The Electric Commentary

Friday, May 27, 2005

Krugman, Cowen, Krauthammer

Since Arnold hasn't written anything today, Marginal Revolution's Tyler Cowen will be subbing for him in our regular Friday feature.

I've recently been discussing Pauly K with a friend who is more sympathetic to his views than I am, in the wake of rips by Dan Okrent and Greg Mankiw, (for an opposing view click here). However, today Krugman's column is filled with interesting points on the housing bubble:

Nobody thought the economy could rely forever on home buying and refinancing. But the hope was that by the time the housing boom petered out, it would no longer be needed.

But although the housing boom has lasted longer than anyone could have imagined, the economy would still be in big trouble if it came to an end. That is, if the hectic pace of home construction were to cool, and consumers were to stop borrowing against their houses, the economy would slow down sharply. If housing prices actually started falling, we'd be looking at a very nasty scene, in which both construction and consumer spending would plunge, pushing the economy right back into recession.

That's why it's so ominous to see signs that America's housing market, like the stock market at the end of the last decade, is approaching the final, feverish stages of a speculative bubble.

Some analysts still insist that housing prices aren't out of line. But someone will always come up with reasons why seemingly absurd asset prices make sense. Remember "Dow 36,000"? Robert Shiller, who argued against such rationalizations and correctly called the stock bubble in his book "Irrational Exuberance," has added an ominous analysis of the housing market to the new edition, and says the housing bubble "may be the biggest bubble in U.S. history"


I think he's right. All signs point to this bubble bursting in the near future, and if it does happen the consequences could be more severe than they were during the tech bubble burst. Read the whole thing. And think about becoming a landlord.

On to Charles who is simply whining about the filibuster compromise:

The second sure thing is that the seven Republicans who went against their party are the toast of the Washington establishment. On Monday night they came out of the negotiations beaming. And why shouldn't they? They are being hailed as profiles in courage, prepared to put principle ahead of (Republican) party. We will soon see glowing stories in the mainstream press about how they have grown in office. (In Washington parlance, the dictionary definition of "to grow" is "to move left.") After that, the dinner-party circuit, fawning articles about their newfound stature and coveted slots on the Sunday morning talk shows.

Mike DeWine, one of the Magnificent Seven, was heretofore best known for the fact that one of his staffers (subsequently fired) published accounts of her sexual escapades while working in DeWine's Senate office. Now he might be known for something else.

Did Charles Krauthammer just mention the Washingtonienne Scandal? That's just weird.

Wrapping things up we have Tyler Cowen quoting the Chronicle of Higher Education:

A study by John M. de Figueiredo of the University of California, Los Angeles and Brian S. Silverman of the University of Toronto, which will soon be published in The Journal of Law and Economics, finds that universities receive a high return on their lobbying dollars. The researchers related the amount each university received in earmarks to its lobbying expenditures from 1997 to 1999, and other factors.

Professors de Figueiredo and Silverman found that a $1 increase in lobbying expenditures is associated with a $1.56 increase in earmarks for universities in districts that do not have a senator or congressman on the crucial Appropriations Committees, and more than a $4.50 gain in earmarks for universities with a representative on one of the Appropriations Committees.

Even among universities that do not lobby, those that have a congressman or senator on the Appropriations Committees tend to be awarded more earmarked funds.

A university's fortunes also tend to rise or fall when senators from its state join or exit the Appropriations Committee. For example, the year after Senator Lauch Faircloth of North Carolina, a member of the committee, was defeated by John Edwards, who did not become a member, earmarks to universities in North Carolina fell by half.

Wow. $1.56 for every dollar? Maybe I'll start up a university...

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