CHALLENGE
THE PREMISE

Newsmakers

ARCHIVE - JANUARY 2014

The Best of The Best

Who is America's
best Senator?


Wisconsin's
RON JOHNSON!

And here's why!


Senate


Will Harry Reid hang
on as Senate Majority
Leader in 2014?
Photo from foxnews.com
It is looking like it
might slip away.

It's going to be close…
Keep an eye on our
election coverage!

House


Can John Boehner keep
his raucous caucus in
the driver's in 2014?
oxnews.com
Probably, but only if he
avoids unforced errors
like a bruising brawl on
immigration.

Keep an eye on our
election coverage. There
will surely be lots of
twists and turns.
PLAYIN’ STUPID…? OR JUST PLAIN STUPID?

2014/01/30 - What are Boehner, Cantor & McCarthy up to? Is the House Republican leadership actually serious about passing that malodorous Progressive immigration cow pie the Senate emitted? Hopefully they are not serious, but if they're not, then why the shenanigans?

Last Friday the Wall Street Journal claimed that GOP sources were saying the House Triumvirate actually does want to pass the bill, and they will push to pass the bill during the summer after most of the primary deadlines have passed. But that just seems crazy. With a recapture of the Senate within reach, why would they play such a suicidal game so soon before the election? They will lose far more support from the base, than they will gain from the Hispanic block they are so clumsily attempting to seduce.

Everyone agrees that immigration reform is necessary, but not this bill, and certainly not now. The Republican base shows up in mid-term elections and Hispanics do not. Why unplug the turnout machine right before the election? Why risk infuriating the base in a vain attempt to attract a few no-shows?

Caitlin Huey-Burns from RCP hinted at a possibility in her analysis of the GOP response to the SOTU. Obama is finally realizing he often does himslef more harm than good when he sticks himself in other peoples' business, so he has decided to go mum on immigration. Even if the pace is a bit slower than a snail’s, it still has the appearance of forward motion in the House. So Obama decided to stay out of the way and walk past the issue. Why put himself in a position of blame if what little momentum there is completely stalls?

If you were likely to mistake the GOP leadership for smart people, you might thus conclude this is a clever ploy to mollify Democrats, and keep Obama from blowing a gasket and firing up his base. In the Soviet Union, doing your job just barely less-worse enough to avoid the Gulag was called “passive resistance”. Lesson from history: it works.

William Kristol at Weekly Standard proposed a truce between the Establishment and the Conservatives: the moderates should give up on immigration, and in exchange, the base should forego a debt ceiling fight. And maybe that is what’s at work here – it's a dance. The Establishment is in fact setting up for negotiations with the Tea Party. They really don’t have any intention of passing a bill, they’re just trying to scare the heck out of the Right and bolster their bargaining position.

This election needs to be about Obamacare and only about Obamacare. Reclaiming the Senate is all about Obamacare, and only about Obamacare. The Leadership can’t possibly think otherwise. Anything but Obamacare would be a distraction, and both sides would lose. With control of both chambers the Republicans will wield much stronger bargaining clout on both immigration and the debt, and every other issue. It’s a win-win.

Maybe these guys might do something really clever for a change, and thread the needle between Democrats and the conservative wing. But my gut tells me they are more likely to pass the immigration cow pie for some personal gain, rather than dispose of it for the good of the Country.


STATE OF THE UNION

2014/01/29 - Underwhelming. That is probably the best word to describe last night's State of the Union address.

I don't agree with very much that President Obama has to say. Yet last night I heard very little to get worked up about. My pulse rate probably raised a couple of beats now and then, but not that much, not that often. Mostly he just said the same stuff he always says, nothing unexpectedly hostile or provocative for a change.

Or maybe I'm just numb to his words now. Or maybe I'm not listening anymore. Maybe I'm just waiting for the next three years to be over and done with, and the faster it seems like these speeches come and go, the sooner this Malaise 2.0 will be done with.

I can only assume that his purpose was not to make things even worse for Senate Democrats. Don't rile up an already aggravated, restless, discontented electorate. A little bit of happy talk... and talk... and talk... how long was the speech? He surely loves the sound of his voice!

The President gleefully took personal credit for all the upside of the fossil fuel boom, as if he created the Bakken and Marcellus geological formations all by himself, and as if he also invented the technologies to avail ourselves of them. Oh, that’s why he didn’t code the Obamacare website, he was too busy coding the fracking computers.

And then his stock-in-trade 180 degree u-turn, where he wants it both ways. Suddenly, fossils fues are evil, greatest threat ever to mankind: "Climate change is a fact". Yes, and the sky is blue. We all agree. There is a lot of disagreement, but that's not where it lies. But whatever, no matter... blah blah blah z-z-z-z-z-z...

And that basically sums up the next three years: blah blah blah z-z-z-z-z-z... Wake me up when it's over.


IMMIGRATION: IS THE HOUSE GOP LEADERSHIP CRAZY?

2014/01/27 - When comes to immigration It’s hard to figure out what the House Republican leadership is up to. They are slow-walking the Senate immigration bill somewhere, but to where? To what destination – the graveyard, or (yikes!) the finish line?

The immigration reform bill that passed the Senate is mostly a Progressive wish-list. It does have some pieces in it that are favored by the business community and thus it does have some support from Establishment Republicans, but this Schumer-Obama bill also has items that are dreadful and absolute non-starters for conservatives.

Establishment Republicans, always playing the role of the Washington Generals – lapdogs for the Harlem Globetrotters – are desperate to pass something – anything – in the vain hope of gaining some favor within The Beltway Cabal.

Or maybe they think that the Hispanic vote will make a massive, secular, permanent tectonic shift to the GOP. This always works so well! Consider the outsized proportion of the black vote the party gets in gratitude for the Emancipation Proclamation, for winning the Civil War, and abolishing slavery, in the 1860’s; and for going along with the Democrats to pass the Civil Rights legislation of the 1960’s. Oh, wait, that’s not a great example.

How about the huge swing in the gay vote that New York State GOP Senate Majority Leader Dean Skelos expected after going along with the Democrats to pass gay marriage? Oh, right, Skelos, that didn’t work either. Four of six Senators who switched their vote no longer hold elected office, and the Republicans lost control of the Senate. Nice one, Skelos, that was really smart!

So I wonder what the House GOP leadership is up to on immigration. Speaker John Boehner speaks ambiguously; Majority Leader Eric Cantor came out in favor from the start; and Majority Whip Kevin McCarthy has heretofore been cautious of taking a position, but now McCarthy has come out in favor of what conservatives view as “amnesty”.

The House Leadership should be trying to keep this on a slow simmer, and run out the clock until the GOP takes over the Senate in November. Allow the current Senate bill to die a deserved death with the 113th Congress, and then pass a far superior law in conjuction with the Republican-controlled Senate in the 114th Congress in 2015. Then defy Obama and the Democrats to stop it. That would be the smart way to play it, right? Obviously? Or is the Leadership really, seriously, planning an amnesty handout?

The lesson in New York State should be obvious. Democrats are “The Party of Identity Politics”. It is what they do, they are good at it. It’s how they play the game, it’s their playbook - big-ball vs small-ball, run-and-shoot vs west-coast, choose any sports analogy. Republicans cannot out-pander the panderers, and God help us if they try. Don’t even go there!

If the House Republicans pass the Senate immigration bill payback from conservatives will be immediate and severe. They can't not know this - can they?


CHALLENGE THE PREMISE:
THE DIFFERENCE BETWEEN INCORRECT AND WRONG (PART 2)

2014/01/22 - New York politics are quite painful and usually worth ignoring. The Democrats’ dominance of the state makes for mostly foregone, retrograde conclusions. But sometimes it's much worse than merely bad - sometimes the political leadership goes beyond dominance towards outright totalitarianism, and that can’t be allowed to stand unchallenged. This is one of those times.

Last Friday Governor Andrew Cuomo made the following comment that was not merely "incorrect", but "wrong" in every sense of the word imaginable: “Who are they? Are they these extreme conservatives who are right-to-life, pro-assault weapon, anti-gays? Is that who they are? Because if that’s who they are and if they are the extreme conservatives, they have no place in the state of New York, because that’s not who New Yorkers are.”

So what exactly is wrong with being pro-life, or favoring traditional marriage, or supporting the Second Amendment? Probably a majority of New Yorkers hold at least one of these three positions, and outside of the urban areas, covering almost all of the vast expanse of the state, probably a majority of New Yorkers hold all three!

Some years ago the ACLU was in court defending some group – a group that, philosophically, they were probably diametrically opposed to – defending the First Amendment rights of that group to hold and express certain views. The principle was that as much as you may oppose a certain person’s position, that person's right to hold and express such a position is of inestimably greater importance than the position itself.

Cuomo’s rant made Richard Sherman’s seem like nothing. OK, Sherman doesn’t respect Michael Crabtree – no big deal in the grander scheme of things. On the other hand, not only did Cuomo insult millions of New Yorkers, he told them to leave the state! His office later back-tracked by saying the he was only referring to the politicians who hold those views, but what difference does that make? While banishing the officeholders, he simultaneously disenfranchises all the people who voted for them. People who disagree with Cuomo, apparently, are not entitled to representation. Or their First Amendment Rights.

So where is the outrage from Liberals? Crickets. Where is the chorus defending basic freedoms? Silence. Modern Liberals – Progressives, they now like to call themselves – have seemingly devolved into totalitarians. These Progressives are very tolerant of people they agree with; those who dare to disagree with Progressives, apparently they have no rights. And they certainly have no place in the State of New York.


CHALLENGE THE PREMISE:
THE DIFFERENCE BETWEEN INCORRECT AND WRONG (PART 1)

2014/01/20 - From time to time people say things or make choices that are factually incorrect. I needed a good example so I thought I would google “Obama incorrect” but most of the examples unfortunately fit the other, worse category, of being wrong in a moral sense. So I chose Obama’s incorrect but otherwise harmless claim on May 9, 2008 that he had “been in 57 states”. Incorrect, but not wrong.

Sadly our President makes too many statements that are not merely incorrect, they are also wrong because they are harmful and hurtful. “You didn’t build that” is one of those I find most dishonorable. I have seen people build businesses from scratch, and bring forth from those efforts employment and incomes that benefit so many people and their families. These risk-takers invest themselves heavily in the work before them in spite of the red tape and obstacles that government throws at them, sometimes to the breaking point. Obama’s attempt to steal credit from entrepreneurs and hand it to government was both bogus and mean.

Well, our President was at it again this weekend, being both incorrect and wrong, both bogus and mean. In an interview with New Yorker magazine he attempted to deflect accountability for his low approval by blaming “…folks who just really dislike me because they don’t like the idea of a black president”. Okay, there we are playing the race card again. So his approval has slumped into 30’s because, after five years, and two election wins, we’ve just now discovered he’s not of 100% European ancestry? Who knew?

His excuse makes no sense on any level. Was Bush’s low approval because he was white, or because of perceived job performance? Maybe it is just time for our President to recognize that his pathetic policies and perpetual politicking are unappreciated – we didn’t like Jimmy Carter’s left wing domestic policy, his feckless foreign policy, and their consequent feeble results; why would we suddenly appreciate that same ensemble of policy and outcomes, just because it is now Barrack Obama delivering them?

It takes a lot of Americans to disapprove of a President – any President – in order for that President to have a low approval rating. It’s called “arithmetic”. Thirty-eight percent approval means sixty-two percent do not approve. The President is taking a swing at a large swath of the American people by blaming racism as a significant factor in his sixty-two percent non-approval level.

You can see the perverse logic here: “My policies are great, the execution is awesome, the results are outstanding, and generally, Americans are statists who just love big government. So Americans ought to approve of me, but they don’t. It can only be because of…uh… it must be my skin color. That would make them racists. 62% non-approval, thus 62% of Americans must be racists”. Playing the race card against low job disapproval is an atrocious tactic. It’s a smokescreen, a diversion.

This insult hurled by our President isn’t just factually incorrect, it is morally wrong. And far below the dignity of the Office.

Of course with this President, politics isn’t everything – it’s the only thing. So look to politics as the motivation for such comments: use MLK Day as a prop to fire up the base, and try to switch the conversation from ObaMcCare to something else – anything else. Anything but ObaMcCare.


CHALLENGE THE PREMISE: THE URGENT VERSUS THE IMPORTANT

2014/01/16 - Back in college I somewhat randomly attended an extra-curricular lecture by a respected professor entitled "The Urgent versus the Important”. The major point boiled down to the tendency of small tempests in teapots to scream for and obtain our attention while the big issues silently fall by the wayside amongst all the commotion.

The insights that professor presented that day have served me well throughout both my career and my personal life. As the dust settles after some urgent but minor crisis, take some time to invest in what is important. "The Urgent" is to resolve the crisis, but "The Important" is to prevent such crises from recurring and getting in the way of bigger objectives. Don't get bogged down with The Urgent, focus on The Important as soon as possible.

Today I read an article by Dana Milbank that made apparent that he is not familiar with the lessons expounded by the good professor that day. Milbank makes an interesting observation in contrasting the efforts of the President, and Congressional Democrats. However, it is not remotely true that it is the President who is in wrong. It is the Congressional Democrats, with their circus clown antics, who are “off message”. What’s Important is creating jobs. Don't get boggedin the false Urgency of extending government dependency programs. Job creation isn't everything, it's the only thing!

I am not disputing the basic concept behind unemployment insurance. Sure, if someone loses their source of income, let’s help them out so they can stay afloat until they start a new job. But from that starting point Democrats are creating a structural disaster where the program morphs from temporary assistance into an indefinite incentive into a permanent reward - for not working. This has gone too far, for too long.

More government handouts are the problem, not the solution. We need to get serious about what’s Important – structural changes to create jobs. At least the President’s initiative in North Carolina has a chance to improve our global competitive position and create jobs. Even the worst job creation idea is better than the best-intentioned dependency program. Congressional Democrats are off message and, Mr. Milbank, more Importantly, they are wrong on substance.


THE BEGINNING OF TYRANNY

2014/01/15 - You know something is wrong with the direction a country is headed when its President says "we are not just going to be waiting for legislation...", or "I’ve got a pen and... I can use that pen to sign executive orders and take executive actions and administrative actions...". That is the kind of talk, and action, and attitude, that you expect from a third world dictator who feels no need to respect his country's Constitution, or his country's other elected officials. A President who feels no inclination to respect the expressed will of The People.

Unfortunately, that President is our President, President Obama. He is taking it upon himself to bestow credibility upon his most extreme critics, those alarmists out there who have been shouting from the roof tops about Obama this and Obama that for the last five years. There's a chap in a neighboring town who on Saturdays conducts a one-man Impeach Obama demonstration in front of the Getty station. I appreciated his passion, his message not so much - up until now, suddenly. So it comes as no surprise that Gallup reported this week that less than one in four Americans are satisfied with the direction of the country.

There have been past Presidents who I have liked less than some others, but never did they cause me to wonder if our country was sinking into autocracy. I wasn't a big fan of Jimmy Carter, but I never doubted that he had anything but respect for the institutions, customs and principles that made America, and the office of the President, so great. I cannot imagine that he would ever say such things as Obama said this week.

There was a time that I had confidence that the Supreme Court would do its job, that it would step up and stand up to any President who defied the Constitution. But Chief Justice Roberts betrayed that confidence in the summer of 2012. Is this what the beginning of tyranny looks like? When the President starts a power grab, and the High Court musters no courage to stand up to him? To say nothing of the NSA spying on Americans. Or the IRS targeting political opponents. Yes, this is probably what the beginning of tyranny looks like.


CHALLENGE THE PREMISE: YET ANOTHER DANGER OF OBAMcCARE

2014/01/14 - I read an article about Obamacare by a nationally known author that betrayed a surprising lack of understanding of business and economics. But to illustrate his error, consider first the role the United States plays - rightly or wrongly, fairly or unfairly - as the "World's Policeman". The USA is a large, wealthy country that, by definition, has a vested interest in defending itself, and has the resources - natural, technological, financial, human - to do so. We have built weapons such as F-22 fighters, M1A1 tanks, aircraft carriers, and now rail guns, and who knows what next. The amount we have invested to defend ourselves is phenomenal, but, having spent these sums, the marginal cost of defending our allies negligible. So we give our allies a free ride in exchange for an unprecedented ability to influence the direction of global affairs - if we use it artfully!

Healthcare is much the same. Take pharmaceuticals or devices. Companies spend billions on research and sometimes the projects tank, and sometimes they are winners. But at the end of the day it must all be paid for - the research, development, testing and so forth, both the success and the countless disappointments. It might only cost $5 to manufacture and distribute a bottle of pills, but what about all the research and development that was spent to come up with that idea and ultimately shepherd it to a market-ready state? And what of the sums currently being invested, and the sums to be invested in the future?

Much like with national defense, when a small country like, say, Canada or Taiwan, particularly those with the government as single-payer, negotiate pricing with the pharmaceutical or device manufacturers, the price ends up quite close to the manufacturer's marginal cost. Otherwise, the single-payer simply deprives it populous of the product and there's not a lot the consumers can do about it. As long as the manufacturer can get a bit more than their marginal cost, they more or less go along with that price. It's a bit better than nothing. Both sides know each other's hand.

You can see where this is going. Basically, the USA is the world's wealthiest country in both absolute and per capita terms, so we pay the full cost of new life-saving and life-enchancing technologies, just like with national defense, and all the smaller countries - rightly or wrongly, fairly or unfairly - get a free ride. Heretofore we have been willing to pay the full cost for wonderful advances in meical science, irrespective of whether smaller or poorer countries were willing or able to pay their full share. The fact is they will not pay their share, either because they cannot (think Haiti), or don't have to (think Denmark). Which brings us to the strange, alarming article by Ezra Klein that instigated this discussion. There is a reason we pay more - it's called "Economics".

Klein argues that the US has higher healthcare costs because the Insurers lack pricing power. He states that a "health-care system that followed international best practices would direct the government to set rates", but that is only superficially true. If the US went to a single payer system and attempted to save money by paying the same or similar price that small countries pay, funding for medical research and development would dry up. Unless, of course, a global pricing regime based on full cost was implemented, but it would ultimately fail. First, poor countries would demand discounts on humanitarian grounds, and soon everyone would be crying poverty. Second, unless smaller countries were given a quota and forced to buy a minimum quantity, they could effectively boycott the product and the US would be right back to paying full cost, and withholding the product from non-participating countries. Further, governments would never agree to a global scheme to enrich Big Pharma anyway - that would be political suicide, but the alternative would be to starve the firms of funding for future medical research and development.

But there is an economic upside to our "full-pay" healthcare reality, just like our "full-pay" defense reality. Both of these industries have many firms that employ so many Americans. They are global technology leaders that create further employment in secondary ripple effects. They are substantial exporters who strengthen our economy. And, of course, they do so much to enhance our health and safety. All in all, it isn't such a raw deal!

However, if every country's healthcare system, including ours, insists upon paying only marginal cost, then there is simply nothing left in the pot for R&D, and there will be no incentive to innovate. The law of unintended consequences will apply. If a monopolistic single-payer system, or an oligopolistic scheme such as “all-payer rate setting” that Mr. Klein advocates, were to take hold in the United States, then it would spell doom for American and indeed global medical research. And wreak havoc on the economy. Is this where Obamacare is leading us?


DEMOCRATS, HYDROCODONE, AND EXTENDING UNEMPLOYMENT

2014/01/13 - Over the past few years I've had two knee operations and had two wisdom teeth removed, and in the process assembled a nice collection of prescription pain-killers. I still have them. I've never taken pain-killers, and from what I've heard, I would never want to start unless I really needed to, and even then, probably not. Besides, there is an upside to pain - it gets your attention, it doesn't let go, and it implores you to commence a constructive, corrective response. Pain-killers, on the other hand, do two things, both bad, the "less worse" of which is that they relieve the user of the sense of urgency to respond to the underlying condition. Not unlike leprosy - you lose feeling, you don't feel pain, you don't realize when you've damaged your body, you don't fix it, it falls apart, you die. Very bad - thus I leave my pain-killers to languish in the medicine cabinet.

Now, consider "work". Work is a good thing, and it should be self-evident that it is not good for a person to be idle - In an ideal world, things that are not good ought to cause pain. Now, of course, some unthinking people will still accuse me, absurdly, of being mean and judgmental for saying so - and why, because it would be good to have a country where the government paid twenty million people? fifty million people? a hundred million people to not work? It is only reasonable that sound public policy should do two things - first, focus on job creation; and second, ensure that there are wide differential outcomes between working and not working.

Democrats, of course, will hear no such thing. They want to keep refilling the pain-killer prescription rather than treating the disease. When are they going to get serious? When are they going to stop treating the symptoms? If people are unemployed, shouldn't the policy solution be to expand the availability of jobs so that those people can work for a living? Why is the policy debate about handouts and benefits, while the disease of joblessness festers unchecked? If some policymakers feel guilt about the lack of jobs, maybe they should amend their treatment regimen.

Earlier I mentioned the "less worse" aspect of pain-killers. The "worse-worse" problem is they can lead to addiction. I had a bicycling accident recently, which made me consider that in the future I might take some of my hydrocodone collection with me in case I get mangled by another Lincoln Navigator. But I've chosen not to, because addiction creates a structural condition that is worse than the original pain, or its cause. And that's the problem with the Democrats' prescription of more pain-killers, also known as extending unemployment benefits. They have been prescribing this pain-killer for too long, and we run the risk of creating an addition.

It would also help if the unemployed demanded jobs - JOBS!!! - rather than benefits. Treatment, rather than more pain-killers.


SMALL TOWN TRAFFIC-JAM

2014/01/10 - Is this really such a big deal?
Question 1: Since when is a traffic-jam in a small town big news?
Question 2: Since when is a multi-hour delay at a Hudson River crossing big news?
Answer to both Questions: Never, except when partisan Democrat operatives masquerading as journalists get a chance to take a few strips out of a successful Republican officeholder.

OK, liberals hate Chris Christie. Got it. But what this episode again illustrates is how biased the media is, and not just in how they cover a story, but in what stories they choose to cover. For example if you go to NBC News' website their cover story is all Chris Christie and nothing about the Mark Udall story we highlighted yesterday. Go to NBC News and read about Mark Udall. Not! We understand that it is fun, partisan and easy to gratuitously pile on Christie, but is that what NBC News and the rest of the media has come to? If Chris Christie is personally involved, then he is toast, and he ought to be. But until that is demonstrated, it would be nice to see the media go after President Obama with the same passion for each and every one of the scandals that have happened on his watch.

Fox & Friends had a moment this morning where they compared the coverage by the Big-3 broadcast networks of a traffic-jam in a small town, to the coverage of the IRS scandal. The traffic-jam story received anywhere from about 5 to 15 minutes of coverage yesterday - that's in one day - versus a cumulative total of two minutes of coverage of the insidious IRS scandal over the past six months! Media bias? Over time one is forced to resign ones's self to the reality that the stories the media chooses for coverage, and how the media chooses to cover those stories, depends far too much upon the partisan leanings of who will suffer the most politica damage. And some wonder why the media suffers from a credibility deficit.

So what are the take-aways from this incident?

  • Big Government can be abusive - whether it's Lois Lerner or Bridget Kelly or...
  • Media bias on full display - Democrat journalists going after Republican officholders, without evidence of wrongdoing
  • Leadership - Christie schools Obama. This is what taking responsibility looks like.
  • Accountability - Bridget Kelly held accountable; when will Kathleen Sebelius be held accountable?
  • Department of Justice - will Eric Holder stoop to investigating a small town traffic-jam?

  • SENATOR IMPLICATED IN ATTEMPT TO MANIPULATE OBAMACARE DATA

    2014/01/09 - BOMBSHELL!! Today we find out that the US Senator from Colorado seeking re-election this year, Mark Udall, was pressuring Colorado's state Division of Insurance (DOI) to misrepresent the number of health insurance cancelations, according to Todd Shepherd at Complete Colorado. Shepherd quotes an email from the DOI's Director of External Affairs Jo Donlin as saying "They want to trash our numbers".

    In our December 15 projection, CTP ranked the likelihood of Udall holding his seat at 50%. These revelations of impropriety by the Senator's office are unlikely to help his chances. This scandal might ultimately only cost him a percent or two, so no big deal, right? Wrong - according to the Democrat pollster Public Policy Polling he is only garnering support in the mid-40's against various potential Republican opponets. At these levels his hold on the seat is tenuous at best, and he can ill afford any further erosion of support. And the loss of Udall could spell the end of Harry Reid's reign of error as Senate Majority Leader.

    Check our latest projections for the 2014 elections. And keep coming back - in addition to other races we will soon add, we update the Senate races on the 15th of each month - and then weekly starting in October.


    THE HOUSING BUBBLE AND THE RECESSION. REVISITED. AGAIN.

    2014/01/06 - Peter Wallison has an interesting piece in the NY Times discussing the current(?) and most recent housing bubbles. We agree with a number of his assertions, for example "the 2007-8 financial crisis was precipitated by the collapse of a huge housing bubble" and "the Dodd-Frank Act... won’t prevent another housing bubble". While we mostly agree with what he has to say, we offer a few comments.

    First, Wallison seems to hold a "single-cause" view of the last housing bubble. He asserts that most observers believe the bubble was caused by the Fed and its low interest rate policy in the mid 2000's, and argues instead that the bubble was caused by the availability of low/no-money-down mortgages. We, however, insist that the bubble was caused by multiple factors - that there are probably 3 or 4 factors that make up perhaps 75% of the causality, another 3 or 4 factors that constitute perhaps another 15% of the causality, and finally, several more factors that account for most of the rest. There were several primary causes, and, in that upper echelon you can place the ability to buy a home while putting up very little equity - and for this stroke of policy genius you can lay a fair share of the blame on Andrew Cuomo's HUD, which Wallison does (without naming names). However, the Fed's easy money is also in that top tier of what grew to be, over several decades, an obviously disastrous policy mix.

    Second, it is not clear from his arguments that we are entering a new housing bubble. Wallison shows that during the 90's and 00's the cost of home ownership surged way beyond the cost of home rentals, and shows that the cost of owning is again rising faster than the cost of renting, indicating a new bubble. However, there is a discontinuity in his analysis, as he ignores the period consisting of the late '00's and the dramatic fall in the cost of ownership during the recession. Wouldn't the current rise in the cost of ownership simply be a catch-up, a reversion to the mean? The reader is left to wonder if the recession was an over-correction to the downside, and this supposed new "bubble" is in reality a necessary deviation to get us back on the long term trend line. It would have been helpful if Wallison had provided a bit more context.

    Overall we agree with Wallison's policy prescription, insofar as it goes. Increasing the minimum downpayments would be a very useful start, but among other changes, we should phase out and replace mortgage interest tax-deductibility with a tax deductible home ownership savings (HOSP) plan which assists home buyers accumulate equity in order to make the increased down payment Wallison calls for. Interest deductibility entices home owners to take on more debt and thus leads to an inherently over-leveraged and thus unstable housing market; whereas a HOSP framwork can be constructed to provide a similar level of assistance but instead incentivize the accumulation of equity thus facilitating a stable housing market.

    If indeed there is a new housing bubble developing, it will most likely be exposed by the Fed's taper and subsequent tighten. If a zero-rate policy is needed to sustain the housing market, then what happens when rates need to rise? We'll see...


    Random Ramblings
    • Megan McArdle has maintained an excellent commentary on Obamacare. It's especially surprising to find it on the website of Bloomberg (which has the substance of NPR but spares you the emotional roller-coaster NPR is noted for): £ ¥ Great Article


    • Are Corporate Income Taxes really such a great idea? An investment guru challenges the conventional wisdom: £ ¥ Great Article


    • Schindler Parts 1 & 2: ¥ Life Imitates Movies

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