Housing is hosed. I hate to be the bearer of bad news, but that light at the end of the tunnel is an onrushing train called falling household formation. It’s caused by three factors: Less immigration due to the post-2006 crackdown. Less immigration due to the severe recession and high unemployment 20-somethings who can’t get jobs are living with their parents. The problem is not that we built too many houses and need to work off the excess. Yes, we did, but we worked off that excess long ago. No the current problem is crashing demand for homes due to an unprecedented plunge in household formation. Call it a demographic depression. And the root cause? I know I’m going to sound like a broken record, but the biggest cause in low NGDP (although obviously other factors are also at work here–including immigration crackdown, minimum wage increase, extended unemployment insurance, etc.) NDGP (nominal GDP) adjusts GDP for changes in market...

"With this [US budget votes] and the euro crisis, in the next few weeks (days?) “the world” is going to have to step up to the plate in a big, big way. Stay tuned. If you’re not afraid, you haven’t been paying attention." Update: Be rich. Try ever harder not to be poor. Get yourself into a higher income bracket, a more secure job, a better career path. Life for the bottom half is going to get worse. Looking hard at US consumer behavior and the depth of the underwater US housing market make strong economic growth seem like a pipe dream. Personal austerity, like government austerity, can't be avoided at this point. Yet austerity means less economic growth (e.g the anemic US economic recovery) or even contraction. Look at Greece as an example: In Greece the already shrunken economy is going to contract another 3.75% in 2011 and it is going deeper into debt even as austerity measures...

I use electric fences for cross fencing my pastures, creating the paddocks needed for managed grazing. It's common. It's just a single strand of polyester twine with a few stainless steel threads in it. Any animal can walk through it any time they want if they are willing to take a very brief 7,000 volt jolt with so little current that it leaves no mark, even on fragile human skin. It's a psychological barrier rather than a physical barrier. It doesn't take long before the animals will not cross such a line even when it isn't "hot". They can be controlled by a cold wire. Something like that apparently happens to bankers too. “burn your tongue once on hot milk and you will start blowing on yogurt.”...

Austrians vs. Keynesians Austrians say the economy cannot recover until the malinvested capital is transferred to other uses, liquidated, or abandoned altogether. Keynesians, on the other hand, claim that if government can spend enough money, the same capital that Austrians say is malinvested will be returned to full employment. In other words, Keynesians hold that capital (as well as other factors of production) is homogeneous. An economy is like a cake mixture: Stir in water (money) and an economy appears. The only important ingredient is spending, and lots of it. Austrians in contrast believe that an economy consists of heterogeneous assets that are directed by consumer choices. Thus attempts by government to drive this process only result in resources being directed to unsustainable purposes. Furthermore, Austrians hold that the current situation is not in a special case; instead, the government is justifying its actions using bad theory. Governments neither can fool Mother Nature nor violate the laws of economics....

What if we got a mob together and forcibly confiscated the wealth of America's billionaires, as is recommended by some tards? The grand total of the combined net worth of every single one of America’s billionaires is roughly $1.3 trillion. It does indeed sound like a “ton of cash” until one considers that the 2011 deficit alone is $1.6 trillion. So, if the government were to simply confiscate the entire net worth of all of America’s billionaires, we’d still be $300 billion short of making up this year’s deficit. I guess we'd have to go after foreign billionaires to make up the shortfall, and next year would be tough. That’s before we even get to dealing with the long-term debt of $14 trillion, which if you’re keeping score at home, is between 10 to 14 times the entire net worth of all of the country’s billionaires, combined. That's the feds, what about the states? Between 2002 and 2007 ......

More about stagnation. Kiwi vodka company 42 Below started out when a guy named Geoff built a still at his house and started distilling his own vodka. He started inviting friends around, then started selling to friends who owned bars. That turning out well, he decided to go pro: quit the day job and focus on vodka. About eight years after starting up his home brew still, he's bought out by Bacardi. Awesome success story. Kiwi vodka company 42 Below started out when a guy named Geoff built a still at his house and started distilling his own vodka. He started inviting friends around, then started selling to friends who owned bars. That turning out well, he decided to go pro: quit the day job and focus on vodka. About eight years after starting up his home brew still, he's bought out by Bacardi. Awesome success story. Now consider how things would have turned out had he started in...

The western retreat from overwheening government, except in the US, discussed a bit in Hell Freezes, has heightened contrast due to the economic melt down. Countries such as Sweden that tamed their profligacy earlier have suffered less and recovered quickly. The UK has responded by a large reduction in government while the US has responded with a huge increase. We might learn something from the experiments. The new coalition government in England is embarking on an ambitious austerity program. One goal is to eliminate 490,000 jobs in the public sector; a related goal is to slash government expenditures by 19 percent over the next four years. Administrative budgets—overhead—of government agencies are to be slashed by 34 percent. (The U.S. population is five times as great as the U.K.’s—so imagine our eliminating 2,450,000 public sector jobs!) By a combination of tax increases and spending cuts, the U.K. government hopes to eliminate the annual national budget deficit, currently more than 11...

Continuing the discussion began in Swedish Models with a meditation on scandinavian modern furniture. I’m not a big fan of attempts to mix ethics and aesthetics, but when it comes to politics and economics, I definitely think less is more. I was reminded of this when frequent commenter Malavel sent me a new Swedish regulation requiring at least 15% down-payments on all mortgages. That’s it, no bells and whistles, just 15%. Check out the simplicity of this press release. Sweden also has an income tax that is much simpler than ours (yes, I know that’s faint praise), where many (most?) taxpayers simply receive a bill in the mail. Their vouchers for education don’t require you to live in Milwaukee, or enter a lottery. Everyone in the country is eligible, and their kids are free to go to any approved school; public, not-for-profit, or for-profit. In America, the left told us that the banking fiasco was caused by ”de-regulation,” which...

I usually ignore economic and social discussions involving boutique sized European nations and so hadn't been following an interesting governance experiment that was afoot in the frozen north. When elected four years ago, leading a four-party coalition, [conservative prime minister Fredrik] Reinfeldt had a striking slogan. 'We are the new workers' party,' he said, meaning he would cut taxes for those in employment, but not for those on benefits. When faced with protests about how the poorest would be paying a higher marginal tax rate, he appealed to voters' innate sense of fairness - and resentment at the high level of welfare dependency. At every stage, his ministers would explain the basics of low-tax economics. Cut tax on wages, and you increase the incentive to work. 'This will increase employment,' Reinfeldt said. 'Permanently.' . . . Taxes for the rich also came down. Reinfeldt abolished the notorious wealth tax, which took 1.5 per cent a year from any Swede...

Tyler says read it and weep. the definitive work on how housing policy affected mortgage lending. Pinto has access to good data. He has the institutional knowledge. He doesn't have an address at Harvard, Princeton, or Chicago, but I find facts more convincing than credentials. There will be more conversation about this work, but there is an interesting idea that has emerged in comments so far: it is government that caused the mortgage crisis by forcing banks to give credit to unqualified borrowers, and many of them turned out to be deadbeats. This fact is evaded and obscured by partisan bickering which seeks to assign blame to one party or another when it is government - under one regime or another - that is the culprit. The issue is less that the Democrats are more guilty than the Republicans, or the reverse, it is that government under either party has become too powerful and meddlesome for the good of...

Why do things stink so much? Congress and President Obama since his election in 2008 made the main mistakes after the crisis hit. Instead of concentrating mainly on fighting the recession and promoting faster economic growth, the Congress elected in 2008 believed they had a mandate to radically remake the American economy. Aside from repeated attacks on American business, especially banks-some of them deserved- they not only passed various stimulus packages (that did not stimulate much), but also tried to promote a vast legislative program that had nothing to do with fighting the recession. This program was aimed at reengineering the American economy. It included radical changes in the health care system, proposed taxes on carbon emissions by companies, much larger subsidies to alternative sources of energy, such as wind power, proposals to raise taxes on higher income individuals and on corporate profits, and to raise the taxes on capital gains and corporate dividends. It also includes a movement...

As Greece implodes crackpot theories come out to stroll about. It is a standard conservative argument that taxes on companies end up being taxes on everyone, since they will be passed on to consumers in the form of higher prices. But of course, it works the other way round; cuts in benefits for the poor, on in public sector payrolls, lead to lower demand for the goods and services that companies produce. OK, it's obvious, that taxing companies is a back door way to raise taxes on consumers. It might be a semi-sensible way to tax society in that the dead weight cost of taxation - the effort to calculate, pay, collect, regulate and administer the tax - is less when there are fewer entities being taxed. There's less wasted effort, less harm to society. But the argument that cuts in benefits for bureaucrats lowers demand for the products those taxed companies sell is less obvious. Won't those bureaucrats...