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Opinion

baltimore-rioters

I wrote back in 2010 that riots in Europe were a harbinger of future unrest in the United States. Given the chaos in Baltimore, I’m tempted to claim profound wisdom and great foresight.

But I’ll reluctantly confess that my main point five years ago was to warn about the long-run consequences of poorly designed entitlement programs and unfavorable demographics (leading to the outcome illustrated by this set of cartoons).

Simply stated, Margaret Thatcher was right when she warned that the problem with big government is that “eventually you run out of other people’s money.”

The riots in Baltimore, by contrast, are a short-run phenomenon exacerbated by factors such as a loss of social capital and potential police misconduct.

But we can still learn something by looking at the dysfunctional consequences of big government in Baltimore and other big cities in America.

Here’s some of what’s been written by my colleague, Michael Tanner.

…there are lessons to be learned about the failures of government and how those failures can create a climate of anger and frustration that just awaits a spark to ignite the flames of violence and destruction. …the powder keg was put in place by decades of big-government liberalism, both in the city of Baltimore and in the state of Maryland. …Maryland has one of the most generous welfare systems in the nation. A mother with two children participating in seven common welfare programs — Temporary Assistance for Needy Families (TANF), food stamps (SNAP), Medicaid, housing assistance, Supplemental Nutrition for Women, Infants, and Children (WIC), energy assistance (LIHEAP), and free commodities — could receive benefits worth more than $35,000. Yet, nearly a quarter of the people in Baltimore still live in poverty. In 1960, Baltimore’s poverty rate was just 10 percent. …while Baltimore’s high welfare benefits haven’t reduced poverty, they may well have exacerbated other social problems. For example, some studies have long shown that high welfare benefits correlate with high out-of-wedlock birth rates. It should not come as a surprise, then, that two-thirds of births in the city are to unmarried mothers, and almost 60 percent of Baltimore households are headed by single parents.

While the politicians subsidize bad things in Maryland, they penalize good things.

…while Baltimore’s high welfare benefits haven’t reduced poverty, they may well have exacerbated other social problems. For example, some studies have long shown that high welfare benefits correlate with high out-of-wedlock birth rates. It should not come as a surprise, then, that two-thirds of births in the city are to unmarried mothers, and almost 60 percent of Baltimore households are headed by single parents. …if that were not bad enough, the city of Baltimore adds one of the highest property taxes among comparable cities…a tax rate more than twice the rate of most of the rest of the state.

Mike has lots of additional information, including revelations about bad education policies, dangerous anti-gun laws, and counterproductive drug prohibition.

But let’s now shift to a Wall Street Journal editorial on the same subject.

…what went up in flames in Baltimore Monday night was not merely a senior center, small businesses and police cars. Burning down was also the blue-city model of urban governance. …let’s not forget who has run Baltimore and Maryland for nearly all of the last 40 years. The men and women in charge have been Democrats, and their governing ideas are “progressive.” This model, with its reliance on government and public unions, has dominated urban America as once-vibrant cities such as Baltimore became shells of their former selves. …the main failures are three: high crime, low economic growth and failing public schools that serve primarily as jobs programs for teachers and administrators rather than places of learning. …of late the progressives have been making a comeback, led by Bill de Blasio in New York and the challenge to sometime reform Mayor Rahm Emanuel in Chicago. This week’s nightmare in Baltimore shows where this leads. It’s time for a new urban renewal, this time built on the ideas of private economic development, personal responsibility, “broken windows” policing, and education choice.

One would think that Detroit – and now Baltimore – show the dangers for cities of big government and dependency.

Unfortunately, the election of Mayor de Blasio in New York City suggest many voters are incapable of learning any lessons from the real world.

Last but not least, here’s some of Kevin Williamson’s column forNational Review.

American cities are by and large Democratic-party monopolies, monopolies generally dominated by the so-called progressive wing of the party. The results have been catastrophic, and not only in poor black cities such as Baltimore and Detroit. …Would any sentient adult American be shocked to learn that Baltimore has a corrupt and feckless police department enabled by a corrupt and feckless city government? …While the progressives have been running the show in Baltimore, police commissioner Ed Norris was sent to prison on corruption charges (2004), two detectives were sentenced to 454 years in prison for dealing drugs (2005), an officer was dismissed after being videotaped verbally abusing a 14-year-old and then failing to file a report on his use of force against the same teenager (2011), an officer was been fired for sexually abusing a minor (2014), and the city paid a quarter-million-dollar settlement to a man police illegally arrested for the non-crime of recording them at work with his mobile phone. There’s a good deal more.

And who should be blamed for this horrible track record?

No Republican, and certainly no conservative, has left so much as a thumbprint on the public institutions of Baltimore in a generation. Baltimore’s police department is, like Detroit’s economy and Atlanta’s schools, the product of the progressive wing of the Democratic party enabled in no small part by black identity politics. This is entirely a left-wing project, and a Democratic-party project. …Community-organizer — a wretched term — Adam Jackson declared that in Baltimore “the Democrats and the Republicans have both failed.” Really? Which Republicans? Ulysses S. Grant? Unless I’m reading the charts wrong, the Baltimore city council is 100 percent Democratic. …The evidence suggests very strongly that the left-wing, Democratic claques that run a great many American cities…are incompetent, they are corrupt, and they are breathtakingly arrogant. Cleveland, Philadelphia, Detroit, Baltimore — this is what Democrats do.

My one contribution to the wise words in the three articles excerpted above is to point out that the troubles in Baltimore are somewhat similar to riots we’ve seen in Greece and the United Kingdom. There’s no racial or ethnic component to the chaos we’ve seen in most of the European riots, so the analogy is far from exact, but the events are alike in that a big part of the problem is a failure of government and a concomitant erosion of social or cultural capital.

Simply stated, too many people on both sides of the Atlantic now think they are entitled to a life based on freebies from government. This almost surely erodes any sense of self worth and breeds anger and resentment.

Putting the toothpaste of self-reliance back into the societal tube doubtlessly will not be easy. Here’s some of what Jay Nordlinger wrote today.

The young rioters have…been brought up to regard themselves as entitled and victimized, at the same time. In truth, they are among the luckiest people in the whole world: to have been born American. Millions, probably billions, would be happy to trade places with them. The rioters are free to make of life what they will. Their shackles are mental and spiritual. …These young people have been grossly mistaught — misled — by the “grievance industry” (to use shorthand). Just about the worst thing you can do to a child is tell him he’s a victim — when it’s not true. Even when it is true, it may be unwise. It is surely damnable when it’s not true.

While I’m sometimes pessimistic about certain societal trends, one part of the answer is easy.

Stop creating new entitlements (such as ObamaCare) that alter the already perverse tradeoff between work and leisure. Then people might feel a greater incentive to get jobs.

And stop imposing punitive taxes, particularly on the investors and entrepreneurs that are willing to put capital at risk to create jobs and wealth for the rest of us.

[mybooktable book=”global-tax-revolution-the-rise-of-tax-competition-and-the-battle-to-defend-it” display=”summary” buybutton_shadowbox=”true”]

The Baltimore riots show the dangers for

Economy

import_export_gdp_growth_reuters

(Photo: Reuters)

First quarter economic growth in the U.S ground to a halt , with gross domestic product (GDP) clocking in at jus t0.2% as American consumers held back spending. The abysmal economic performance is likely to weigh heavily on the Federal Reserve as they decide the timing and trajectory of interest rate hikes later in the year.

“A stalling of US economic growth at the start of the year rules out any imminent hiking of interest rates by the Fed,” said Chris Williamson, chief economist at research firm Markit. “The slowdown looks temporary, as a rebound from the first quarter weakness is already being signaled by forward-looking survey data, but the sustainability of any upturn is by no means convincing yet.”

The first-quarter GDP snapshot was released just hours before the Fed’s policy-setting Federal Open Markets committee concludes a two-day policy meeting. Central bankers are widely expected to acknowledge the weakness in growth and may be more likely either later in 2015 or postponed until 2016.

 

First quarter economic growth in the U.S

Opinion

 

jobs report applications

Americans seeking full- and part-time work fill out job applications at a workshop. (Photo: REUTERS)

I took a camera to Times Square this week and asked people, “What creates jobs?” Most had no answer. One said, “stimulus!” What? Government creates jobs? No!

I suppose it’s natural that people think government creates jobs because politicians always say that.

“We’ve now created more than 10 million,” said President Obama. But that just meant that he took office at the start of the recession, and finally job creation resumed.

He didn’t cause that. In fact, his taxes and complex regulation slowed job creation.

His 2012 presidential election rival, Mitt Romney, was a little more free-market-oriented, but he sounded like Obama when he talked about jobs. He had “a plan” to add 12 million. Don’t assume his plan was just to get government out of the way of the private sector — Romney said it’s a bad idea to cut government spending during a recession.

FDR’s New Deal was the dawn of belief that jobs flow from government. FDR didn’t seem to care whether jobs people did were productive or sustainable. He just wanted something done about the “armies” of unemployed. If they weren’t given jobs, they might become a real army and revolt.

Now that government has lots of power, people look to it to create jobs. Communist countries had five-year plans. They didn’t work.

That’s because jobs come from government getting out of the way and letting employers produce goods.

Every new layer of regulations sounds nice — protecting the environment, providing more health care, forbidding discrimination against disabled people — but most rules do more harm than good.
Humans have needs and desires. Entrepreneurs see those needs as opportunity. They hire people not out of generosity or because government told them to — but because it’s profitable to employ people if they produce valuable goods.

If it’s not profitable, that means those people would be better employed doing something else. The prices customers are willing to pay and the wages workers accept are the best indication of which jobs can be done profitably and therefore ought to be done.

But politicians don’t trust business owners to make those decisions. Some also resent it if entrepreneurs succeed without kissing the politicians’ ring.
President Obama famously said, “If you’ve got a business, you didn’t build that. Somebody else made that happen.”

I’d think Hillary Clinton would have learned from the outcry that followed, but no — she then said, “Don’t let anybody tell you that it’s corporations and businesses that create jobs! That old theory, trickle-down economics, has been tried. That has failed.”

But it hasn’t failed. Free markets lifted a billion people out of poverty during Hillary’s career. She just won’t acknowledge it. Lawyer-politicians aren’t comfortable with creative destruction they don’t control. They prefer central planning.

That’s why Hillary also said, “I voted to raise the minimum wage. And guess what? Millions of jobs were created.”

This, too, is absurd. Politicians act as if they can wave a magic wand and grant everyone more money. But minimum wage laws don’t create jobs. They just make lower-paying jobs illegal. Some of those jobs go away. That’s basic economics.

The effect on the economy is small because 95 percent of American workers earn more than the minimum. But the more employers are forced to pay, the fewer people they’ll hire. McDonald’s responded to recent demands for higher wages by making plans to replace cashiers with automated services. Once more, political “solutions” create new problems.

People need jobs, and millions find dignity in work, but not from jobs that others are forced to provide. People want to be genuinely useful. They don’t just want to go through the motions.

More and more, Americans want jobs that have meaning and “purpose,” says John Havens, author of “Hacking Happiness.” “Purpose” usually means creating actual wealth.

Governments talk about five-year plans and false guarantees of stability, but truly futuristic thinking happens when governments leave people free to explore, innovate and profit. If the politicians don’t screw that up, that process will create jobs we haven’t even imagined yet.

John Stossel is host of “Stossel” on Fox News and author of “No They Can’t! Why Government Fails, but Individuals Succeed.”

I took a camera to Times Square

Policy

civil-asset-forfeiture

Instance and cases of civil asset forfeiture or “policing for profit” that should distress all decent people.

Notwithstanding the title of this article, I’m not going to make an ultra-libertarian argument that all taxation is theft (see the P.P.P.S. below if you want my thoughts on that issue).

Instead, today’s topic is about a more specialized version of theft by government, which technically is called civil asset forfeiture but more accurately should be referred to as policing for profit.

It occurs when the government seizes cash or other property even though the victimized citizen has never been convicted – or in many cases even charged – with a crime.

I wish I was joking. But as you can see from these excerpts from a recent report, this is horrifyingly real.

Simply carrying a large amount of cash in a grocery sack in your car is now sufficient grounds for a police officer to seize your money, a US circuit court has ruled. A panel of the Eighth US Circuit Court of Appeals found that all a deputy has to do to seize cash from a person is say it is drug money. The court refused to return the $63,530 that Deputy Dave Wintle seized from a disabled veteran named Mark A. Brewer during a traffic stop in 2011. Brewer was never charged with a crime or even given a traffic ticket. Yet the decorated Air Force veteran lost his savings when a drug-sniffing dog smelled marijuana on it, even though no cannabis was found in Brewer’s car or his home. …Brewer saved the money from disability payments and his Air Force pay — as documents deputies found in the car indicated.

Since much of our currency contains traces of marijuana and cocaine, there was no way to determine if Mr. Brewer had “drug money” simply on the basis of what the dog smelled.

What’s especially disturbing is that a court agreed that there was no evidence of a crime, but the Judge decided to “assume” the money was criminal.

“The record here does not make clear whether the seized currency constitutes property used to facilitate a drug offense or proceeds from a drug offense,” Judge Bobby E. Shepherd wrote in a March 23 opinion upholding the seizure. “For the purposes of analysis, however, we will assume that the currency facilitated a drug offense and is thus subject to [to be seized].” It was taken through a legal mechanism called civil forfeiture.

And to add injury to injury, the court case will apply to several states.

Even more tragic: The ruling will have a wide impact. “This court case will be the ‘law of the circuit’ for Arkansas, Iowa, Minnesota, Missouri and North and South Dakota as well, creating even more barriers for Americans to fight back against unjust seizures in court,” Sibilla wrote.

But we do have a sliver of good news.

Meanwhile, New Mexico has become the second state to effectively eliminate the use of civil forfeiture and seizure by law enforcement. …It still will allow the criminal forfeiture of property, although that legal barrier is much higher for the government. …“This is the first time in decades that a state legislature has taken the bold but necessary step to put an end to the perverse financial incentive in civil forfeiture laws,” Scott Bullock, the attorney in charge of the Institute for Justice’s battle against the practice, stated in a press release. “Thankfully, Governor Martinez and the New Mexico legislature recognized that no one should lose their property without being first convicted of a crime.”

Kudos to Governor Martinez and New Mexico lawmakers.

Now we need action in Washington.

P.S. Here are some other cases of “policing for profit” that should distress all decent people.

*Such as when the government wanted to steal someone’s truck because a different person was arrested for drunk driving.

*Such as when the government tried to steal the bond money a family has collected to bail out a relative.

*Such as when the governmentseized nearly $400,000 of a business owner’s money because it was in the possession of an armored car company suspected of wrongdoing.

*Such as when the governmentsought to confiscate an office building from the owner because a tenant was legally selling medical marijuana.

*Such as when the government killed a man as part of an anti-gambling investigation undertaken in hopes of using asset forfeiture to steal other people’s cash.

*And you can read several other outrageous examples by clicking here.

All I can say is that our Founding Fathers must be rolling over in their graves. They gave us a marvelous Constitution precisely to protect citizens from government abuse.

Yet now courts routinely allow governments at all levels to run roughshod over our civil liberties.

P.P.S. It surely must say something that the first two directors of the Justice Department’s asset forfeiture office now say the law is riddled with abuse and should be repealed.

P.P.P.S. For what it’s worth, here’s my two cents on the issue of taxation and theft. Supreme Court Justice Potter Stewart famously opined, when seeking to define pornography, that “I know it when I see it.” That’s not exactly a firm legal definition, but I’ve always liked his reasoning.When I look at a jurisdiction such as Hong Kong, with a relatively small and honest government, I think of taxes as an unfortunate but acceptable price to pay. But when I think of nations with bloated public sectors and maliciously destructive tax regimes, then there’s little doubt in my mind that taxation is theft. And that’s true if the government is sinisterly malign, such as Venezuela, or a failing welfare state, such as France.

Especially when tax rates exceed 100 percent!

[mybooktable book=”global-tax-revolution-the-rise-of-tax-competition-and-the-battle-to-defend-it” display=”summary” buybutton_shadowbox=”true”]

CATO economist and PPD contributor Dan Mitchell

US

baltimore-riots-police-freddie-gray

Over a dozen police officers from the Baltimore City Police Department, background, were injured in riots following the funeral for Freddie Gray, reddie Gray, a 25-year-old man who died last week from a severe spinal cord injury he suffered before or during an arrest.

Maryland National Guard Troops did not enter the flaming city until nearly nine hours after the start of the Baltimore riots, which injured over a dozen police officers. A few minutes before midnight Tuesday, which is just before the National Guard arrived, city police commissioner Anthony Batts admitted that his officers were not prepared for the level of violence.

“Yes, we planned for it. That wasn’t the issue,” Batts told reporters late Monday. “We just had too many people out there [for us] to overcome the numbers we had.” The commissioner also said that the rioters had stretched his force to “opposite ends of the city” and “outnumbered us and outflanked us.”

The violence, which resulted in widespread looting, vandalizing and burning of dozens of vehicles and businesses, began hours after the funeral for Freddie Gray, a 25-year-old man who died last week from a spinal cord injury he suffered either before or while in police custody. A joint investigation between state and federal officials is underway to determine just that.

Gray’s family denounced the rioting and violence late Monday, saying it was not the way to honor their loved one.

“I think the violence is wrong,” Grays twin sister, Fredericka Gray, said. “I don’t like it at all.”

Gray’s mother made similar public statements, but they unfortunately had no impact on the destructive events many now claim were telegraphed and could have been prevented, or at least minimized if handled differently.

Multiple city and state government sources have told PPD that various intelligence beforehand indicated that riots were inevitable and that Baltimore Mayor Stephanie Rawlings-Blake twice told Maryland Gov. Larry Hogan Monday that a National Guard presence was unnecessary.

“We can only imagine she didn’t want a repeat of the initial response in Ferguson, but that was not one of our concerns,” a state administration official close to the governor told PPD. “From Saturday to Monday we offered the mayor the necessary resources, but it was taken as an unwelcome presence in the city.”

Rep. Elijah Cummings, D-MD, and about 200 others, marched arm-in-arm through a battered neighborhood Monday in an attempt to calm the violence. The congressman, accompanied with religious leaders, said the protestors’ grievances were valid and that those starting riots were from out of town. That’s not nearly close to the truth, as data miners have identified some 50 social media accounts involved in the Baltimore riots that were also involved in organizing what turned into the Ferguson riots.

Yet, Mayor Rawlings-Blake allegedly told the governor that she had been in contact with President Obama and had already decided on a course of action. The two also discussed the statement from Attorney General Loretta Lynch, who said she would send Justice Department officials to the city in coming days, including Vanita Gupta, the agency’s top civil rights lawyer to investigate Gray’s death for potential criminal civil rights violations.

Meanwhile, Gov. Hogan had first taken steps to prepare for violence on Saturday after thousands of so-called protestors outside of the Red Sox-Orioles game grew increasingly violent and racially charged. City officials temporarily shut down Camden Yards to prevent protestors from attacking white fans exiting the game.

Then, on Sunday police learned of a “credible threat” from three gangs known for their violence, who decided to work together to “take out” law enforcement officers. On Monday, officials made public that the Black Gorilla Family, Bloods and Crips all had “entered into a partnership to take out law enforcement officers.”

Law enforcement and city officials, including the mayor, became aware of an online flyer that went out Monday calling for a “purge” that would begin at the Mondawmin Mall in west Baltimore and end downtown. “Purge” is a reference to a movie that legalizes all criminal activity for one day each year in America, resulting in rioting and mass murder.

Police were dispatched to the location, which serves as a transportation hub for students attending area schools and is less than a mile from where Gray was arrested on April 12.

But the police were overrun as the riots grew in intensity. Gov. Hogan finally declared a state of emergency and activated the Guard shortly after 6:00 P.M. ET Monday night following several earlier phone calls with Mayor Rawlings-Blake, who had assured the governor multiple times earlier in the day that the situation was under control.

While the police response at times included tear gas and Mace, it was minimal. They relied on line formations that were ultimately ineffective at protecting businesses and property.

“Ask the mayor,” one Baltimore City police officer we spoke to on the phone today said when asked why the response was so inadequate. “We just follow orders from city hall.”

And we did ask her just that. However, as of this afternoon, PPD has yet to receive a response from the mayor or her special assistant.

[brid playlist=”375″ player=”1929″ title=”Baltimore Riots”]

Mayor Stephanie Rawlings-Blake twice told Gov. Larry

Economy

Consumer spending

(Photo: REUTERS)

The Conference Board reports its gauge of consumer confidence fell to 95.2 in April, from  101.3 the month prior, far below expectations for a gain of 102.5.

“Consumer confidence, which had rebounded in March, gave back all of the gain and more in April,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “This month’s retreat was prompted by a softening in current conditions, likely sparked by the recent lackluster performance of the labor market, and apprehension about the short-term outlook.”

The Present Situation Index decreased from 109.5 last month to 106.8 in April, while the Expectations Index fell from 96.0 last month to 87.5 in April.

“The Present Situation Index declined for the third consecutive month,” Franco added. “Coupled with waning expectations, there is little to suggest that economic momentum will pick up in the months ahead.”

The gauge measuring consumers’ current-day conditions also weakened, as the number of respondents saying business conditions are “good” fell from 26.7 percent to 26.5 percent. However, the number claiming business conditions are “bad” also decreased from 19.4 percent to 18.2 percent.

Yet, consumers expressed unfavorable sentiment regarding the job market, with the gauge reporting those stating jobs are “plentiful” dropped from 21.0 percent to 19.1 percent. Further, those claiming jobs are “hard to get” rose from 25.5 percent to 26.4 percent. Those anticipating more jobs in the months ahead decreased from 15.3 percent to 13.8 percent, while those anticipating fewer jobs rose from 13.6 percent to 16.3 percent.

The short-term outlook, which had rebounded in March, followed the softening trend in the month of April. The percentage of consumers expecting business conditions to improve over the next six months fell from 16.8 percent to 16.0 percent, while those expecting business conditions to worsen also increased more than a point from 8.1 percent to 9.4 percent.

Wage growth, or the lack of it, has become a leading indicator for the Federal Reserve weighing the timing of interest rate hikes. In addition to positive news alluding the monthly jobs reports, consumers don’t see conditions improving, either. The percentage of consumers expecting growth in their incomes fell from 18.8 percent to 18.3 percent, while the percentage expecting a decline increased from 9.7 percent to 11.2 percent.

 

The Conference Board reports its gauge of

Economy

home sales and home prices

(Photo: REUTERS)

Single-family home prices in the U.S. rose in February on a year-over-year basis fueled by increases in the western region of the country, a closely watched survey said on Tuesday.

“Home prices continue to rise and outpace both inflation and wage gains,” said David Blitzer, chairman of the Index Committee for S&P Dow Jones Indices. “While nationally, prices are recovering, new construction of single family homes remains very weak despite low vacancy rates among both renters and owner-occupied homes.”

The S&P/Case Shiller composite index of 20 metropolitan areas increased by 5 percent in February on a year-over-year basis, outperforming January’s downwardly revised gain of 4.5 percent. The index also beat economists’ expectations of a 4.7 percent gain, according to a Reuters poll of economists.

Denver and San Francisco reported the highest year-over-year gains, with prices increasing by 10 percent and 9.8 percent, respectively, over the last 12 months.

However, as prices offer some good news to a struggling housing market, another index found mortgage risk hitting another high on a year-over-year basis.

The composite National Mortgage Risk Index (NMRI) for Agency purchase loans stood at 11.84 percent in March, up 0.3 percentage point on a year-over-year basis. The risk subindexes for Freddie and the Federal Housing Authority (FHA) both hit series highs in March, while the risk indices for Fannie and the VA were just below their own series highs.

“The lightly capitalized nonbanks have been quite receptive to the push from regulators to expand the credit box,” said Edward Pinto, codirector of AEI’s International Center on Housing Risk. “One must look outside the banking sector to understand the rising risk in mortgage lending.”

READ MORE — Housing Market Risk Index Up Year-Over-Year, Subindexes Hit Series High

Single-family home prices in the U.S. rose

Economy

National and State Mortgage Risk Indices

National and State Mortgage Risk Indices are tracked and released by AEI’s International Center on Housing Risk.

The composite National Mortgage Risk Index (NMRI) for Agency purchase loans stood at 11.84 percent in March, up 0.3 percentage point on a year-over-year basis. The risk subindexes for Freddie and the Federal Housing Authority (FHA) both hit series highs in March, while the risk indices for Fannie and the VA were just below their own series highs.

“The lightly capitalized nonbanks have been quite receptive to the push from regulators to expand the credit box,” said Edward Pinto, codirector of AEI’s International Center on Housing Risk. “One must look outside the banking sector to understand the rising risk in mortgage lending.”

A substantial shift in market share from large banks to non-banks is largely to blame for the upward risk trend, as nonbank lending carries significantly more risk than the larger bank business.
The NMRI results are based on nearly the universe of home purchase loans with a government guarantee. In March, the NMRI data included 142,000 such purchase loans, up from 135,000 loans a year earlier. With the addition of these loans, the total number of loans that have been risk rated in the NMRI since November 2012 increased to 5.8 million.

Other notable takeaways from the March NMRI include the following:

• The QM regulation has not restrained the volume of high DTI loans.

• FHA is not compensating for the riskiness of its high DTI loans, while Fannie and Freddie have been doing so only to a limited extent. In addition, Fannie and Freddie are not compensating for the riskiness of high CLTV loans.

• FHA’s NMRI stood at 24.49% in March, up 0.1 percentage point from the average for the prior three months and 1.4 percentage points from a year earlier. The current level implies that nearly one-quarter of FHA’s recently guaranteed home purchase loans would be projected to default under severely stressed conditions akin to the 2007-08 financial crisis.

• Credit standards for first-time homebuyers are not tight, as the median FICO score for these buyers in March was a bit below the median for all individuals in the U.S. with a score.

“One hears all the time that first-time buyers have limited access to mortgage debt. The FICO data show this isn’t true – many borrowers with weak credit profiles are buying homes,” said Stephen Oliner, codirector of AEI’s International Center on Housing Risk.

 

 

The composite National Mortgage Risk Index (NMRI)

Opinion

margrethe-vestager-eu-competition-commissioner

Margrethe Vestager, the EU’s competition commissioner, has said antitrust settlements ‘should not be a habit’ and should not be sought ‘at any price.’ PHOTO: OLIVIER HOSLET/EUROPEAN PRESSPHOTO AGENCY

We all make mistakes and some of us learn from them. What is even better is to learn from other people’s mistakes, where they pay for those mistakes while we learn free of charge.

Many Americans who say that we should learn from other people, especially Europeans, mean that we should imitate what they did. That may make those who talk this way feel superior to other Americans. But let us never forget that the most disastrous ideologies of the 20th century — Communism, Fascism and Nazism — all originated in Europe. So did both World Wars.

More recently, Europe has been belatedly discovering how unbelievably stupid it was to import millions of people from cultures that despise Western values, and which often promote hatred toward Western people.

Maybe that is a mistake that we can think about when Congress finally decides to do something about our open borders and our immigration laws that we refuse to enforce.

European anti-trust regulators are giving us another free lesson in confused thinking by filing anti-trust charges against Google, on grounds that its searching facilities give preferential treatment to Google’s own searching services over other competing searching services.

The European Union’s commissioner for competition explained the basis for the complaint against Google: “We have a focus on a certain conduct, a certain behavior which, if our doubts are going to be proven, we would like to change because we believe that it hampers competition.”

Some of us think laws should be clear-cut statements of what you can and cannot do. Indicting people under laws that can lead to fines in the billions of dollars over what “we believe” or what international bureaucrats have “doubts” about is not really law. It is an exercise of arbitrary power, based on whatever subjective notions are in vogue among government bureaucrats.

The history of American anti-trust law shows too many similar vague and confused notions masquerading as law. The idea that the accused must prove their innocence, under the “rebuttable presumptions” of the Robinson-Patman Act of 1936, was a forerunner of the same mindset under later “disparate impact” theories in civil rights law.

What such fancy words boil down to is that very little evidence is required to shift the burden of proof to the accused, in defiance of centuries-old legal traditions that the accuser has the burden of proof in criminal cases and the plaintiffs have the burden of proof in civil cases. Otherwise, any fact or theory that sounds plausible to legal authorities is enough to force the accused to prove a negative or lose the case.

Such violations of the legal standards used in most other cases are usually inflicted on those who have already been demonized and whose guilt has been assumed and punishment is fervently desired, such as big business, employers accused of discrimination or men accused of rape.

Google is accused of running its Internet search programs in such a way that they are more accessible to the public than other search programs available through Google. Since people can search through other sources besides Google, it is not at all clear why Google cannot run its own operation for its own benefit, while others run their operations for their own benefit.

The whole point of competition in the market is to create economic efficiency which, by its very nature, means eliminating the less efficient producers. Confusion about the difference between maintaining competition and maintaining competitors has long plagued anti-trust law on both sides of the Atlantic. But Americans seem in recent years to be recognizing the difference.

In Europe, there still seems to be a notion that big companies with many customers should help their smaller competitors survive — especially if the big companies are American and the smaller companies are European. In other words, Google should be run in such a way that competing search programs are as prominently featured as Google’s own search program.

Whatever the case that could be made for this argument, as a matter of manners, noblesse oblige or whatever, people in charge of anti-trust law are not in charge of manners or noblesse oblige. Law is too serious to be subordinated to fashionable notions or political expediency.

Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His website is www.tsowell.com. 

Margrethe Vestager and European anti-trust regulators are

Policy

jobs-fair-weekly-jobs-report

An unemployed American speaks to a recruiter at a jobs fair. (Photo: Mark Ralston AFP/Getty)

A nation’s prosperity is determined by the quantity and quality of labor and capital that are productively utilized. Which means that it doesn’t make sense to have policies that penalize either saving and investment or working.

Yet that seems to be the favorite hobby of the political class.

And there are real consequences. A new study by a pair of economists, published by the National Bureau of Economic Research, has some interesting findings on the link between redistribution programs and labor supply.

It’s a bit wonky, given the way academics write, but they produce some important data on the negative unintended consequences of government dependency.

…we find that the decline in desire to work since the mid-90s lowered the unemployment rate by about 0.5 ppt and the participation rate by 1.75 ppt. This is a large effect… Our estimates imply that changes in the provision of welfare and social insurance (notably disability insurance) explain about 50 percent of the decline in desire to work, which suggest a possible role for the major welfare reforms of the 90s – the 1993 Earned Income Tax Credit (EITC) expansion and the 1996 reform of the Aid to Families with Dependent Children (AFDC) program…the possibility that changes in the provision of social transfers can affect desire to work and thereby the aggregate unemployment and participation rates echoes Juhn, Murphy and Topel (2002) and Autor and Dugan (2003) who argue that the growing attractiveness of disability benefits relative to work increased the number of individuals outside the labor force. …Most strikingly, receiving…disability insurance substantially reduces the probability to want to work by 17 percentage points (ppt), consistent with the fact that an impairment should preclude any work activity and thus lower desire to work.

The authors openly warn that it’s difficult to separate out the effects of various redistribution programs.

The mid-1990s welfare reform apparently helped labor supply by pushing recipients to get a job.

Disability programs, by contrast, strongly discourage productive behavior, while wage subsidies such as the earned-income credit ostensibly encourage work but also can discourage workforce participation for secondary earners in a household.

Here are more of their findings.

…the Earned-Income Tax Credit (EITC) program, a program aimed at o§setting the social security payroll tax for low-income families with children, was expanded in order to encourage work effort (Rothstein and Nichols, 2014). …After controlling for characteristics, we find that the EITC explains 71 percent of the decline in low-educated married mothers’ desire to work between 1988-1993 and 1994-2010. …While the “welfare to work” reform was designed to do bring welfare recipients into the labor force, the reform could have had the opposite effect on the “weaker” nonparticipants by shifting them from a program with some connection to the labor force (welfare) to a program with no connection to the labor force (disability insurance). …Our cross-sectional estimates imply that changes in the provision of welfare and social insurance explain about 60 percent of the decline in desire to work among prime-age females, while the difference-in-difference estimates attribute between 50 and 70 percent of the decline in mothers’ desire to work to the welfare reforms. We conjecture that two mechanisms could explain these results. First, the EITC expansion raised family income and reduced secondary earners’ (typically women) incentives to work.

For non-academic readers, these two charts from the NBER study will be easier to understand.

The first chart shows what should be good news. Welfare reforms in the 1990s led to a big drop in dependency.

But now it’s time for the bad news.

Welfare reform reduced one type of dependency, but other redistribution programs have ballooned.

So no wonder there’s now research showing unfortunate results.

Writing for Investor’s Business Daily, John Merline addresses the same issue, but looking at different redistribution programs.

…the share of 25- to 54-year-olds who are active in the labor market has steadily fallen, to the point where just over 80% of this age group is either working or looking for work. …University of Chicago economics professor Casey Mulligan…posits that the root cause was an attempt by Congress to help people displaced by the recession. Democrats who controlled Congress at the time made several changes to anti-poverty subsidies, adding things like mortgage assistance programs, the benefits of which are phased out as income rises. ObamaCare provides still another one, by offering insurance subsidies that also phase out. …these programs…add to what is already a steep effective marginal tax rate for those in the phase-out range.

In other words, the redistribution programs alter incentives to work since people implicitly calculate the costs and benefits of productive behavior.

Mulligan figures the top rate for these families eligible for various federal aid programs went from 40% to 48% in the immediate aftermath of the recession. In other words, for every extra dollar someone eligible for various aid programs makes, they lose 48% from taxes and benefit reductions. …Mulligan says. “The more you help low-income people, the more low-income people you’ll have. The more you help unemployed people, the more unemployed people you’ll have.”

John is right to cite Prof. Mulligan’s work.

I cited his work last year showing how Obamacare undermined incentives to work. And other academics have reached the same conclusion.

Regarding the broader issue of redistribution and dependency, I argue that federalism is the best approach, both because states will face competitive pressure to avoid excessively generous benefits and because states will learn from each other about the best ways to help the truly needy while minimizing the negative impact of handouts on incentives for productive behavior.

Or we could just keep the current system, which is bad for both poor people and taxpayers.

P.S. This Wizard-of-Id parody contains a lot of insight about labor supply and incentives. As does this Chuck Asay cartoon and this Robert Gorrell cartoon.

P.P.S. If you want some jokes referencing the disability program, we have the politically correct version of The Little Red Hen, as well as two very similar jokes about Jesus performing miracles and how liberals differ from conservatives and libertarians.

P.P.P.S. Switching to a different topic, the IRS is whining that it needs to a bigger budget to better “service” taxpayers.

The Washington Examiner has a great editorial on the topic. Here are some of the better passages.

Oh, those poor dears at the IRS. They wasted $50 million on 225 conferences between 2010 and 2012, including a single $4.1 million conference in Anaheim, Calif. They wasted $50,000 creating bad videos on the clock, including one of the worst Star Trek parodies in the history of the Internet. They gave raises and bonuses to employees who hadn’t paid their own taxes. They were caught targeting applicants for nonprofit status based on their ideology and potential opposition to President Obama. They lied to Congress about being unable to recover emails from those involved.

Yet the bureaucracy still wants more money.

IRS Commissioner John Koskinen warned that taxpayers would suffer… But according to a new report by the House Ways and Means Committee, these inconveniences were the result of IRS malingering – of budgetary choices made within the agency itself….“Spending decisions entirely under the IRS’s control led to 16 million fewer taxpayers receiving IRS assistance this filing season,” said the report. “Other spending choices, including prioritizing employee bonuses and union activity on the taxpayer’s dime, used up resources that otherwise could have been used to assist another 10 million taxpayers.” This is a classic example of how federal bureaucrats take revenge when their budgets are cut. Instead of prioritizing limited resources in order to fulfill their agencies’ missions, they find ways to transfer the maximum amount of pain directly to taxpayers, so as to teach the country a lesson about how indispensable they are.

In other words, a classic example of the “Washington Monument ploy.”

Though not as outrageous as the crass behavior of the politicized National Park Service.

[mybooktable book=”global-tax-revolution-the-rise-of-tax-competition-and-the-battle-to-defend-it” display=”summary” buybutton_shadowbox=”true”]

A new study by the National Bureau

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