Inside Job gets outside

Prize-winning documentary Inside Job was posted for free download at archive.org a few days ago.  It was withdrawn late yesterday or this morning, but in the interim I had a chance to watch it. It was pretty much as I expected: A very well-documented expose of the forces which brought down the world economy, emphasizing that they have been rewarded, not punished, for doing so, and essentially escaped prosecution (some paid fines amounting to a small part of their takings.)  It’s well put together, director Charles Ferguson seems to be a skilled and persistent interviewer, getting on-camera answers even from some of the guilty parties.  Ominous music reflects our ominous economic future, lots of shots showing the Manhattan skyline, other centers of wealth, as well as foreclosed houses and abandoned developments.

As a documentary with a point of view, this film says “The guys who drove us off this cliff and unpunished and still in charge,” which might lead one to suppose that, if only they could be caught and punished, perhaps our long-term future would become brighter.  These guys own the government, of course, so exactly how a prosecution would work isn’t clear.  Elliott Spitzer’s experience, reported in the movie, does not make one optimistic.

The problem, as I see it, is that Inside Job doesn’t tell the story from the beginning.  I would represent the principal causes of the global financial crisis as the five connected items below

5  Regulatory capture and control of the government

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4  Concentration of financial power

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3  Securitization

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2 Loans against capitalized rent

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1  Private collection of economic rent

 

IJ describes 5 quite well, addresses 3 and 4, but doesn’t get into the fundamentals.  As long as, and to the extent that, we have private collection of economic rent, we will continue to suffer from economic crashes.  Inside Job needs a prequel explaining the root cause of the problem.

Paradox of geoist publicity

Innovative geoist group Prosper Australia are promoting a homebuyers’ strike against that country’s still-high housing prices. It’s getting them worldwide publicity and certainly seems to be in the interest of non-homeowning Aussies, encouraging them to avoid leveraging themselves in a soon-to-burst land bubble.

But what is the message?  The message is, “don’t get yourself deeply in debt to buy a house that may put you underwater in a few months.” I hope the message also is “We at Prosper Australia understand the economy and know how to fix it.  Pay attention to us.”

Whether that’s getting thru, I don’t know.  But the campaign can’t hurt.

How to prevent economic Ebola?

Economic Ebola is “the virus that infects scientists and engineers and causes them to go to Wall Street rather than create something of societal value,” says Paul Kedrosky.  Graduates with quantitative skills are offered salaries up to five times what they could make in productive work, so of course many of them spend their time finding ways to scrape a few million from high-velocity financial markets, rather than designing products or processes that would actually increase society’s satisfaction.

“Let’s save the world by keeping our engineers out of finance,” says Vivek Wadhwa. [Well, they’re not really our engineers, they belong to themselves, but we’ll skip that for now.]  A fine idea, but how to do it?  One answer might be a financial transaction tax, a tiny levy on each financial trade which could remove the profit from “financial engineering.” It would have no real effect on “long-term” investors who hold a position for more than a day. Seems like a good idea, but of course there will need to be a definition of what is a “financial transaction” for tax purposes, and clever people will find a way to design a transaction which doesn’t meet the criteria.

Maybe a better approach is to eliminate or scale back some of the things that make financial engineering lucrative.  For instance, if a land value tax prevented private collection of land rent, the mortage/financial crisis we’re still in would have been much smaller, or perhaps not possible at all.  We might want to go back to the classical concept of usury, forbidding all transactions where interest is charged for the use of money.  (People can still get compensation for lending money, but it would be as some agreed share of the profits which the investment generates, keeping the lender conceptually closer to the borrower.)

Of course we could start with something simple, like having the government take over insolvent banks, prosecuting and imprisoning criminal executives, letting stockholders, bondholders, and others who have unwisely trusted the bank to absorb the financial loss.  That alone would make financial engineering a lot less appealing.

Vivek Wadhwa

How to cut your medical costs 75%

Last month a couple of my dependents went to the local hospital for routine blood tests.  The hospital sent me a routine bill for an outrageous amount, saying “don’t worry about this, we have asked your insurance company to pay, and you are responsible only for the portion they don’t pay.”

A few weeks later, the “insurance” company, popularly known as “Blue Thieves,” sent me a statement, and the hospital sent a revised bill.  These show that the insurance company paid exactly zero, but muscled the hospital’s fee down by 75%.  Both parties expect me to pay the difference.  In other words, if you are a normal retail customer, the hospital marks up your bill 300%. In my previous experience, lab costs are typically marked up this much or more; for other services the markup is often less.

To reduce your medical costs, then, just tell the hospital that you’ll pay what Blue Thieves pay, 25% of retail.

I put “insurance” in quotes because what they sell is mainly not insurance, in the sense of taking on some of your risk, but protection, in the sense of “we will impose extra difficulties on you if you do not pay us.”

National Police Misconduct Statistics and Reporting Project

[November 2012 update: Earlier this year, the project got something like the resources it deserves, having been adopted by the Cato Institute.  The new link is http://www.policemisconduct.net/, with browsers apparently being forwarded from the old link. The text below is unedited since it was originally posted.]

A very impressive volunteer statistical effort, injustice everywhere simply summarizes and tallies reports of one kind of injustice in one country, specifically police misconduct in the United States.  Certainly a big enough category, it turns out.  For the first three quarters of 2010, a total of 3814 reports, involving 4966 police officers and sheriff’s deputies.   Sounds like a lot of misconduct, tho actually less than 1% of the country’s government-employed law enforcement people.

All information is from published reports, and a link to each (a dozen or more most days) is provided.  “National Police Misconduct Statistics and Reporting Project” seems to be the overall project name, but a bit ponderous for a URL.

This is one of those things that somebody ought to do, and fortunately somebody does.   It’s really something the government should be doing, or, if you don’t trust the government, perhaps a university.  Or, if you don’t trust entrenched university staff, it falls to independent scholars, and that’s what we’ve got.

It really deserves more resources, so that systematic data-gathering, analysis and followup could be done.  Those of us with a few extra dollars can help, especially if we do not itemize our tax deductions. Injustice Everywhere hasn’t yet managed to jump thru the hoops to charitable status certification. There’s a donation link near the top of their web site.

Progressive revenue move in Zimbabwe

Harare is now taxing residential parcels based exclusively on the value of the land, with all houses free of tax.  The net result is that most homeowners will pay the same or less, but owners of vacant plots will pay “a lot more,” with total revenue expected to increase from US$8 million/month to US$12 million/month. Authorities will not literally value every individual parcel, but assign values based on zones and size categories, providing a pretty good approximation of value at relatively little cost.

In addition to the 50% increase in revenue,

[T]he migration from land and improvements valuations to land only with the rates set by zoning was designed to encourage people to develop land fully or sell it to those who will.

According to the source article, houses in some parts of Harare had already been exempt before the change. Thanks to Gil Herman for the link.

Our local authorities, if they were serious about the need for more revenue without burdening residents, would seek a similar system.

And some Chicagoans might want to try Harare activists’ approach to the privatization of parking and towing.

 

Collecting the Rent in Hong Kong

Georgists often like to point to Hong Kong as a successful example of funding a community’s needs from economic rent.  The result is a prosperous and (relatively) free city, a magnet for immigrants.  But our information is old, and numerous changes have happened since the transfer of power, from UK to PRC in 1997.

So I was pleased to spend a bit of time this afternoon with a Hong Kong native, who now lives and works in Chicago.  Not familiar at all with Henry George, not even interested in political philosophy as far as I could tell, but able to speak with me about current economic conditions.  If I have any errors below, I trust that someone will correct me. Continue reading Collecting the Rent in Hong Kong

Short term loan at 0%, and how you can get one

Not from the Federal Reserve; surely none of my readers are “too big to succeed” and therefore qualified for direct quantitative easing. But an arm of the U S Government actually will sell you cash, in $250 increments, accepting credit cards without surcharge (you get any usual rebates or bonuses that your card provides) and with free shipping. The only catch: Your cash is in the form of dollar coins.

Stated purpose of the program is “to make $1 coins readily available to the public, at no additional cost, so they can be easily introduced into circulation—particularly by using them for retail transactions, vending, and mass transit.”  (Your government does not want you to just deposit them in the bank, but CTA farecard machines accept them.)  Altho coins cost more to produce than dollar bills, they save your government money because they last a lot longer.

For those of us who do not love the Federal Reserve, there is also the consideration that the coins are issued directly by your government, the closest thing we have to greenbacks (more about the advantages of greenbacks).

This program apparently has been going on for a couple of years; I learned about it recently from this old post.  It really works; I placed an order January 17, it arrived (by ordinary U S mail!) about a week later, and I will pay for it next week.  Presumably you could roll it over by placing another order.

Of course, what with credit cards, checks, direct bank transfers, etc., I don’t spend $250 cash in any month.  But maybe we’d all be better off if there was more use of the anonymous cash economy, which this seems to encourage.

Housing costs and land use regulation

Steve Keen did the great service of reading the FCIC report and confirming my impression (obtained without reading it) that it was not worth reading.  And a few posts prior, he reported that Wendell Cox and friends are out with another edition of their annual Demographia report, showing, once again, that the ratio of house cost to income tends to be higher in metropolitan areas where housing development is relatively restricted, and lower where developers find it relatively easy to get clearance to build. (Their report is international in scope but I will limit my comments to their analysis of US conditions.) Continue reading Housing costs and land use regulation