Month: April 2005

Do we live in a housing bubble?

Housing can be lived in, most buyers have only one home, transaction costs are relatively high, and rarely are homes sold and resold in a matter of days.  All those features militate against a housing bubble.  Yet it is scary to see how high prices have risen in the Washington D.C. area.  Prices in my overall region are up 73 percent in the last four years, can houses be worth so much more?  Plus rent-buy ratios have reached apparently unsustainble levels, inconsistent with traditional assumptions about discount rates.

Let’s say you think there is no bubble, what are your options?

1. It has quickly become much better to live in good areas.  I can go to Wegman’s now.  Prices reflect this fact.

2. Traffic is getting much worse, and very rapidly.  People are paying more to be close to the action.  The price movement is lasting, though it does not reflect a true increase in real value, all things considered.

3. When you are trying to decide how much a house in worth, you also care how much other people think the house is worth.  Yet the entire slope of the demand curve is hard to observe.  The real estate market goes through a groping process.  Only as prices and quantities move does everyone realize what the market demand curve looks like.  Suddenly, over the last four years, many people have realized that many other people are willing to pay lots for a quality home.  Price has moved upward rapidly accordingly, but this need not be a bubble.

4. The higher housing price indices are a trick.  In reality some homes are worth a lot more and others are worth a lot less.  But prices move quickly in the upwards direction; in the downwards direction, housing quantity first adjusts and stays slow for a long time.  That is, if you can’t sell your family hearth in Kansas for a decent price, you simply wait for now.  So overall indices appear high but much of this move is a sectoral shift within the housing market from low quality to high.

I put the least stock in #1 and the most stock in #3 and then #4. 

I am not yet convinced there is a housing bubble.  But since I bought close to the peak — had to buy close to the peak — perhaps I am deluding myself.

Addendum: Here is my earlier post on the topic.  Here is Alex.  Here is Brad DeLong.  Here is some Austrian economics.

Big news in the theory of aging

An important new paper, Accelerated telomere shortening in response to life stress, provides some dramatic evidence consistent with the telomere theory of aging.

Here is the abstract:

Numerous studies demonstrate links between chronic stress and
indices of poor health, including risk factors for cardiovascular
disease and poorer immune function. Nevertheless, the exact
mechanisms of how stress gets ”under the skin” remain elusive.
We investigated the hypothesis that stress impacts health by
modulating the rate of cellular aging. Here we provide evidence
that psychological stress–both perceived stress and chronicity of
stress–is significantly associated with higher oxidative stress,
lower telomerase activity, and shorter telomere length, which are
known determinants of cell senescence and longevity, in peripheral
blood mononuclear cells from healthy premenopausal women.
Women with the highest levels of perceived stress have telomeres
shorter on average by the equivalent of at least one decade of
additional aging compared to low stress women. These findings
have implications for understanding how, at the cellular level,
stress may promote earlier onset of age-related diseases.

Oxyrhynchus Papyri

For more than a century, it has caused excitement and frustration in equal
measure – a collection of Greek and Roman writings so vast it could redraw the
map of classical civilisation. If only it was legible.

Now, in a breakthrough described as the classical equivalent of finding the
holy grail, Oxford University scientists have employed infra-red technology to
open up the hoard, known as the Oxyrhynchus Papyri, and with it the prospect
that hundreds of lost Greek comedies, tragedies and epic poems will soon be

In the past four days alone, Oxford’s classicists have used it to make a
series of astonishing discoveries, including writing by Sophocles, Euripides,
Hesiod and other literary giants of the ancient world, lost for millennia. They
even believe they are likely to find lost Christian gospels, the originals of
which were written around the time of the earliest books of the New

More here.  Hat tip to The Light of Reason.

See no evil

Jonathan Landay of Knight-Ridder describes the administration’s new method of fighting terrorism.

The State Department decided to stop publishing an annual report on
international terrorism after the government’s top terrorism center concluded
that there were more terrorist attacks in 2004 than in any year since 1985, the
first year the publication covered.

Several U.S. officials defended the decision, saying the
methodology used by the National Counterterrorism Center to generate
statistics had flaws, such as the inclusion of incidents that may not
have been terrorism.

But other current and former officials charged that Secretary of State
Condoleezza Rice’s office ordered "Patterns of Global Terrorism" eliminated
several weeks ago because the 2004 statistics raised disturbing questions about
the Bush’s administration’s frequent claims of progress in the war against

In other news, President Bush announced that the OMB would no longer be issuing an annual budget.  Several US officials defended the decision saying the methodology the OMB used to calculate deficits was flawed. 

Is Shaq the greatest?

Shaq A few points:

1. Bill Russell would not make first or second team All-NBA today.

2. MJ took over five years to become a truly great player.  For a long time he didn’t have much of a jumper.  The Shaq was NBA Player of the Week his first week in the league.

3. This last year an old, beat-up Shaq left the Lakers for Miami.  The Lakers are now pathetic but the betting market favors Miami to win an NBA title.

4. The first time MJ left Chicago, the remaining Bulls still made the Eastern Finals and were one referee call away from winning them.

5. Phil Jackson should get the credit for much of MJ’s supposed locker room presence in motivating players.  It didn’t do the Washington Wizards any good.

6. We underrate big players simply because they appear (and often are) less skilled or less graceful.  It is an open question in my mind whether MJ or Kareem (also six rings) is #2 on the list.

7. The wise Matthew Ginivan notes: "You put Shaq on any team, in any game, in any era, against any defender and he DOMINATES."

8. Who was it that said: "I am of the opinion that Shaquille should be the MVP every year."

Here is an excellent book with statistical arguments that Shaq is the greatest NBA player of all time.  Here is an analysis of Shaq vs. MJ.  And if you want an exercise for your students, ask them why the designation "Greatest Player of All Time" — a multi-dimensional concept — avoids the Arrow Impossibility Theorem.

Let the Dog(s) Out

Operation Falcon, a dragnet put together by the U.S. Marshals and local police agencies, netted 10,000 fugitives last week.  Cool.  But note that that there are millions of unserved arrest warrants.  The Washington Post was one of the few newspapers to get the story right:

Criminal-justice experts said that by apprehending
thousands of fugitives in a matter of days, the operation underscored
the low priority that law enforcement agencies often give to locating
people who have jumped bail, violated parole or otherwise evaded state
and federal courts.

"The dirty little secret is that there usually is not
enough effort and manpower put into apprehension of fugitives," said
David A. Harris, a law professor at the University of Toledo who
studies criminal-justice issues. "Most fugitives are aware of this, and
it makes the system a joke. . . . It’s never been a top priority."

I would add only that the commercial bail system, backed by bounty hunters, does a much better job than the public system in ensuring court appearances and capturing fugitives.  The long arm of the law belongs to the bounty hunter.   

The Right speaks sense on global warming

The scientific debate over global warming is not so much over whether anthropogenic emissions will affect the climate. Rather it is over the nature and magnitude of the likely effects. Even the most ardent global warming skeptics within the scientific community believe that the increased accumulation of greenhouse gases in the atmosphere will have some effect. The policy question, then, is what (if any) measures are justified to prevent or mitigate such effects.

Most on the "right" argue that the best response is to do little or nothing. Whlie some advocate various "no regrets" policies to improve the efficiency of energy markets (and perhaps pave the way for alternative fuels) — as I did here — few conservatives, libertarians, or other free-market advocates believe the most reliable climate forecasts justify drastic measures to suppress the use of carbon-based fuels. The costs of such measures, many argue, are likely to swamp the costs of climate change, and more direct measures to address global ills that could be exacerbated by climate change (disease, flooding, weather extremes, etc.) would be far more cost-effective than reducing greenhouse gas emissions.

As an analytical matter, these assessments are probably correct — it is hard to justify one Kyoto on ecoomic grounds, let alone the dozen or so that would be necessary to stabilize greenhouse gas concentrations in the atmosphere — but that does not mean the proper "free market" climate policy is to "do nothing."

If property rights lie at the heart of free market environmentalism, than FME advocates should think seriously about the normative implications of human-enhanced climate changes that could disproportionately harm those portions of the world that have (at least thus far) contributed least to the problem. Even if a modest warming were, on balance, beneficial, the impacts would not be uniform. It may well be, as some argue, that increases in crop productivity and reduced energy costs in temperate regions will be greater than the costs to tropical regions, but this does not address the property rights concern absent some system whereby industrialized nations would compensate or indemnify less-developed nations. No such system exists — nor is it likely that existing international institutions could implement such a system — but that does not mean it would not be the first-best approach to climate change from an FME perspective.

I posed this issue to several of my FME colleagues. PERC Reports published the resulting dialogue here. I welcome additional comments below.

That is from Jonathan Adler, here is the link.

Yes, dogs can communicate with you

…a raft of experiments by Mr. Csányi’s team and another led by Michael Tomasello of the Max Planck Institute for Evolutionary Anthropology, in Leipzig, Germany, showed that dogs were far more skilled then either chimps or wolves at using human social cues to find food. Those results left researchers with this question: If dogs can pick up on human cues, do they turn the tables and put out cues for humans to understand?

To find out, Mr. Csányi and Réka Polgárdi, a graduate student, went to the homes of Budapest’s many dog owners. After introducing the researchers to the dogs, the owners would leave the room. Then the dogs would watch Mr. Csányi hide a piece of food somewhere inaccessible to them. When the owners returned, the dogs would run or glance back and forth from master to hiding place, clearly signaling its location. More-recent experiments substituted nonfood objects and had similar results, which suggests the dogs may be placing themselves in their owner’s shoes, and realizing that the humans are ignorant of the object’s location.

The Hungarian researchers also discovered that dogs excel at imitating humans. In one of the laboratories down the hall from Mr. Csányi’s office, Zsófia Virányi, a post-doctoral researcher, demonstrates with Tódor, an enthusiastic little mutt that she hand-raised to serve as a member of a control group for another experiment. Tódor sits attentively as Ms. Virányi spins around in a circle and comes to a stop. "Csinal!" or "you do it!" she says, at which Tódor does a little 360 on the tiled floor and lets out an enthusiastic bark. He easily imitates Ms. Virányi’s bowing and lifting an arm (or paw, in his case).

Here is the full story, which contains much, much more.

No surprise

In February I wrote,  "My prediction is that it will be easier to add $540 billion in Medicare spending than it will be to cut $5 billion in farm subsidies."

Today, the Washington Post reports:

Farm Subsidies May Not Face Limits…The Bush administration has signaled that it will not pressure Congress to enact limits on government payments to big farmers this year…The subsidy cuts and other proposed changes in the farm program were hailed by budget cutters, environmentalists and foreign governments when they were included in the administration’s budget proposals in February. They have run into heavy resistance in some parts of the Farm Belt. Southern cotton and rice growers in the GOP’s political base would be hit particularly hard.

And how is this for a laugh?

Reducing agricultural spending by $5.4 billion is [was? AT] a key part of the administration’s plan to cut the federal defict in half.  So far, however, the the Senate Budget Committee has agree to cuts amounting to just $2.8 billion.

The Federal deficit is currently over 400 billion.

Amish futurists

The title of the post is not an oxymoron.  The Amish have been enthusiastic adopters of genetically modified crops.  Ironically, the higher productivity of the crop substitutes for the fact that the Amish harvest it by hand.  Less ironically the GM crops use fewer pesticides and herbicides.

Amish scholars say genetically enhanced
crops are not inconsistent with the simple life that is central to Amish
beliefs because it helps them continue their ties
to agriculture, allowing families to
work together.

Hat tip to Stewart Brand’s recent essay Environmental Heresies which also contains this insight on a question that has long bothered me.

Why was water fluoridization rejected by the political right and
“frankenfood” by the political left? The answer, I suspect, is that
fluoridization came from government and genetically modified (GM) crops
from corporations. If the origins had been reversed–as they could have
been–the positions would be reversed, too.

Pets vs. men — pets win

Pampered pets are becoming women’s priority vs. their partners, according to a study of 901 pet owners by BizRate Research for Shopzilla, the leading shopping search site on the Web, which has seen an increase in luxury pet product searches.

It’s no wonder that women are spoiling their pets. More than half of women (56%) feel that their pets are more affectionate than their partners (vs. 41% of men), and 45% of women think their pets are cuter than their partners (vs. 24% of men).

In the study, women said they had a deeper emotional connection with their pets than men did. Nearly all women respondents (99%) reported that they frequently talked to their pets (vs. 95% of men) and an astonishing 93% of women think that their pets communicate with them (vs. 87% of men) [TC:no more email on this last part, I am simply quoting somebody else here!].

Here is the story, and thanks to Andrew Roth for the pointer.

But will they name a NJ Turnpike rest stop after him?

Bruce Willis has been awarded France’s highest cultural honor. Mr. Willis, 50, was formally inducted yesterday into the French Order of Arts and Letters. The French culture minister, Renaud Donnedieu de Vabres, said the award paid tribute to an actor whose work "epitomizes the strength of American cinema, the power of the emotions that he invites us to share on the world’s screens, and the sturdy personalities of his legendary characters." Mr. Willis, 50, who was in France to promote his latest movie, "Hostage," said that the honor "proves that film has no borders and that we all belong to the same artistic community." Mr. Donnedieu de Vabres said that the actor’s roles could not be reduced to a simple struggle between good and evil, yet he added, "You really have killed a lot of bad guys."

Here is the link.  Here are some poets with rest stops named after them. 

Why aren’t wages rising more?

Matt Yglesias asks.  Brad DeLong answers:

Well, there are three hypotheses:

  1. Improvements in firms’ ability to squash unions, and thus shift wage bargains toward employers (the Wal-Mart hypothesis).
  2. A slack labor market–much more labor-market slack than the level of the unemployment rate would lead one to expect–in which firms find it easy to hire workers and workers find it hazardous to ask for higher wages.
  3. Changes in the international economy that boost the wages of the skilled and educated (whose products can be sold abroad for more) and put downward presure on the wages of the less-skilled and less-educated (who now face much stronger competition from abroad).

I’ll add a fourth:

4. Information technology has become a substitute for many low-wage workers, including those who shuffled papers or performed rote calculations.  Note that the gains from the new technologies are often reaped by equity holders.  Read more here.

Quite separately, on the consumer side, the Internet has resulted in significant welfare benefits, most of which are not reflected in measured real wages.  Admittedly the distribution of these gains is skewed away from the poor.  Many years ago Alex and I wrote a paper called "Who Benefits from Progress?"  In the early years of progress, most of the benefits are reaped by the relatively wealthy.  It is only over time that new innovations become used by, or affordable to, poorer segments of society.