Current Commentary

UMD spends $1,000,000 to replace
'Fear the Turtle' slogan

Apparently they are $38,000,000 short on funds and need to cut 175 jobs and freeze hiring:
University system cuts 175 jobs, freezes hiring 

But they have a million dollars lying around to "invest" to come up with a "fresh image" to replace the "Fear the Turtle" slogan:
University considers dropping slogan

I don't think I even need to add commentary or analysis on this one.  It reminds me of the $500,000 that Baltimore City spent to develop their "Get in on it" slogan to attract tourism just a year ago.

Tuesday, July 28, 2009

Home prices up 0.5% month over month:
what a trillion dollars gets you

Headline:
US home prices rose 0.5% in May, the first time there has been a rise since July 2006.

The Real Story:
This is a financial engineering sleight of hand, and it is not a sign of a housing bottom unless the central planners commit to printing even more money.

The increase came on the heels of the lowest mortgage interest rates EVER, rates that were created by approximately a trillion dollars of debt monetization (printed money). Home prices act much like bond prices; in other words, as interest rates fall, prices rise, and vice versa. This is because people buy homes based on montlhy payment, and a lower interest rate makes for a lower payment (see my June 8 post). The problem, if you are hoping for a housing bottom, is that the only way to avoid a further slump is by holding rates down, and the only way to accomplish that is by printing money/devaluing our currency. (God only knows why you would hope for a housing bottom. Since when was spending a high portion of your income to keep a roof over your head desirable?)

The finger pointing has already begun. Just last week during testimony before Congress, the head of the printing press -- whom lawmakers believe will be able to print money without inflation -- took the first step in shedding the blame for the inflationary pain that is coming, blaming Congress/fiscal irresponsibility. The Fed will blame Congress, and Congress will blame the Fed. In the end, it will be nobody's fault but our own, as we were too self absorbed and blinded by pop culture to stand up and fight.

Monday, July 20, 2009

Artscape, an empty bookstore, and central planning

First a disclaimer: I believe in the value of art and music and support the public funding of it. I do not, however, support public funding of private businesses because that leads to what I saw Saturday night after Artscape. 

Baltimore City has decided to designate the Station North neighborhood (North Ave. around Maryland and Howard) as an arts district. To achieve this, Baltimore has decided to subsidize the already low rents of businesses that these central planners feel will contribute to the artistic nature of the neighborhood, businesses such as a bookstore. One bookstore in particular at the corner of Maryland and North Ave. looks like something you might see in a communist country. (I spent 3 days in a communist country last summer so can speak with first-hand experience about what businesses in a communist country look like). To give you an idea of the size of the bookstore, it is a former Rite Aid; this place is big, at least 5000-6000 square feet. Half of it is completely empty. The half that is occupied is grossly underutilized, only having shelving at the perimeter. The entire middle area is empty. It looked as if the bookstore had just moved in, but the store had been there for two to three months. The store's used books were overpriced and disorganized. Although the store occupied a busy intersection, the signage was barely visible. This place was grossly mismanaged, unlike anything you would expect to survive without public support or without a deep-pocketed owner who didn't mind losing a personal savings to keep such an operation afloat. This is what happens when a business owner no longer has to worry about a major expense -- such as making rent -- because the taxpayers are subsidizing the store. 

A final disclaimer: Anyone who knows what that neighborhood was versus what it is now knows that it is a great example of gentrification. My question is this: In the absence of direct public subsidies to a private business owner, could that neighborhood have wound up with a full and well-managed bookstore, as opposed to an empty and poorly-managed bookstore? Could gentrification have been achieved through relaxing, suspending, or eliminating the various cumbersome and burdensome bureaucratic regulations on the creation and growth of small business? Regulations such as needing a business license to do almost anything, regulations such as employer contributed payroll tax that costs an employer $1.10 for every $1.00 he pays an employee, and regulations such as a workers comp law that can throw an employer in jail if he doesn't pay workers comp on even an office employee in a two-person company? Would eliminating the permits process for anyone looking to improve or renovate property lead to more improvement and to more renovation?

Unfortunately there is a "nanny state" contingent that feels everyone is incompetent until proven otherwise. Our criminal legal system has a presumption of innocence, but our business regulatory system has a presumption of guilt. The government presumes that, if you want to open a restaurant, you will sell food that will make people sick. And the government presumes that until you prove otherwise to them. If you want to renovate your home, the government presumes you will do a shoddy job until you apply for expensive permits and go through a time consuming, project delaying and costly inspection process to prove otherwise.

I am not advocating anarchy. If your restaurant makes someone sick, you should be held civilly liable; if your conduct was egregious enough, you should be held criminally liable. Likewise if a shoddy renovation leads to someone's loss or injury. The most secure sector of employment right now is government. The only sector showing growth now is government. In 2006, for the first time EVER, the average public sector wage exceeded the average private sector wage. We've got too much government, at too many levels. A start of putting things back to the way they should be would be for government to stop subsidizing private book stores.