Category Archives: News commentary

Remember those transit agencies that are in trouble because of the credit crisis? It turns out this is all the fault of “public-private partnerships.” At least, that’s what U.S. Representatives James Oberstar (who chairs the House Transportation Committee) and Peter DeFazio (who chairs the Highways and Transit Subcommittee) said in a letter to Secretary of Transportation Mary Peters last week.

Recall that transit agencies decided to exploit a loophole in federal tax law (since closed) that allowed them to “leverage” their capital investments to get an extra 3 percent out of those investments. They “sold” their capital investments to some bank, then leased them back. The banks would get to depreciate those investments on their taxes (which the transit agencies, not being taxpayers, couldn’t do), saving about $6 million out of $100 million. They split the savings with the transit agencies.

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Dear President-Elect Obama,

Congratulations on your historic victory, and my condolences for the economic mess left you by your predecessors. Here are a few ideas that may help. They boil down to two words: user fees.

Many people have suggested that one way out of our current economic crisis is for Congress to pass a stimulus package focused on infrastructure. If you let it be known that you support this idea, everybody and his sister will try to make their pet projects look like “infrastructure.” They will come to you with all kinds of multipliers showing how their infrastructure projects will do all sorts of wonders for the economy. It will all be very persuasive and it will all be a lot of hooey.

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About 40 percent of Americans are hard-core Republicans and 40 percent are hard-core Democrats. The way to capture the White House is to appeal to the 20 percent who are often called “independents.”

So the Antiplanner was puzzled after the Democratic convention when Obama’s acceptance speech was so clearly oriented to the left wing, while McCain’s vice-presidential pick was so clearly oriented to the right wing. How, I wondered, will either of them capture the center that way?

The answer today is clear. Obama’s acceptance speech committed him to nothing; he could go out and give more centrist-oriented speeches and sweep up the independents.

In contrast, by choosing Palin, McCain committed himself to the right wing. Sure, Palin “energized the base” of the Republican Party, but that only meant that 40 percent of the public will vote for McCain-Palin. Selecting Palin also meant selecting Palin’s rhetoric, such as claims that Obama “pals around” with terrorists and that he is a socialist.

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Since the financial crisis has been caused by falling housing prices, some people (including John McCain) have argued that the government should take steps to prop up housing prices. Harvard economist Edward Glaeser and Wharton economist Joseph Gyourko think this is a bad idea.

“Housing affordability has long been a stated goal of the Federal government,” observe G&G in the Economists’ Voice, an on-line journal edited by Joseph Stiglitz. “Why should it now try to make it more difficult for people to buy, or rent, a home by supporting prices?”

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Some people blame Alan Greenspan’s policy of low interest rates for causing the housing bubble. Why did Greenspan keep interest rates low? “I did not forecast a significant decline” in housing prices, he told Congress yesterday, “because we had never had a significant decline.”

If you fail to look closely at the data, you will come up with the wrong policies. Nationally, we’ve never had a housing bubble. Locally, we had several. But until now, they have been in so few states that they haven’t impacted the national economy.

The above chart shows the ups and downs of two housing bubbles in California, the first peaking in 1980 and the second in about 1990. Hawaii, Oregon, and Vermont also had bubbles at about the same time. By an extraordinary coincidence, these are the only states that had growth-management planning in the 1970s.
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By 1998, more than a dozen states — including Arizona, Florida, much of New England, and New Jersey — had growth-management laws. So when the housing bubble started growing about that time, it affected nearly half of all American housing. Greenspan continued to insist there was no national housing bubble, and he was right. But as Paul Krugman noted in 2005, local bubbles appeared in places that had strict land-use regulation.

Restrictions on housing created shortages that not only made prices go up, they made them more volatile. As the Antiplanner has previously noted, the fact that prices are falling is not an indication of too much supply, but too little.

Low interest rates did not cause the housing bubble, though higher rates might have suppressed it somewhat. Unless we understand what did cause the bubble — growth-management planning — we will adopt the wrong policies and fail to prevent the next one.

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Obviously, demand is down as a result of the financial meltdown. But I am not the only one who thinks that the high prices this summer were due to speculation.

I find it slightly depressing that this year’s Nobel prize in economics went to Paul Krugman. There is no doubt that he did Nobel-quality work back in the 1970s and 1980s. And at first I thought that complaints that the prize was politically motivated were just sour grapes.

But two things about this year’s award suggests otherwise. First, although other economists — particularly Avinash Dixit and Elhanan Helpman — also did laudable work in the same field for which Krugman won his prize (international trade), the 2008 award was given solely to Krugman. As Tyler Cowan points out, solo Nobel prizes are exceptional in the economics field. Second is the timing: most people (including Krugman, who called it a “total surprise“) thought he would get the prize in the future, but not in the middle of political campaign in which Krugman is particularly outspoken.

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