The Housing Bubble

Keynesian b.s. give pols yet ur money for future nirvana

So I listened to the The Economist interview with Trump early on in this year. This aspect stood out to me:

But beyond that it’s OK if the tax plan increases the deficit?
It is OK, because it won’t increase it for long. You may have two years where you’ll…you understand the expression “prime the pump”?
Yes.
We have to prime the pump.
It’s very Keynesian.
We’re the highest-taxed nation in the world. Have you heard that expression before, for this particular type of an event?
Priming the pump?
Yeah, have you heard it?
Yes.
Have you heard that expression used before? Because I haven’t heard it. I mean, I just…I came up with it a couple of days ago and I thought it was good. It’s what you have to do.
It’s…
Yeah, what you have to do is you have to put something in before you can get something out.

It struck me that what is majorly different from Trump’s Republicanism is that he subscribes in essence to Keynesian economic thought. State spending, deficits in the name of stimulating aggregate demand, etc.

Letting people keep their own money isn’t Keynesian.

Forcing an entire nation of citizens to buy worthless insurance and imposing fines on them if they don’t comply is something…. I’m not sure what.

The Keynesian part was in reference to the deficit spending and the need to run a deficits, especially infrastructure spending, in the short run to prime the pump.

Interesting that Trump said this:

But I think the Democrats are going to like it. We may align it with infrastructure, which they like. They like it as much as the Republicans like it. We need infrastructure in our country. This country has wasted $6trn in the Middle East. Wasted. Like taking it and throwing it right out that window. Right in to the Rose Garden.

My take is that Trump is in essence Keynesian, he just wants the money spent on infrastructure or running deficits via tax reductions instead of spending it on war.

Here is a link to the entire interview:

http://www.economist.com/trumptranscript

It might be a good time to set aside the question of whether this is Keynesian, or some type of -ism. The more interesting question is what the results would be.

Well there probably won’t be any fake space aliens involved.

But hold up…. there’s hope.

http://freedomandprosperity.org/wp-content/uploads/2014/03/WonderfulStimulus.jpg

Got ditches?

OneTrumpRaginginhisSkullamongMany

Well I guess that the Koch brothers are other billionaires who fund things named after freedom and liberty are providing a lot of employment. They’ll probably stop doing that if they ever achieve their goals of having the majority of the population living in poverty.

‘their goals of having the majority of the population living in poverty’

You got a link for that?

Laura Ingraham Reacts to George W. Bush Speech

https://www.youtube.com/watch?v=_IA958kSDWQ

From the comments:

“I guess the attack on globalism has even brought dear old George out of hiding. The Bushs are great at making big moves like everything he did as president - 9/11, then the wars, then the economy, and then returning into the shadows!! Look at Sr. after Kennedys murder, when he couldn’t remember where he was on the day of the murder, even though everyone knows he was in the CIA and probably responsible for leading it, moved off into the shadows into China (as ambassador)That’s about as removed into the shadows as you can get.”

“The Bushes–Daddy Bush in particular–are terrified their Luciferian NWO is threatened–we must be doing well if they are desperate enough to emerge from their infernal lair in Texas–and send Dubew to hold forth–the hypocrisy and duplicity of the Bushes is incalculable.”

“The best analysis I have heard for a long time about how Clintons, Obamas and Bushes have followed the same agenda. How they are globalists who wants to destroy nation state. They have designed and carried out the plan to destroy America.”

Still waiting on that link Mike.

Very informative. Thank you.

‘their goals of having the majority of the population living in poverty’

You got a link for that?

No kidding.

Let’s see, the Koch’s are:

For criminal justice reform (working with Obama–noting the injustice of drug related, non-violent offenses)

Against all forms of corporate welfare (even when it benefits them–they donated money to people who said they would vote against the continuation of such corporate welfare)

Donors to the United Negro College Fund and Thurgood Marshall College Fund, and very “pro-education” as a way to lift people up from poverty.

Involved in politics because they didn’t like the fact that GWB campaigned on some things, but did the opposite once in office.

Believes that some regulation keeps people from getting jobs and protects the status quo (why should people need a license to be able to cut hair?).

Believes that both parties are driving us on the road to serfdom (protecting the powerful at the expense of the powerless), but that Democrats are driving us there faster.

Kai Ryssdal interviewed Charles Koch.

Koch also did an interview on the Freakonomics Podcast (2 parter)

Read and listen to those before you judge based on what you’ve read in the media.

It’s about profits. When businesses act collectively, the purpose is to increase profitability. When business executives pay lobbyists to lobby Congress, the purpose is to increase profits. You won’t fund a lobbyist quoted saying that. Business exists to make profits. There’s a graph you can find that shows the portion of national income that goes to workers and what portion goes to business. The workers’ share has been declining almost continually since 1947. If you were to ask to corporate CEOs how much is enough, they wouldn’t have an answer. No matter how profitable a corporation is, Wall Street always wants more and one way to accomplish that is to pay workers less. Eventually you get to the point where the workers are living on the edge of poverty. Of course, they need to able to eat enough to do their jobs, but there’s no benefit in paying more than that. Why would they want to pay any more than necessary?

Of course, it’s going to be pretty hard to find a link. The business people are very careful about what they say. Take the minimum wage. Whenever an increase is proposed, business groups and the freedom and liberty crowd claim that they’re concerned that jobs will have to be eliminated. Clearly they must also be concerned that higher pay means lower profits, but they never state that explicitly. It’s the same thing if a congressman arranges a big defense contract for a company in his district. If they have some sort of ceremony with the corporate executives, there will be lots of talk about the new jobs that will created in the district. The executives won’t say anything profits, but their job is, once again, to make as much profit as possible.

You can see this in other political positions of business. Corporations are powerful, influential organizations in the economy and society. They would prefer not to have any rivals. That’s why they and the freedom and liberty people want smaller, weaker government. Fewer regulations means more profits. Shifting functions from the federal government to state and local governments is great because state and local governments are easier to push around. It’s the same thing with unions. Unions can reduce the power and profitability of business. So business is against unions, along with the freedom and liberty crowd.

Of course, there’s one exception to this rule. The business class wouldn’t want everyone living on the edge of poverty. That would result in something like the French Revolution. So they provide good jobs to 10% - 20% of the population. Conveniently, these are generally the most educated people in the country, those would might otherwise lead the revolution.

You forgot to mention the money that Kochs give to cancer research or cultural institutions, like museums or symphony orchestras. They realized some time ago that they were getting a bad reputation and made efforts to improve it with those charitable donations.

Jane Mayer, a journalist who has been investigating the Koch brothers for a long time wrote this:

The Koch’s are libertarians, or you could call them neoliberals. They are supposedly people who believe in kind of social liberalism. But there they are having sponsored the career of Mike Pence. And I think it’s a real tip off to what the Koch’s really care about.

The issue that matters to them is not any of the social issues, no matter what they’re saying. What matters to them is allowing business to take over the power in the country, and particularly their own business. So, they’re pushing back on regulations, and they’re pushing back on taxes and trying to shrink the power of the government and replace it with their own power.

https://theintercept.com/2017/10/25/intercepted-podcast-mike-pence-is-the-koch-brothers-manchurian-candidate/

https://www.marketplace.org/2015/10/21/business/corner-office/full-interview-charles-koch

Charles Koch on welfare (and there is plenty more in the interview):

“Koch: But here, let’s go back through welfare. When LBJ started the war on poverty in 1965, his goal was to get rid of the dole as, these are his words, “I want to get rid of the dole and turn tax eaters into tax payers.” OK, that’s our goal, but now we’ve spent over 20 trillion since then on the war on poverty, and the poverty levels are the same, so this isn’t working. So we need to reform it so it doesn’t create these obstacles to the disadvantaged becoming productive, contributing citizens, and just sit there on the dole. And I don’t believe for a minute people want that.

They say, “Oh, well people are lazy.” Yeah, because you block all opportunities. They smoke a joint, and they go to prison, and they can’t get a job, they’re ruined. Whereas we have a president who smoked a joint, and he becomes president. We have a candidate who says he smoke a joint, he’s running for president. Now what’s the equity, what’s the fairness in that? We need to get rid of those distinctions and those differences in opportunity, and then we need to teach these kids the values and skills required for success.

Now, there will still be some who can’t make it. So there needs to be a safety net. Now the question is, what’s the balance between force, which our current welfare system is based on, and voluntary cooperation and competition? I would argue we have too much force just like we have in the criminal justice system, and it needs to be a balance, and we need to use local knowledge. That is are all these so-called benefits, are they helping people or hurting them? They’re probably helping some, and they’re hurting others because they have a disincentive to work. And as I learned that unless you start working, if you’re frozen out of work, you will never learn the habits, the discipline, the values of cooperation and improvement unless you get a job, and that’s what statistic show. It’s, unless you get a job and keep it, you will not get out of poverty. If you do, you have a very good chance of working out of poverty.

So that’s, we want the emphasis more on education and opportunity than, than dole, just like Lyndon Johnson wanted. Now, exactly how to do it? We don’t have all the answers, but we think directionally we know that what’s been done, in a large part isn’t working, but there still needs to be a safety net.”

http://freakonomics.com/podcast/why-hate-koch-brothers-part-1/

http://freakonomics.com/podcast/why-hate-koch-brothers-part-2/

Forcing an entire nation of citizens to buy worthless insurance and imposing fines on them if they don’t comply is something…. I’m not sure what.

It’s Keynesianism - market “interventions”, i.e. interference, which cause problems and lead to yet more interventions, while the problems are blamed on free market capitalism.

The government interventions in the medical business have been going on for over a hundred years.

The book Rockefeller Medicine Men was very well-researched: https://archive.org/details/rockefellermedic00browrich

Since it was published in 1981, it doesn’t contain more recent interventions, but it’s got all the foundational stuff that led us to where we are today.

Now, there will still be some who can’t make it. So there needs to be a safety net. Now the question is, what’s the balance between force, which our current welfare system is based on, and voluntary cooperation and competition?

I’m not sure what is meant by force here, unless it’s the tired old line that all of government relies on force. Of course, that would include intellectual property law and even contract law, which must have played a role in the Kochs’ fortune.

More importantly, the education issue is red herring. If you look at the American workforce, around 30% have bachelor’s degrees. Only around 20% of the jobs require a bachelor’s degree. America has been sending too many of its young people to college for decades. I read about a think tank that came up with a modest definition of a good job. It turns out that only about 1 out 4 jobs in America met their standard of being a good job. Sending more kids to college is not going to change that.

The paucity of good jobs also makes this point largely irrelevant:

if you’re frozen out of work, you will never learn the habits, the discipline, the values of cooperation and improvement unless you get a job, and that’s what statistic show. It’s, unless you get a job and keep it, you will not get out of poverty. If you do, you have a very good chance of working out of poverty.

The government interventions in the medical business have been going on for over a hundred years.

That’s had some great results, especially the fight against the diseases that killed many children.

but now we’ve spent over 20 trillion since then on the war on poverty, and the poverty levels are the same, so this isn’t working.

Classic logical fallacy. He’s implying that the War on Poverty failed. Ha. As if 30 years of outsourcing, pension-cutting, and illegal immigrant-importing had nothing to do with it.

You forgot to mention the money that Kochs give to cancer research or cultural institutions, like museums or symphony orchestras. They realized some time ago that they were getting a bad reputation and made efforts to improve it with those charitable donations.

The Koch’s became involved in politics after GWB was president–and really got negative press starting then.

They started philanthropic foundations in the 50’s (in dad’s name), and Charles started his foundation in 1980.

I’m not sure what is meant by force here, unless it’s the tired old line that all of government relies on force. Of course, that would include intellectual property law and even contract law, which must have played a role in the Kochs’ fortune.

Read the interview, but apparently you haven’t…don’t want to open your mind too much…

“Ryssdal: Does government do any good in the economy?

Koch: Yeah, the government in my definition, is the agency that has the legal monopoly of force. And you say, “Well God, that’s bad.” No, we need force to protect the US from attack, to protect people’s person and property, and in certain other things when force works better than voluntary cooperation and competition. And so that to me is the test, but the government has gone way over in using force, and we see that in the criminal justice system where we have 5% of the world population and 25% of the world’s prison population. Now obviously we’re using a lot more force than other countries we look down on, and so that’s why we’re working at that. Then using force, using regulations to keep the disadvantaged from starting a small business or even getting a job.

And one of the biggest of that is occupational life insurance, where hundreds of occupations throughout the economy, depending on the state, and the locale, and the city there are these various hurdles that people have to jump to-

Ryssdal: You’re, you’re talking about florists, and hairdressers, and-

Koch: I’m talking, yeah!

Ryssdal: … bartenders, and all that?

Ryssdal: OK.

Koch: There, there are hundreds of these.”

He’s talking about small (but meaningful) barriers that keep uneducated people from getting jobs.

When businesses act collectively, the purpose is to increase profitability. When business executives pay lobbyists to lobby Congress, the purpose is to increase profits. You won’t fund a lobbyist quoted saying that. Business exists to make profits.

Again from the Ryssdal interview:

“Ryssdal: I need to back you up to that whole corporate welfare, and the state of society today, ’cause that’s in essence what you’re talking about with people who are advantaged and disadvantaged. It’s not possible that you don’t see that Koch Industries has benefited from some of those policies that the government has in place today?

Koch: Oh, terrific. I mean you can’t help, I mean you’re hurt by some, and benefit others. I mean look at all the ways, all the forms of corporate welfare. I mean there are cash subsidies, there are loan guarantees, there are import tariffs, there are regulations on your competitors-

Ryssdal: Right, and my point is that Koch Industries benefits from all of those.

Koch: Well, I mean some cases we benefit, some we’re hurt, but we’re opposed to all of them whether we benefit or whether we’re hurt by them.

Ryssdal: Full stop?

Koch: All of ‘em. We oppose all of ‘em.”

AND

“Koch: … that it’s a waste, and, and that is there, there’s a tax bill that comes up every year, it has 55 different subsidies called “extenders.”

Ryssdal: Must make you crazy.

Koch: And so we contributed to a bunch of the congress people’s campaigns, and so we wrote a letter to every congress person, “Please vote this down. This is a whole series of subsidies to things like making moves in an area, just one boondoggle after the other.”

Koch: “Please vote against this.” After all the Republicans, close to 250, only 46 voted against it. OK, so this is an experiment, so we’re going to be looking harder at which Republicans we support, or Democrats, I’m happy to support d- We work with the white house on criminal justice reform.

Ryssdal: I know you did, and the president gave you a shout out in a speech a number of-

Ryssdal: … months ago.

Koch: And we work with Van Jones.

Koch: As Frederick Douglass says, “I will work with anybody to do good, and no one to do harm.” Now the question is, some of the people we’ve supported question whether they’re doing more good than harm, and so we’re gonna do much more thorough analysis and learn from this. I talked about experimental discovery-”

—-

In other words, the Koch’s gave lots of politicians money to vote down the extension of corporate welfare, but only a small percentage followed through…so they are re-evaluating who they should give money to in the future.

In the context of a world where you see all businesses trying to lobby to get things for themselves (and get more profits based on how they can influence government), I fail to see how you think this is bad.

The point was about this assertion:

Now the question is, what’s the balance between force, which our current welfare system is based on, and voluntary cooperation and competition?

How is the “welfare system” based on force? Force appears to be a word thrown around carelessly here.

There may be a point there about occupational licensing. I’ve seen sensible, reasonable people write about it. However, it needs to be repeated the issue is the number of good jobs in the economy. If people could become hairdressers with a government certification, that might save them a few bucks, it wouldn’t do much to reduce poverty or inequality.

Some of these guys take this to extremes and say that government should get out of occupational licensing altogether. That would include airline pilots and surgeons.

How is the “welfare system” based on force? Force appears to be a word thrown around carelessly here.

I had lunch with a person who lost her job in 2008-2009. She was commenting how she was trying to effectively start her own business, but for every dollar she earned, she lost a dollar of government benefit. She said that many days, she woke up and asked herself why the hell she was getting out of bed to hustle for a new client.

There is no spirit of cooperation there between the out of work person and the government, it’s entirely government enforcing rules that are poorly designed to get people back on their feet (there is the word “force” in “enforcing”).

If you follow the rules, you get the benefits. Those rules include not having a job.

As a small window into what kind of policies the Koch’s support: the Koch’s support the Tax Foundation, which has supported the Earned Income Tax Credit.

In the context of the current welfare system (not the EITC), re-read the Koch quote.

If people could become hairdressers with a government certification, that might save them a few bucks, it wouldn’t do much to reduce poverty or inequality.

A friend’s daughter got her certification (cosmetology). It wasn’t just money. it was also quite a bit of time.

Wages go up if businesses need to compete with one another for employees. It’s that simple. Supply and demand.

The Koch’s would like to take government welfare away from ingrained business interests, which lowers barriers for competitive businesses to be formed, and increases competition for employees–driving wages higher.

Example: In many states, non-compete provisions are legal in employment agreements. So, if you are an employee, you could be sued if you try to leave your job to start a competing business. This protects existing businesses to the detriment of labor and wages.

Such non-compete clauses are illegal in California.

That’s a pretty big deal. People leave jobs all the time to start businesses that might compete with their prior employer. In doing so it creates additional demand for employees in that same type of business–pushing wages higher.

Let’s continue with the hairdresser analogy (although not perfect, it serves as an example).

Let’s say you are a hairdresser, working in someone else’s shop. You get fed up with the amount of money the owner of the shop is taking off the top. But there is a non-compete clause. You’re screwed–find a new line of work, or grin and bear it.

If there is no non-compete clause, you can start your own business–assuming there aren’t massive barriers to do so. Now you are in direct competition with your former boss. You offer the best hairdressers you can find MORE than your former boss paid in order to take market share away from your competition.

Her old boss now has a choice…pay her employees more, or lose good employees.

If there are more barriers to starting that business (business license, certifications, red tape, enforceable non-compete clauses, etc.), fewer such businesses will be formed…to the detriment of labor.

The Koch’s would say that if you lower barriers to create new businesses, more businesses would be created, which increases competition for labor, which drives wages higher.

So, we need to take a fresh look at what things are protecting existing business interests, and creating barriers to business creation. Stopping corporate welfare is part of this.

Another quote from the Ryssdal interview:

“Koch: Well we would hope not, but that’s when you bring in a new innovation that threatens their business, that’s what they try to do. They try to get government to shut you down, and that’s one of the thing that’s, I think’s crippling the country and corrupting the business community. For example, because of these kind of initiatives, the US has slipped to 46th in the world in ease of starting a business. It used to be one of the easiest, and it’s because of this, of these innovations threatening people.

And also, I think is also an indication of that, is the median income in this country has dropped over the last eight years, and I’m not blaming any party. Both parties are guilty of this. Like I say, what I believe is that both parties are taking us down the road to serfdom, creating this two-tiered system and heading us toward a financial crisis but the Democrats are doing it at 100 miles an hour, and the Republicans are only doing it 70 miles an hour.”

A friend’s daughter got her certification (cosmetology). It wasn’t just money. it was also quite a bit of time.

Wages go up if businesses need to compete with one another for employees. It’s that simple. Supply and demand.

If there was no certification required for the job, there could be more people seeking the job, which would push wages down.

It appears that you’re mistaken about the Tax Foundation.

https://taxfoundation.org/?s=eitc

Also, you quote my statement about when businesses act collectively, then you go on to discuss the statements (not actions) of a single businessman and his family business.

From what I understand, Koch Industries is family-owned business. Its shares are not traded in the stock market, which makes it very unusual among big businesses. My explanation about the way that businesses work is really about the whole Wall Street corporate system. Wall Street demands more profits always. The individual CEOs either work towards that goal if they want to keep their jobs.

https://www.publicintegrity.org/2017/04/26/20843/big-tax-cuts-rich-less-poor

I had read this:

“The Tax Foundation has pushed for what critics charge are wealthy-friendly tax policies in other states. The group’s analysts encouraged lawmakers in Maine to consider a flat tax, told Minnesota legislators they should repeal the state’s estate tax, and urged lawmakers in Nebraska to lower its top state income tax rate. The foundation says it is nonpartisan, having supported retaining the Earned Income Tax Credit in North Carolina and opposing Kansas’ tax cuts, however, much of its funding comes from conservative foundations and think tanks.”

If there was no certification required for the job, there could be more people seeking the job, which would push wages down.

Yes, but the person who has been cutting hair in her living room and didn’t have time to take the cosmetology courses could get a job where perhaps before she could not.

Freedom of labor allows people to find new and creative ways to work for money (eliminating their need to ask the government for money).

Freedom to start more businesses allows people to create enterprises to compete for labor (thus driving wages higher).

There are two separate concepts at play here:

1. Freedom to work and having proper incentives for people to work and get “off the dole”. This has to do with certifications for jobs like hairstylist, bartender, etc.

2. Freedom to create business that competes with ingrained interests that increases competition for labor (and thus wages).

#1 is about reducing government dependency.
#2 is about increasing competition for labor.

Both are important.

BTW, we could take the point about certification in the other direction, and limit the number of people who can be certified in any given market. That would really drive wages higher, but leave a lot of folks without jobs. Perhaps we can have the government sell transferable “Hairstylist Medallions” in order to make a market for the ability to work as a hairstylist.

And then banks can lend money to people so they can buy their medallion, and earn interest off of the labor of the hairstylists.

The hairstylists can then charge more money, and fewer people will get haircuts (because they will wait longer between cuts), and the total revenue generated from all may be higher, but the total value proposition in the economy will be lower (because fewer people will look dapper). The profit margin on each haircut will be higher.

We’ve now created an oligopoly out of thin air in an effort to drive wages higher, which pushes too much profit for the service rendered, to the benefit of few, but at the expense of everyone who gets a haircut, and at the extreme detriment to those who didn’t have the money or credit to buy their haircutting medallion.

We should be doing the exact opposite.

Let everyone who wants try their hand at haircutting. The best will thrive, the worst will be out of business, but more people will look good at a lower overall cost, which will free up more money to be spent to get a manicure.

And perhaps those not good enough to survive as a hairstylist are really good at painting nails.

More people would be productive (as opposed to getting money from government), and the consumer will get higher quality for lower cost.

And I’ve forgotten, with our “hairstylist medallions”, we now have artificially placed too high a value on a service, perhaps encouraged people to be hairstylists when perhaps their highest and best value is to be something completely different.

In general I think licensing regulations can serve to insulate a group from competition. But that is only when the licensing regulations are overly restrictive. There is a happy middle. It can go too far in one direction, but the answer is not to abandon regs altogether.

The approach of “may the best business win” and all licensing regs go out the window is not optimal. When we were looking for a daycare, we definitely wanted to go with one that was licensed by the state as opposed to someone just doing it out of their house. Though not a guarantee of superior care, there are certain standards that licensed providers have to show (such as caregiver ratios, CPR training, baby-proofing, protocols for changing diapers, etc.) and training that licensed daycares have to go through. These strike me as useful for society. The trick is to balance their utility with the imposed additional cost. Not easy to do in practice.

I agree that it isn’t that cut and dried. The level of regulation should be proportional to the damage done if a poorly trained service provider screws up.

We shouldn’t let just anyone be an air traffic controller, because the risk of failure is catastrophic. Likewise for a surgeon.

If a particular tower gets known for allowing planes to crash, or a surgeon who often leaves sponges in their patients, they will be shut down due to lawsuits, and customers avoiding them–but we shouldn’t sacrifice life and limb (literally) for “free markets”.

What about a driver for hire? Other than a driver’s license, what certification should they need?

The examples given in the interview were:

Hairstylist, bartender and florist.

However, other than a few bad haircuts, poor flower arrangements, and poorly mixed drinks (and pissed off customers who vote with their wallet), there is almost no harm at all in letting anyone cut hair, or be a florist, or be a bartender. Accordingly, I don’t think there should be any certification required for these kinds of activities…none.

A part of this is whether the public sees value in such certifications. You were willing to pay more for a licensed daycare. Perhaps someone else couldn’t, and was OK leaving their kid with an unlicensed daycare that came recommended by a close friend.

Should the state be able to block the latter arrangement?

That is a more difficult question.

Our sitter is not licensed by the state, but has CPR certification–her main qualifications were that she came highly recommended and raised a number of children on her own. That was enough for us.

Our sitter is not licensed by the state, but has CPR certification–her main qualifications were that she came highly recommended and raised a number of children on her own. That was enough for us.

That seems to be fine in my eyes, maybe an optimal scenario. I don’t think the state should be able to block such arrangements, but I think they should have a cutoff somewhere between someone managing an extra kid or two and someone running a stealth daycare business unlicensed. The onsite daycare run by our hospital is incredible, and incredibly expensive too (which is why we don’t use it). It’s content based and the sheer the amount of creative play, stimulation, reading, and interactive learning that takes place there would rival the best home based caregiver. Of course the curriculum designers have masters degrees in early childhood development, so there’s that. Most daycare centers are staffed by very low paid workers with minimal education. This is not optimal.

Childcare is outrageously expensive (I’m a fan of Ivanka’s childcare plan, if it ever gets implemented), so I get why people would turn to private arrangements like yours.

In addition to the amount of harm that could befell someone, I think another thing to consider in balancing licensing regs is what an average consumer could reasonable know about the transaction they are engaging in.

The question was why isn’t their currency worthless.

“It started a long time before Obama.”

+1 Liberalized credit got the nod from Ronald “Mommy?!” Reagan.

‘if the owner was planning to sell at any time over the coming year or two, that $100 per month is worth about $20k ($95 (take off 5% for property management) times 12, divided by, say a 6% cap… $19,000).’

This is the fairy dust that’s driving all this. These properties aren’t valued by comps, but rather this NOI mumbo-jumbo. Get the rents up anyway possible (bocce ball anyone?), even if it isn’t sustainable, and you believe it’s worth more. And everybody is planning to sell or refinance (or both).

“NOI mumbo jumbo”

Comps for apartment sales are typically quoted as cap rates. How to convert a cap rate to a value is entirely NOI.

If you aren’t going to value an apartment project based on the income it generates, how exactly do you value it? Comps? Really? How do you quantify the subjective difference between the comps and your property? Guess?

Income is the equalizer. It’s that simple.

Yes, people also look at the the price per unit as a “sanity” check, but what investors in apartments look for is how much money they earn every month based on the income the property generates. Thus the moniker…”income property”.

Experienced landlords expect tenants to leave. If some tenants aren’t leaving, then they aren’t pushing rents hard enough.

Here is a quote from Hamid Moghadam (CEO of ProLogis):

“we track the reasons why we don’t retain a customer; they wanted too much space; we didn’t have space to accommodate them; they wanted to shrink; they went out of business; so like four or five standard reasons why customers don’t renew. One of them you would think would be because they found space cheaper down the street from somebody else. We could not find one example of that in that quarter. That tells me when we’re pushing rents hard enough….if we’re retaining all the customers that can be retained, that means we’re not testing the edges of rent growth.”

Yes, he is specifically talking about their customers (large logistics businesses), but the same thing is true for all income property.

‘If you aren’t going to value an apartment project based on the income it generates, how exactly do you value it?’

Oh, we’ll value it that way alright. Nobody expects there to be “too many players on the field”. A 40 year high in construction. Rents at an all time high and everyone and their aunt is expecting more every year, and paying for it. It’s the golden goose, the “holy grail” of investments as one guy said. But this fairy dust works both ways. Do you suppose these downtown Denver guys expected 12% vacancy? Pricey dirt that is. That isn’t counting concessions.

The problem is, it’s no secret. I go to their seminars. Not one, not one mention is ever made of any of these trends working backward on them. They are told over and over, you can retire in 2 or 3 years. Cash out refi your money, get a non-recourse loan and do it all again in 2 or 3 years. It’s too good to not be true.

So you’ve been to these pimp shows? In your estimation based on your observations, are there crimes being committed?

Of course…overbuilding drives rents lower, thus decreasing the value of the properties.

The value is still based on the NOI that the property can generate.

How does that work exactly? Over the years I’ve taken some losses, but I never threw a dollar away to save two bits on my taxes.

How does that work exactly?

It doesn’t. People don’t own commercial properties for the write offs. They own them to collect cash flow that is largely sheltered by depreciation.

That’s what real estate bubbles do, they destroy businesses and the economy, and create mass unemployment. Take little old Truckee, CA circa 2005 for instance. The majority of long time bars and restaurants disappeared, replaced my Realty offices and Mortgage brokerages. What used to be a charming main street to dine and walk around in the evening turned into a ghost town after dark, and once the bust commenced the main drag was looking deserted. The town, from what I remember, got pissed which led to bureaucrats banning real estate and associated businesses on the main drag, and some of the old restaurants returned. Not sure what’s going on these days.

“…several other favorites of mine (in Seattle and the eastside) had all closed in just the last 6-18 months, every time due to being priced out of business.”

Same thing has happened recently in La Jolla. This, plus recent traffic that is reminiscent of when Tiger Woods last competed at Torrey Pines golf course, leads me to believe that we are approaching some kind of cyclical break point.

That phenomenon must be limited to a few communities. Total employment in the sector is a lot higher than it was a few years ago. Interestingly, it’s come down just bit in the past couple of months.

https://fred.stlouisfed.org/series/CES7072200001

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DebtDonkey

Swansea, MA Housing Prices Crater 8% YOY

https://www.movoto.com/swansea-ma/market-trends/

DebtDonkey

Silverton, OR Housing Prices Crater 17% YOY

https://www.movoto.com/silverton-or/market-trends/