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Article Artículo

Robert Samuelson, Alan Greenspan and the Bubble Economy

There are two major schools in economics, those who know accounting identities and those who don't. Alan Greenspan and Robert Samuelson are both members of the latter group, as Samuelson proudly proclaims in his column.

Samuelson wants to give the blame for the economy's collapse on the complacency that followed a quarter century of relatively stable growth with low inflation. He tells readers:

"But there was an unrecognized downside: With a less-risky economy, people — homeowners, bankers, investment managers — concluded they could do things once considered more risky. Consumers could borrow more because economic stability enhanced their ability to repay. “Subprime” home mortgages granted to weaker borrowers became safer because housing prices would constantly rise. Banks and investment banks could assume more debt because financial markets were calmer. Hence, the Greenspan Paradox: The belief in less risk created more risk."

Of course this is not quite right. Those of us who believe in accounting identities did recognize the downside. We saw a huge trade deficit which was draining hundreds of billions of demand from the U.S. economy. The demand drain from the trade deficit (which was the direct result of the mismanagement of the East Asian financial crisis by Greenspan, Summers and Rubin) was being offset by the demand created by the housing bubble.

The bubble was easy to recognize for anyone looking at the economy with open eyes. House prices had sharply diverged from a 100-year long trend in which they had just tracked the overall rate of inflation. It was clear this run-up had no basis in the fundamentals of the market. Income growth was weak and population growth had slowed. Furthermore, rents were still just keeping pace with inflation. And, the extraordinary levels of construction had created record vacancy rates as early as 2003.

There seemed little doubt that prices would collapse and bring an end to the building and consumption boom that were driving the economy at the time. The only question was when. The proliferation of fraudulent mortgages allowed the bubble to grow much larger and more dangerous over the years 2002-2007. Apparently Greenspan missed this tidal wave of bad mortgages because he wasn't paying attention to the housing market. Or at least that's what he wants us to believe now.

Anyhow, there are no mysteries in this story for people who understood accounting identities, except perhaps that people still take Alan Greenspan's views on the economy seriously.

By the way, since Samuelson does a little bit of "what they said then and what they say now" in reference to Greenspan, I'll give my two cents. Here's what I wrote on the eve of the Federal
Reserve Board's Greenspan retrospective in the summer of 2005:

Dean Baker / October 28, 2013

Article Artículo

Workers

Addressing Chronic Black Male Unemployment

In early October, the Center for Law and Social Policy (CLASP) released a report entitled “Feel the Heat!” that details the economic status of black men in the United States.  Author Linda Harris discusses this group’s high unemployment rates, which she attributes to high incarceration rates, low graduation rates, and a lack of support systems to help black men out of this low-income trap.

Black men have significantly lower employment rates than other demographic groups, but this wasn't always the case.  In 1969, the employment rates for men between the ages of 20 and 24 were about 77 percent for blacks and 79 percent for whites.  By 2012, the employment rate for young black men dropped to less than 50 percent, while young white men were about 18 percentage points higher at almost 68 percent. 

cepr-blog-g1-10-23-2013

Source: Feel the Heat!

CEPR and Teresa Kroeger / October 23, 2013

Article Artículo

IOM Reports Big Drop in IDP Population after Removing 3 Areas from “Official” Camp List

The AP reported yesterday that, “the number of Haitians still displaced by the 2010 earthquake has dropped below 200,000… That marks an 89 percent decline since the camp population peaked in July 2010 at 1.5 million people.” According to official figures, the camp population currently stands at 171,974, compared to over 278,000 in June of 2013 at the time of the last report. The drop is the largest over a single reporting period in nearly three years.

Yet, looking closer, over 50 percent of this reduction since June is the result of a decision by the International Organization for Migration (IOM), the entity which monitors the camp population, to remove three areas, Canaan, Jerusalem and Onaville from the official camp list. Together, these three areas are home to an estimated 54,045 individuals. The IOM report states:

On July 11th 2013, the Government of Haiti represented by UCLBP (Unité de Construction de Logements et Bâtiments Publics), submitted a formal request to IOM to remove the three settlements from the DTM (i.e. from the list of IDP sites that exist in the country).

The UCLBP request is motivated by the observation that the characteristics of these settlements are those of “… new neighborhoods needing urban planning with a long term view …”, not of IDP sites.

But the situation facing those who reside in the three areas is far from secure. This week Amnesty International reported that:

Residents of the Lanmè Frape area of Canaan, an informal settlement in the municipality of Cabaret, on the northern outskirts of the capital, Port-au-Prince, have had their simple dwellings repeatedly destroyed by police officers accompanied by armed men. The residents told Amnesty International that they have been the victims of attacks on more than 10 occasions over the last 18 months and several of them have also been arrested on unfounded charges for periods of up to a month. Two hundred families currently remain in the Lanmè Frape area, although as many as 600 lived there before the forced evictions began.

Amnesty continues, describing how the area came to be occupied:

The Lanmè Frape area of Canaan is part of a large tract of land which the then government declared for “public use” (utilité publique) two months after the earthquake in March 2010. Tens of thousands of people who lost their homes in the earthquake have subsequently relocated there, but many face eviction from people claiming ownership of the land.

Beyond the previously “official” camp communities of Canaan, Jerusalem and Onaville, it is believed that tens of thousands more families have moved to the surrounding area since the earthquake. Over the last year, the UCLBP has lobbied the international community for funding to make investments in urban planning for the area. According to minutes from the February 2013 Haiti Reconstruction Fund (HRF) meeting (PDF), the head of the UCLBP, Odnell David, made a presentation requesting $15 million as part of a $50 million project to address the situation in Canaan-Jerusalem. The government “has a moral obligation to take care of these people and undertake investment,” David said. Yet, although donor countries all supported the use of HRF funds for investments in the Canaan area, when funding decisions were made this September, no resources were allocated for the project.

There were also other motives for addressing the displacement crisis in Canaan. According to the official minutes, the David explained that, “this area poses a threat to neighboring industrial and touristic development.” Two weeks later, at the next HRF meeting (PDF), he described how this “project is the starting point for the larger project of developing the entire northern area of the city of Port-au-Prince.”

Jake Johnston / October 22, 2013