran through my property there, I could pump water out of it.

Not so in Colorado or many other states. Every drop of water out west belongs to someone: As it falls from the sky, as it runs across the land, as it sinks into aquifers. There’s a saying in Colorado that “whiskey’s for drinking and water’s for fighting.” In Colorado, people still shoot each other over water. The Great American Desert never disappeared and may be coming back with rising temperatures and increased drought.

I had to learn that it’s illegal to have a rain barrel in Colorado – illegal to collect the rain that fell on my roof. Not that county sheriffs spent a lot of time searching for scofflaws – but it was unexpected for many transplant like myself.

But that’s about to change.

Danielson of Wheat Ridge and state Rep. Daneya Esgar of Pueblo sponsored a bill in the Colorado Legislature, House Bill 16-1005 (pdf), that would allow homeowners to collect rain from a residential rooftop. The bill passed the state House with overwhelming bipartisan support on Feb. 29, and passed the state Senate 27-6 on April 1. It’s now waiting for Gov. John Hickenloope to sign it into law.

Homeowners will be limited to 110 gallons of storage capacity, but this represents a change in the state. It represents some compromises – a bad word in some people’s mind these days. But Colorado is not alone:

Record droughts and a host of other water-supply worries have prompted numerous other states [15!] to enact laws that impact the use of rain barrels

Climate change, drought, and population growth is impacting the land we love. This will force us to confront water issues whether we like it or not. I live in southwest New Mexico now, with no irrigated “yard” at all and only container-raised herbs and one or two tomatoes each year. But I still own Colorado water rights, still marvel at how cheap it is to lease water for alfalfa and how expensive it is to buy water for a home.

We have some hard choice to make in the future, some choices about priorities – lawns vs food vs hay vs tradition vs cities vs… I don’t know what. There will be losers and winners, but it’s a topic we must address.

Savers and Interest Rates

My father lived through the Great Depression and was forever nervous about whether he had saved enough to pay his bills after he quit working. He always saved all he could and put his savings into safe Certificates of Deposit (CDs). He had to move to assisted living and then began to fret that the interest he was earning wasn’t enough to keep him from beginning to use up the principal. I can’t imagine how upset he would be with the miniscule rate of return available to savers for the past few years. There must be millions of older Americans trying to figure out how to stretch their retirement savings to pay their bills while they earn less in interest than the rate of inflation.

The financial crisis resulted in the government intervening by “increasing the monetary supply” and reducing the interest on loans to near or at zero. It has struck me as beyond baffling that the result was a boom in the stock market while elderly savers suffered. I know I wasn’t the only investor who decided to take the additional risk of buying stocks with dividends that were higher than anything to be found in CDs. While politicians were railing against people who have money (the “investor class”), they supported policies that enriched those same “evil Capitalists” to the detriment of elderly savers.

I wonder when the millions of elderly savers who are voters will rebel against the economic policies that have punished them. I acknowledge that the current stock market has begun to look risky for the “investor class” that has been willing to take risks for higher returns. My father would probably say something such as “Learn from this and stick with CDs.”

The Federal Reserve has actually introduced negative interest rates into their recent discussions of the economy. Perhaps the “saver’s revolt” will happen when the message is that you will receive less than what you put in your CD when it matures?

Too Much Debt, Not Enough Solutions

That’s the title of a recent opinion piece written by Alan Simpson and Maya MacGuineas. Simpson is a former Wyoming senator and was the co-chair of the National Commission on Fiscal Responsibility and Reform (the Simpson-Bowles commission). That commission offered common sense approaches to controlling the national debt in the report it issued in 2010. The commission’s findings were of course ignored by the President and Congress because they couldn’t reach a consensus. Politicians kick the can down the road when someone, such as the commission tells them, “Our fiscal challenges are real. The solutions will be painful, and there is no easy way out.” Those words will never escape the lips of a politician whose primary focus is getting reelected.

The national debt has increased markedly in the past few years, and is approaching $18.5 trillion dollars. The article points out that people have a difficult time conceptualizing a trillion dollars. “If you spend a buck a second, you won’t hit a trillion for 32,500 years. If you spent a million a day since the birth of Christ, you wouldn’t be at a trillion yet.”

The headlines today indicate that our current politicians are not ready to take action on getting the debt under control. The new grand plan that was cobbled together to prevent a government shutdown increases the debt by $80 billion over the next two years. Debt has increased from 34 percent of the GDP in 2007 to 74 percent today. Further increases will only add to the crushing problem we are willing to leave to future generations.

Co-author of the article MacGuineas is president of the Committee for a Responsible Federal Budget and head of Campaign to Fix the Debt. I predict the AARP won’t like anything that the committee or the campaign recommends.

Insurance Costs and Credit Ratings

We recently posted a commentary about how we had learned that accepting offers from retailers for price breaks if we applied for their credits cards was costing us in insurance costs. The September 2015 issue of Consumer Reports has an article about their extensive two year study of insurance costs. One of their conclusions is that, “The way insurers set prices is shrouded in secrecy and rife with inequities.” Their study resulted in study of “…2 billion car insurance price quotes from more than 700 companies with the greatest share of customers in all 33,419 general U.S. ZIP codes.” What they found “…is that behind the rate quotes is a pricing process that judges you less on driving habits and increasingly on socioeconomic factors. These include your credit history, whether you use department store or bank credit cards, and even your TV provider.”

Reading the entire article and our own experience with having higher insurance costs because of taking out more credit cards leads to the conclusion that insurance companies have found a way to artificially increase costs for customers, which of course increases their profits. Insurers “cherry pick” elements in credit reports in a proprietary manner. Some of the results are quite astonishing. The study found that “…single drivers who had merely good scores paid $68 to $526 more per year, on the average, than similar drivers with the best scores, depending on which state they called home.” Credit scores were found to have more impact on rates than driving records. Having a moving violation in Kansas increased rates by $122 per year while having only a good credit rating increased rates by $233. A poor credit rating would add an average of $1,301 a year. Another trick being used is called “price optimization,” which is prohibited in a six states. It uses data about how much of a price increase will trigger you to shop around for a better price.

One suggestion is to shop around, because there is some truth to the ads that say “People who switched to our company saved and average of…” Of course there were people who didn’t switch who aren’t included in that average. California, Hawaii, and Massachusetts prohibit insurers from using credit scores to set prices. Perhaps those of us in the other states should begin a campaign with our insurance commissioners to have our state added to that list. Page 37 of the magazine has a petition you can mail to Consumer’s Union.