Here Comes The "Affordable Housing"

More than a month into his mayoralty, and Bill de Blasio hasn't done much yet.  Whew!  So far so good.   But how long can it last?

Not too long.  News comes today on the ny.curbed website that things are starting to move forward on the "affordable housing" front.  Yes, "affordable housing" is precisely what I have nominated for the title of "worst possible public policy."  Well, maybe not quite:  my nomination was for "affordable housing" in Manhattan, while this proposal seems to cover at least the whole city, and maybe the whole state.  So it's not quite "worst possible," just really, really bad.

According to curbed, the new plan comes from Democrats in the state legislature, and proposes to spend some $150 million per year in discounted mortgage interest plus additional unspecified amounts in "a new tax credit" to get the housing built.

The Independent Democratic Conference, which the Journal describes as "a group of breakaway Democrats who share power in the state Senate with Republicans," unveiled a $750 million plan that would require the state to spend $150 million annually to fund more affordable mortgages for developers.  The plan also calls for the state to create a new tax credit for the qualifying developments.  In New York City, the housing would be aimed at families of four making $75,000 to $100,000, and monthly rents would be about $1,900 to $2,500.

Without even knowing the details, you can immediately see that a big part of the idea is to hide the cost of this program deeply off budget and off balance sheet so that nobody can figure out how much it costs per family benefited.  Also, remember that article from The Nation that I cited a few months ago (right after the election) as advocating both for more affordable housing and also for ending tax breaks for developers?  Well, forget about that.  The only real alternatives for building "affordable housing" are (1) with overt, on-budget subsidies, in which case the enormous cost per benefited family is immediately apparent to all and the thing could never get off the ground, or (2) with tax breaks, in which case the cost is deeply hidden and nobody can figure it out.  There never was any question which way they would go.

But there is an alternative way to derive the cost per family benefited, which is to look at the rent they are charged and compare to the market rent for comparable space.  For example, assume that the "affordable" apartment to be rented for $2000 per month has a comparable market-rate apartment in the same area that would rent for $3000 per month.  Actually, the $1000 per month differential probably understates the difference between "affordable" and market-rate.  But at $1000 per month, it would be $12,000 per year. 

That is quite a lot of money to hand out to a family that makes between $75,000 and $100,000 per year.   This family is not poor by anyone's definition.   In fact, it is above the median of the income distribution.  Another way of looking at that is, this is the layer of earners that bears the brunt of the tax burden.  Unless you believe in perpetual motion machines, you will quickly realize that society cannot come out ahead by trying to get taxes from these people and then handing them back $12,000 housing subsidies per family.  There's not enough money to go around.  Inevitably, a small number will get the subsidies and everybody's taxes will be unsustainable.  Meanwhile, if there are to be per family subsidies of this magnitude, shouldn't they go to the poorest first, rather than to the upper middle class?

But here in New York, there is almost no disagreement that this is a good idea.

Why Government Cannot Work To Increase Prosperity

Private enterprises are forever engaged in the maelstrom of creative destruction, where businesses and jobs that are insufficiently productive are destroyed by powerful economic forces and replaced with higher-productivity undertakings.  And thus we have Manhattan, at the center of the world's best natural port, having not one remaining active freight pier or longshoreman's job.  The space became too valuable for that.  Instead we have burgeoning digital media, tech firms, investment banks, and, at the very top of the food chain, hedge funds.  The Port Authority's massive former freight-transfer building is now the New York headquarters of Google.   All this is located in a place where most employees must cross a mile-wide estuary every morning to get to work and again in the evening to get home.  Would any central planner ever have come up with this?

In Obamacare they think they have an alternative model where the cost of healthcare can be reduced (that's a form of increased productivity) through study and direction from the all-knowing experts in the federal bureaucracy.   For example, now that you have finished reading the first 3,021 sections of the Affordable Care Act and have made it to Section 3022, you know that the ACA establishes so-called "Accountable Care Organizations."  Here is a law firm web site with a good description of how this is supposed to work, and a further link to the statutory text.  (You can try reading the statutory text if you want, but believe me it is incomprehensible.) 

To summarize, the basic concept is that healthcare providers like doctors and hospitals can sign up with HHS to become an ACO.  In the first instance, the providers must submit reams of data.  Then the geniuses at HHS analyze the data for ways to save money.  If ways are found, the government mandates use of the new cheaper methods through Medicare/Medicaid reimbursement and the ACO providers receive payments for the "shared savings."

And then there is the new Innovation Center of the Centers for Medicare and Medicaid Services, funded to the tune of $10 billion under the ACA to (according to Gina Kolata of the New York Times) "discover how to most effectively deliver health care."   How could we not have realized before that the millions of people already in the healthcare industry could not figure out "how to most effectively deliver health care," and that it could only be done by bureaucrats funded with $10 billion of federal money?  Anyway, now we know.  Take that, capitalism!

Well, these things are barely under way, and already some are starting to realize not only that they can't work, but in the grand tradition of government they will be designed and implemented to declare success and keep the funding going even as they are failing spectacularly.  Megan McArdle at Bloomberg has a report covering developments on both initiatives.  Perhaps most interesting about her report is that she cites articles from both the New York Times and the Washington Post.  If those two can spot the problem, it must be pretty glaring.

The Washington Post article, from Jenny Gold on January 31, deals with the government's first reported results from the ACOs, and is headlined "Medicare won't give a straight answer on Obamacare cost savings."   Seems that CMMS put out a big announcement on January 30 claiming that the ACOs had "saved a total of $380 million in the first year."  But OK, compared to what?  They say that the savings came from 54 of the 114 ACOs that had lower spending than projected.  So what about the other 60?  From Gold of the Post:

It’s . . . unclear whether the savings figures factored in any losses from some of the ACOs that did not do well. And the agency did not release information about which ACOs saved money and which did not.

McArdle accuses CMMS of engaging in the famous "Texas sharpshooter fallacy," where the sharpshooter first shoots at the side of a barn and only then draws the target and bullseye where the bulk of his shots had hit.  Well, fallacy is one possibility, and intentional deception of the public is another.  I'm not so quick as Megan to give the benefit of the doubt.

And how about that Innovation Center?  Kolata of the Times reports:

[N]ow that the center has gotten started, many researchers and economists are disturbed that it is not using randomized clinical trials, the rigorous method that is widely considered the gold standard in medical and social science research. Such trials have long been required to prove the efficacy of medicines, and similarly designed studies have guided efforts to reform welfare-to-work, education and criminal justice programs.  But they have rarely been used to guide health care policy — and experts say the center is now squandering a crucial opportunity to develop the evidence needed to retool the nation’s troubled health care system in a period of rapid and fundamental change.

I have a quibble with Kolata, which is that "randomized clinical trials" are only the "gold standard" in the world of bureaucratic government evaluations; in the real world, the gold standard is the definitive up or down delivered by a marketplace of people spending their own money.  But put that quibble aside, because Kolata at least has a point that randomized trials might deliver some real information.   Yet instead we have a series of so-called "demonstration projects" where nobody needs to face a competitor and everybody gets to declare success. 

Question:  When they've run through the initial $10 billion, will they be back for another $10 billion?  You can task them to find and implement better and cheaper ways to do things, but in actual practice they will just set up a useless bureaucracy and then fight to the death every year to maintain and increase the funding.

Shall we take up an Exhibit B for today?  That would be President Obama's designation last week of VP Joe Biden to lead an "across-the board reform" of federal job training programs to get rid of those that are ineffective or redundant.  HAHAHAHAHAHAHAHA.

There just can't be a better illustration than job training programs of federal spending that is ridiculously ineffective and redundant and yet somehow can never be cut.  The Wall Street Journal had an editorial on this on Monday following Obama's announcement last week.  The WSJ cites the most recent (2011) big GAO study as identifying 47 (!) federal job training programs with total spending of $18 billion in 2009.

It seems that GAO previously did, or tried to do, a big study on the effectiveness of the various job training programs back in 2003.  I say "tried to" because the report is full of statements like "Little Is Known about What the Program Achieves," and "No nationwide data exist on whether the Food Stamp E&T Program is effective in helping participants get and keep employment," and "While there are no nationwide data on the characteristics of Food Stamp E&T participants, state and local officials we spoke with in all 15 states said their Food Stamp E&T participants have multiple characteristics that make them hard to employ," and "We were unable to obtain unduplicated data for fiscal year 2001 from Florida," (and same for numerous other states), and so forth.  Wow!  You'd think this is about as bad as it could possibly get for federal programs.  Well, guess what?  By the time of the 2011 study eight years later, the number of federal job training programs had increased by three, from 44 to 47. 

Here's my prediction for Biden's effort:  there will be a big announcement of some consolidation and rationalization.  The number of programs will be reduced somewhat, maybe by half or so.  But the number of federal employees working on this and the level of funding will remain at least the same or grow.  Nobody will get fired.  And the bureaucrats will continue to make 100 percent sure that there are no data collected sufficient to show the complete ineffectiveness of their efforts.

You just have to understand the bureaucracy's version of the Brezhnev Doctrine:  Once a government program is in place, it must never be eliminated, or its funding reduced by even a dollar.  All collection of data must be done in a way to support continuation and increase of all programs.  That's the way it works.  And despite the fancy-sounding names and statutory mandates of the new ACA programs, that's how it will work for Obamacare.

Why Does The Center For American Progress Advocate For Predatory Lending?

In the aftermath of the recent financial crisis, one of the biggest claims against financial industry participants was "predatory lending," which I understand to be making subprime mortgage loans to uncreditworthy individuals who then find themselves trapped in mortgage payments they can't afford.   As recently as November 2013, JP Morgan agreed to a settlement of no less than $13 billion over alleged "predatory lending" practices.  More or less all of the big banks have also settled claims based on allegations of such practices, although the JPM settlement is the biggest one I can find.

Now you would think that the financial meltdown and hundreds of billions of dollars of defaults on subprime mortgage loans would have taught everyone not to go there again.  But instead, assorted housing advocates are out there right now pressing for another round of the same.  Yesterday's New York Times contains a typical article entitled "Race Gap on Conventional Loans," bemoaning the fact that a recent study showed that black and Hispanic borrowers have been found less likely to qualify for so-called "conventional" mortgage loans than white borrowers.  

Black and Hispanic borrowers are far more likely to apply for low-down-payment loans insured by the Federal Housing Administration. About 57 percent of black applicants and 60 percent of Hispanic applicants applied for F.H.A. loans, compared with 30 percent of white applicants  Access to financing that requires as little as 3.5 percent down is key for minority applicants, who on average have lower incomes and credit scores than whites, said Stan Humphries, Zillow’s chief economist.

The Times then goes for comment to one of its usual suspects, Julia Gordon, "director of housing finance and policy at the Center for American Progress, a liberal research group."  Here's her take:

“Like all the other separate-but-equal arrangements,” she said, “this is not good for consumers or the market or for taxpayers. We are seeing creditworthy people who should be able to get loans in the conventional market but can’t.”

Good question how people seeking 3.5% downpayment loans come to be called "creditworthy people who should be able to get loans in the conventional market but can't."

Now of course 3.5% downpayment loans are going to come with various higher fees than 20%+ downpayment "conventional" loans.   As soon as housing prices take even a small decline, these small-downpayment loans will immediately go into default in large numbers, and the cries of "predatory lending" based on the high fees will be right back.

The Times article also contains a few poorly-thought-out liberal ideas on how to "help" prospective minority homeowners acquire a downpayment (basically through some kind of government giveaway, natch).  If I might make one suggestion, it is that failure of minorities to save might arise not from any bad financial habits on their part, but rather might have a lot to do with perverse incentives of the various government handout programs to which they are already subject.  For example, Medicaid requires you to spend down your assets before you can qualify.  Food stamps also have asset tests -- bizarre ones, where home equity in unlimited amount and retirement account in unlimited amount don't count, but a bank account does.  So it goes without saying that people who have once been lured onto Medicaid and food stamps cannot save up money for a downpayment.  It's not allowed!  Congratulations, you have locked the so-called "beneficiaries" out of conventional loans.  So I know the answer:  Predatory lending!

When Will Congress Get Serious?

In case you have been deluding yourself into thinking that Congress may be getting even a little serious in its stewardship of taxpayer money, you need to follow two bills currently making their way through the legislative sausage grinder. 

We start with a Senate bill, co-sponsored by Menendez (D) of New Jersey and Isakson (R) of Georgia to modify the National Flood Insurance Program (NFIP).  That bill has passed the Senate today by a bipartisan vote of 67-32.   NFIP is the program by which the federal government provides subsidized insurance for homeowners in flood zones, most notably on or near the beach.  And who own homes on and near the beach?  In many cases the richest of the rich.  That is why federal subsidies to oceanfront homeowners have been proposed by the Manhattan Contrarian as one of only two nominations for "worst possible public policy."  To get an idea who benefits from these things, get a look at Billy Joel's oceanfront estate located at Sagaponack, New York.

NFIP has been around since at least the 60s, and everybody who thought about it knew it was way underpriced, but somehow the big storms missed most of the valuable property until after 2000.  Then came the likes Katrina, Rita, and Wilma in 2005, and suddenly NFIP was completely broke and in debt around $20 billion to the Treasury.  In an article here from April 2013 in Property Casualty 360, R.J. Lehmann of the R Street Institute estimates that the hole will be more like $30 billion by the time all the claims from Sandy (2012) are paid.

In 2012 Congress pretended it was going to get tough by passing something called the Biggert-Waters Reform Act, which supposedly was going to gradually phase in "full-risk rates" for properties in the program.  Here is the government's website on Biggert-Waters.  They say that rates for non-primary residences were going to increase 25% per year until "full-risk rates" were achieved.  Now that's tough!  Of course, primary residences were exempted completely so long as they had been built before the area was designated a flood zone.  After all, you wouldn't want to treat those rich homeowners like grown-ups, would you?

Well, in 2013 the first round of the premium increases started to kick in, and Congress may be crumbling like a stale cookie.   According to an article in the New York Times online today: 

[O]ver the past year, millions of coastal property owners were hit with flood insurance rate increases that sent their premiums soaring up to five or 10 times the previous amounts. As their insurance bills soared and their property values plummeted, homeowners begged lawmakers to block or delay the Biggert-Waters provisions.

And here's the quote from the official Senator of the Plutocracy:

“When this bill passes the House, millions of homeowners across America will breathe a sigh of relief,” said Senator Charles E. Schumer, Democrat of New York.

According to the Times article, the basic idea of the Senate bill is to delay the premium increases otherwise coming from Biggert-Waters.

What's really funny is how policy, if really bad enough, can make strange bedfellows out of people who otherwise can't agree on anything.  For example, according to this article in Insurance Journal, the Obama White House and OMB are actually opposing the Senate bill:

The OMB said the Administration’s preference is that Congress retain the Biggert-Waters Flood Insurance Reform Act because delaying the reforms would add to the $24 billion deficit of the National Flood Insurance Program (NFIP). It urged Congress to find a way instead to target relief to “economically distressed policyholders.”

That actually sounds pretty good, although might I be so impolite as to ask exactly how "economically stressed" someone might be when they own a second home at the beach?  Meanwhile, others noted as opposing this monstrosity are various environmental groups.  Remember, even a stopped clock is right twice a day.

The (maybe) good news is that the prospects for this bill in the House are not that great, and there are actually some serious opponents.  To me, this is a litmus test for the Republicans:  If they can't stop this one, what's the point?

And to illustrate that further, we have another bill working its way through Congress, and this one has just passed the Republican-controlled House.  The vote was 251-166, also bipartisan.  It's the $100 billion per year Farm Bill.  According to this from the EPA, only about 1.5 million people in the U.S. have farming as their principal occupation -- so this is about $67,000 for each of them per year.

Yes, it's a big goody-bag with handouts for everybody who took the time and effort to stick their hand out.  Followers of farm bills know that the game is to combine into one bill vast handouts for farmers and their attendants, to get the rural states, with the food stamp program, to get the urban states.  We'll just pass out money to everybody and nobody has to pay!

Fox News has the story on the Farm Bill here, and it couldn't be more disheartening.   There are lists of examples of the goodies for everybody, like:

[A] boost in money for crop insurance popular in the Midwest; higher rice and peanut subsidies for Southern farmers; and renewal of federal land payments for Western states. 

So has there been any effort at all by anyone to get spending under control?  How about those heartless conservatives?

Some House conservatives were not happy with the new bill. They originally wanted to dial back food stamp spending by $4 billion a year; the new bill cuts $800 million a year -- which represents about 1 percent of the $80 billion-a-year program. 

So the food stamp program has more than doubled over the past 5 years, from spending $37.6 billion in 2008 to $79.6 billion in 2013, and the heartless conservatives want to try for a big 5% cut back to around $76 billion.  And what has been achieved is all of 1%.  And even that is just the removal of a single item of transparent fraud, namely a practice of some states of giving some people who don't need it a small heating subsidy which in turn automatically qualifies them for food stamps even though they do not meet income and asset criteria.  Frankly, this is pathetic.

More Examples Of Our Fundamentally Fraudulent Government In Action

A recurring theme here is that the most important data put out by the federal government are all fundamentally fraudulent in ways intended to deceive the public into supporting ongoing increase in the size and power of the government.   Examples from past posts include accounting for the size of GDP by including all government purchases at 100 cents on the dollar; measurement of the so-called "poverty" rate excluding close to $1 trillion annually in in-kind distributions; and reporting of the government debt and deficit on a cash rather than accrual basis to conceal the blow up and impending collapse of the social security/Medicare/Medicaid ponzi scheme.

Well, recent news has three more good examples of fundamental government fraud practiced on the people.  And these three examples are not little ones either -- they are all massive, systematic efforts to support huge programs of government growth.  I'll lay them out briefly here and develop them further in future posts.

First up, we have the data reported by the Census Bureau on income of retirees.  That data is then taken up by the Social Security Administration for purposes of its "Income of the Aged" data, which are then widely cited as showing that many over age 65 have low income, or are even in "poverty" by official definitions.  Here is an SSA chart on number of the aged in various categories deemed to be in "poverty" by this methodology.   Headline quote in bold:

High proportions of nonmarried and minority persons aged 65 or older are poor or near poor.

Sylvester Schieber and Andrew Biggs expose the fraud in an op-ed in the Wall Street Journal on January 23 titled "Retirees Aren't Headed for the Poor House."   Turns out that the Census Bureau (as usual)  just systematical fails to count most of the important information in order to drive up the "poverty" numbers.

The CPS measures the sources and amounts of income received by American households, including income from retirement plans. The Census Bureau's definition of income, however, includes only payments made on a regular, periodic basis. So monthly benefits paid from a defined benefit pension or an annuity are counted as income, while as-needed withdrawals from 401(k)s or IRAs are not.

Result:  The data "that ostensibly documents how poorly pensions and individual retirement plans provide retirement income ignores at least 60% of the income being delivered to retirees."  Of course, based on the fraudulent data, we have Senators like Tom Harkin and Elizabeth Warren currently demanding large increases in benefit payments from the soon-to-be-bankrupt social security system.

Next up, we have the black hole of Obamacare.  There we are gradually finding out about a fundamental structure intentionally designed to conceal impending collapse from the voters until after the 2016 presidential election.  Betsy McCaughey has the story in the New York Post of January 27:

Section 1342 of the Affordable Care Act forces taxpayers to make insurers whole for most of the losses they incur selling policies on the ObamaCare exchanges through 2016. The bailout is meant to hide the full failure of the president’s signature health law until after the next presidential election.

McCaughey goes on to describe unsuccessful efforts to get HHS to give any kind of numbers on what this bailout is expected to cost the taxpayers.  Oh, and by the way, Moody's just "downgraded its outlook for the entire health insurance industry from stable to negative, blaming ObamaCare."  That sounds like risky territory for Moody's to be treading in, given the recent $5 billion government lawsuit against S&P that S&P (very justifiably in my view) attributes to revenge for S&P's downgrade of U.S. sovereign debt.

And I've saved the most important one for last.  If there's one thing we all think we know, it's that the earth "is warming."  Why do we know it?  Because of government temperature records, all kept by global warming activist zealots in places like NASA and NOAA.  But a small number of dogged, volunteer researchers combing through data archives have been reporting that the older data has been systematically altered, particularly to make earlier years cooler and, to some degree, later years warmer.  In the process the government has removed from its records the earlier versions of the data; but the researchers have located archived versions of the earlier data in other locations.  This fraud, of course, supports the attempted and ongoing multi-trillion dollar takeover by the government of the energy business and the suppression of the fossil fuel business.

Most on top of this systematic data tampering has been a guy who blogs under the name Steven Goddard at Real Science.  (I understand the name to be a pseudonym.)  In a post here from December 21, 2013 Goddard compares the trend of reported U.S. temperatures from GISS (a part of NASA) as recorded in versions of the records from 1999, 2001, 2012, and 2013.   Over 14 years, a clear negative trend of 1930 to present turns into a positive trend.  In another post from January 8, 2014, Goddard graphs NASA/NOAA alterations to the data that manufacture cooling of earlier-year (particularly pre-1960)  temperatures and thereby make the present appear warmer. 

Several skeptics of the government data have been attempting to get explanations from the government by means of FOIA requests.  They have been met with nothing but stonewalling to date.  This is a gigantic story that you probably have heard little about, but it is not going to go away.

Argentina And Venezuela Face The Music

I have written many times about the world leaders in the game of bad economic policy, Argentina and Venezuela.  For example, as to Argentina see here and here; as to Venezuela, see here and here.

The list of bad policies practiced by these countries is almost too long to list: massive government overspending; currency controls, featuring "official" exchange rates, special rates for friends of the government and extensive black markets; nationalizations of major companies, where the former owners may or may not get paid; outright theft of private pension funds; and all kinds of government handouts to favored constituencies.

Late last week, both Argentina and Venezuela suffered sudden violent economic shocks in the world financial markets.  Their currencies are dropping like stones.  According to the Wall Street Journal here, the Argentine peso slid 15% just last week.  In Venezuela the currency has been plummeting for months and inflation seems to be running at at least 50% per year.

So you may be wondering, to what does the New York Times attribute the crisis in these countries?  Nathaniel Popper reports on the front page of Saturday's print edition:

The ascent of developing countries over the last decade has been fueled by two global trends: the steady rise of China and the willingness of the Federal Reserve to stimulate the economy.  Now, with both trends starting to retreat, investors have been heading for the exits in markets as far removed as Buenos Aires, Istanbul and Beijing, with effects spilling over into the rest of the world.

Right.  In a lengthy article about the battering underway in third world markets including Argentina, not a mention of government overspending, of exchange controls, of expropriations, of crony capitalism, of defaults on debt.  It's all caused by the slowing down of the "stimulus" of the U.S. Federal Reserve!  Some things you just can't make up.