Sunday, May 31, 2015
Clive Granger
I was saddened to learn of his passing. His influence on me was enormous--I could not have written my thesis (here is a paper from a chapter)or at least one of my papers without his work. Although I never met him, I owe him a lot.
Fred Barnes, Bill Bennett, Jeff Rosen and Newt Gingrich are not very bright
Barnes predicted a McCain victory last fall. Despite going to an exclusive prep school and not having much competition from minorities and no competition from women, he did not go to Princeton.
Bennett has not figured out that on average, you lose at casinos. He must not be very good at counting.
Rosen teaches at George Washington. I used to teach at GW, and so am living proof that you don't need any special intellect or wisdom to teach there.
Gingrich taught at the University of West Georgia (the US one, not the Caucuses one).
The thing that makes them all really less than bright: they have made arguments even dumber than those I just made above.
p.s. Rush Limbaugh is not dumb. He is brilliant at parlaying the insecurities of white men (we are very sensitive) into gobs of money.
Bennett has not figured out that on average, you lose at casinos. He must not be very good at counting.
Rosen teaches at George Washington. I used to teach at GW, and so am living proof that you don't need any special intellect or wisdom to teach there.
Gingrich taught at the University of West Georgia (the US one, not the Caucuses one).
The thing that makes them all really less than bright: they have made arguments even dumber than those I just made above.
p.s. Rush Limbaugh is not dumb. He is brilliant at parlaying the insecurities of white men (we are very sensitive) into gobs of money.
New England's Maritime History - a note
Photo: Lismore, anchored Lismore, 1884
Over twelve months ago, on 27 May 2006, I discussed the impact of the Great Dividing Range on New England's transport patterns. A little later, I looked at transport costs and the way this affected life in early colonial New England.
This was followed by two posts on paddle steamers and inland water transport (first, second).
At the time, my intention was to go on to look at the history of shipping in New England. I then got sidetracked. So this post is simply a note to myself to do something about this.
In this context, there is an interesting site, Maritime Heritage Online, providing a range of interesting material on shipping in NSW.
Mark Zandi worries about the Long-term Fiscal Picture
We at the USC Lusk Center put on a retreat every year, and our opening keynote speaker was Mark Zandi. I have admired Mark for some time because he has the rigor of an academic economists and the timeliness of a business economist. The combination is rare.
Although Mark advised the McCain campaign, he has supported the Obama stimulus package, except to the extent that it is not large enough. But he has concerns about the long-term fiscal outlook of the country, where according to CBO the federal debt-to-income ratio could exceed 80 percent. While crowding out is almost certainly not an issue at the moment (Brad Delong explains why quite nicely), I do worry that large amounts of government debt would over the long run push up interest rates and reduce private investment. I also found that I felt a great degree of satisfaction (i.e., utility) when in the late 1990s the US was reducing its debt burden quite rapidly.
The question, then, is what to do. Like others, I don't think Social Security is that worrisome, and that commentators who conflate Social Security with Medicare are basically trying to scare people in an intellectually dishonest way. For those of us who don't need to use our backs for our work, raising the retirement age a bit should be perfectly acceptable. For those of us who are lucky enough to earn more than the maximum on which social security is taxes, a rise in that maximum should also be perfectly acceptable.
It seems to me (and a lot of other people) that there are two big issues: the cost of health care and the inadequacy of tax revenue. The first point is especially thorny, and I should disclose two things: I support a single-payer option (it seems to me that private insurance creates loads of deadweight loss) and I am married to a primary care physician. I am not sure how to reduce health care costs in a politically acceptable manner, but I do know: (1) the current medical reimbursement system encourages procedures and does not encourage preventative care and (2)we have done a lousy job of coming to grips with end-of-life care issues. The second of these points will require a great deal of soul searching on the part of us all, and I don't particularly see a political "win-win" situation for dealing with it.
As for taxes, the issue is how to raise revenue without screwing up capital formation, which is necessary for growth. I should note that the tax code during the Clinton era seemed to work just fine. But as part of a grand bargain for putting the country on a sound fiscal footing, it might be worth revisiting some of the principles of the Hall-Rabushka Tax.
I wrote a paper with Dennis Capozza and Pat Hendershott for a Brookings Book on Fundamental Tax Reform on the effect of a Hall-Rabushka tax on residential real estate (short answer: it would cream values for awhile). But the only thing I really disliked in principle about the proposal was its best known feature: its flatness. I am reasonably sure that there is diminishing marginal utility in consumption, so a tax based on ability to pay must be progressive. But other aspects of it--that it essentially eliminates deductions, that it taxes consumption (which reflects living standards), and that it treats all consumption equally, regardless of the source of income used for consumption--makes it more neutral than the current tax code, and better at encouraging savings. I think a Hall-Rabushka tax with an Earned Income Tax Credit, a large exemption, and a couple of brackets might work quite well.
[Update: some sort of grand bargain should also involve Pigou taxes on gasoline, sugared sodas, etc. To the extent that they are regressive, one could use the revenue to reduce the payroll tax at the bottom of the wage distribution, provide better transit, etc.]
Although Mark advised the McCain campaign, he has supported the Obama stimulus package, except to the extent that it is not large enough. But he has concerns about the long-term fiscal outlook of the country, where according to CBO the federal debt-to-income ratio could exceed 80 percent. While crowding out is almost certainly not an issue at the moment (Brad Delong explains why quite nicely), I do worry that large amounts of government debt would over the long run push up interest rates and reduce private investment. I also found that I felt a great degree of satisfaction (i.e., utility) when in the late 1990s the US was reducing its debt burden quite rapidly.
The question, then, is what to do. Like others, I don't think Social Security is that worrisome, and that commentators who conflate Social Security with Medicare are basically trying to scare people in an intellectually dishonest way. For those of us who don't need to use our backs for our work, raising the retirement age a bit should be perfectly acceptable. For those of us who are lucky enough to earn more than the maximum on which social security is taxes, a rise in that maximum should also be perfectly acceptable.
It seems to me (and a lot of other people) that there are two big issues: the cost of health care and the inadequacy of tax revenue. The first point is especially thorny, and I should disclose two things: I support a single-payer option (it seems to me that private insurance creates loads of deadweight loss) and I am married to a primary care physician. I am not sure how to reduce health care costs in a politically acceptable manner, but I do know: (1) the current medical reimbursement system encourages procedures and does not encourage preventative care and (2)we have done a lousy job of coming to grips with end-of-life care issues. The second of these points will require a great deal of soul searching on the part of us all, and I don't particularly see a political "win-win" situation for dealing with it.
As for taxes, the issue is how to raise revenue without screwing up capital formation, which is necessary for growth. I should note that the tax code during the Clinton era seemed to work just fine. But as part of a grand bargain for putting the country on a sound fiscal footing, it might be worth revisiting some of the principles of the Hall-Rabushka Tax.
I wrote a paper with Dennis Capozza and Pat Hendershott for a Brookings Book on Fundamental Tax Reform on the effect of a Hall-Rabushka tax on residential real estate (short answer: it would cream values for awhile). But the only thing I really disliked in principle about the proposal was its best known feature: its flatness. I am reasonably sure that there is diminishing marginal utility in consumption, so a tax based on ability to pay must be progressive. But other aspects of it--that it essentially eliminates deductions, that it taxes consumption (which reflects living standards), and that it treats all consumption equally, regardless of the source of income used for consumption--makes it more neutral than the current tax code, and better at encouraging savings. I think a Hall-Rabushka tax with an Earned Income Tax Credit, a large exemption, and a couple of brackets might work quite well.
[Update: some sort of grand bargain should also involve Pigou taxes on gasoline, sugared sodas, etc. To the extent that they are regressive, one could use the revenue to reduce the payroll tax at the bottom of the wage distribution, provide better transit, etc.]
Saturday, May 30, 2015
Why most economic forecasts are useless
Worthwhile Canadian Initiative writes:
To make a long story short, after a couple of quarters, the confidence intervals blow up (I don't have the paper at home, but when I go in to the office this week I will scan some pictures from it), meaning that after a few quarters, metropolitan office demand could be just about anything. Local office markets are much less complicated than an entire national economy.
Suppose instead that the model has a consistent one period lag, so Y(t)=R(X(t-1)). And suppose that Statistics Canada reports all data on X immediately. Now we can use the model for genuine forecasting of the future. Statistics Canada tells us what X is today, and we use the model to tell us what Y will be one period in the future. But the model can tell us nothing about what Y will be two periods in the future, because Statistics Canada can't tell us what X will be one period in the future. And yet I keep hearing about model-based forecasts for one, two, three, four, etc., periods in the future.Steve Malpezzi, Walter Barnes and I wrote a paper some years ago that tried to come to grips with this very issue. The context was office market forecasts, and we worked on developing confidence intervals for estimates of future office demand for a number of metropolitan areas. In developing the confidence interval, we used a technique from a 1971 Martin Feldstein Econometrica paper that takes into account the fact that to forecast Ys, one needs to forecast Xs as well.
To make a long story short, after a couple of quarters, the confidence intervals blow up (I don't have the paper at home, but when I go in to the office this week I will scan some pictures from it), meaning that after a few quarters, metropolitan office demand could be just about anything. Local office markets are much less complicated than an entire national economy.
Media Hunter - a new blog
In my browsing I was pleased to discover Media Hunter, a new blog started by Craig Wilson from Sticky Advertising.
I mention this because the blog already contains some interesting material about the Australian media with a particular focus on Newcastle and the Hunter.
Friday, May 29, 2015
Armidale 1945 VJ Parade
Photo: Armidale Main street, VJ Parade 1945, The Armidale School photo archive
I have included this photo simply because I think that it might be of interest.
Thursday, May 28, 2015
Scariest thing I have learned over the past 48 hours.
Sometime within the next five years, half of LA's city budget will go to pensions.
George Akerlof's Presidential Address
This is well worth reading:
http://www.aeaweb.org/annual_mtg_papers/2015/0106_1640_0101.pdf
Apparently, a fair number of economists didn't like this, because it states that empirical findings undermine a number of neoclassical totems, such as the Permanent Income Hypothesis. But if we want to be a reality-base profession...
http://www.aeaweb.org/annual_mtg_papers/2015/0106_1640_0101.pdf
Apparently, a fair number of economists didn't like this, because it states that empirical findings undermine a number of neoclassical totems, such as the Permanent Income Hypothesis. But if we want to be a reality-base profession...
C Students
I think C students can be divided into roughly three types.
The first type sees the universe through a different prism than most of us, and often has wonderful insights that do not translate well to the stylized task of exam writing. I am grateful for these C students.
The second type must deliver pizza and clean bathrooms to pay for tuition, and so has compromised time and energy with which to do school work. I am grateful for these C students as well.
The third type is lazy, arrogant and uncaring. I was thinking about this third type while sitting on the lawn at Wolftrap for Prairie Home Companion the other day. Garrison Kieler was reading hellos to service members in Iraq and Afghanistan from their family members in the audience, and I found myself misting up a bit as I listened. The habits of the third type of C student has placed more than 150,000 young men and women in far more danger than they need to be, and those same habits are keeping them in danger longer than necessary.
The first type sees the universe through a different prism than most of us, and often has wonderful insights that do not translate well to the stylized task of exam writing. I am grateful for these C students.
The second type must deliver pizza and clean bathrooms to pay for tuition, and so has compromised time and energy with which to do school work. I am grateful for these C students as well.
The third type is lazy, arrogant and uncaring. I was thinking about this third type while sitting on the lawn at Wolftrap for Prairie Home Companion the other day. Garrison Kieler was reading hellos to service members in Iraq and Afghanistan from their family members in the audience, and I found myself misting up a bit as I listened. The habits of the third type of C student has placed more than 150,000 young men and women in far more danger than they need to be, and those same habits are keeping them in danger longer than necessary.
Judith Wallace's "Memories of a Country Child-hood"
One of the things that has always fascinated me about New England is the variety to be found in the patterns of life over time. This holds even though the period from the first European intrusion is very short in historical terms.
I was reminded of this because I have just been re-reading Judith Wallace's Memories of a Country Childhood. (University of Queensland Press, St Lucia, 1977).
Born in 1932, Judith grew up on Ilparren, a sheep and cattle property not far from Armidale. Her family was part of the Ogilvie family, a family described a little earlier in George Farwell's book Squatter's Castle: The saga of a pastoral dynasty (Lansdowne Press, 1973).
At the time that Judith was born, the New England pastoral dynasties that come to wealth in the nineteenth century - Dangars, Whites, Wrights to name a few - still held sway. This was a world of wealth, of stratification, of manners and customs. There were servants - maids, cooks, nurses, nannies -to help the family.
Still very English is some ways, English visitors sometimes described them as county families, they were also moulded by the Australian environment. Some can best be described as transplanted English, Australians who identified first with the social life of Sydney and the mother country and who lived lives separate from the locals. Others identified with and contributed enormously to New England.
The Second World War marked the beginning of the end of this life style. Domestic help was no longer available, while new economic forces were rising that would lead to drastic restructuring of the rural sector.
Judith's book records the now vanished life style and the changes that were forced on it from external events. The last sentence of the book captures the end:
The new owners (Ilparran had been sold) never homesteaded on Ilparran and the great house, still standing in spite of the sunken foundations, stares with blind eyes over the ravaged garden.
David Leonardt buys a House
He explains that the rent-to-price ratio is now sufficiently high in Washington is sufficiently high to make owning an acceptable financial choice. He also notes:
Where I am moving, Los Angeles, still has a high rent-to-price ratio (about 50 percent higher than DC), yet when I find a house I like, I will buy one. Rent-to-house price ratios are always relatively high in LA, because high nominal incomes and the California tax code make tax preferences for owner housing in California higher than in other places. At the same time, housing affordability in SoCal has improved dramatically, meaning that more people can buy a house using standard mortgage products.
I still don't know when the bottom of the market is coming--until inventories begin to taper off (in terms of months of unsold property) it will be difficult to know. Even the inventory figure is difficult to parse; to the extent defaulted homes were stripped by their erstwhile owners, they no longer remain competitive in the market. On the other hand, there may be many potential sellers who refuse to test such a cold market.
But for me, if I can find a house I like in a neighborhood where I wish to live at a price I can afford, the security of tenure (and the knowledge that my rent can't go us) is sufficient reason to buy.
Of course, owning also brings benefits that have nothing to do with money. You can settle into your home, confident that no landlord will kick you out. You can repaint the walls and redo the kitchen. All else being equal, owning seems far preferable to renting.
Where I am moving, Los Angeles, still has a high rent-to-price ratio (about 50 percent higher than DC), yet when I find a house I like, I will buy one. Rent-to-house price ratios are always relatively high in LA, because high nominal incomes and the California tax code make tax preferences for owner housing in California higher than in other places. At the same time, housing affordability in SoCal has improved dramatically, meaning that more people can buy a house using standard mortgage products.
I still don't know when the bottom of the market is coming--until inventories begin to taper off (in terms of months of unsold property) it will be difficult to know. Even the inventory figure is difficult to parse; to the extent defaulted homes were stripped by their erstwhile owners, they no longer remain competitive in the market. On the other hand, there may be many potential sellers who refuse to test such a cold market.
But for me, if I can find a house I like in a neighborhood where I wish to live at a price I can afford, the security of tenure (and the knowledge that my rent can't go us) is sufficient reason to buy.
Wednesday, May 27, 2015
Lifted from Comments: My Friend Leslie Appleton-Young writes:
In 1996 E. Digby Baltzell published a book that addresses some of the differences between the two cities going way back -- Puritan Boston and Quaker Philadelphia. Here is an excerpt of a review.
Digby Baltzell uses the history of Philadelphia and Boston as very real examples of two types of leadership. In Boston, the "Boston Brahmin" elites formed a strong upper class that was not tolerant, certainly, but took responsibility for community life and exercised a tremendous influence on American culture, politics, arts, and science. In Philadelphia, the "Proper Philadelphians" were charming, tolerant--and deeply irresponsible, abandoning any role in governing the city and making it by common agreement the worst run city in the United States. When Philadelphia needed a mover and shaker, it imported some one from outside, like Ben Franklin.
Baltzell takes these difference back to the colonial period and the dramatic differences in the viewpoints of the Puritans who founded Boston and the Quakers who founded Philadelphia. He also sees these changes working forward as the old upper-class socialize immigrant elites into their respective patterns, producing the Kennedy clan out of Boston, and Grace Kelly out of Philadelphia. Many of the points here can also be seen in David Hackett Fischer's Albion's Seed.
Then again, given a choice between getting to have dinner with Grace Kelly and getting to have dinner with Joe Kennedy, I don't think it would be a tough choice...
The Armidale School (TAS) Photo Archive
Photo: TAS dorm, 1913
Established in 1894, TAS (The Armidale School) is an Anglican, GPS, day and boarding school for boys.
This photo shows one of the school dorms from 1913. Conditions can best be described as spartan! Boarding conditions today are very different, but those who went to the school in the 1950s and 60s will still find the scene familiar.
The school has begun the establishment of a photo archive, providing a glimpse into one element of New England's past.
Pleasant Surprise
Amazon sent me a recommendation a few weeks ago: a 38 disk box set of Karajan conducted symphonies for around $70. I like HvK's Beethoven and Bruckner sets, and didn't have either on CD (I still listen on vinyl), so the Amazon recommendation seemed like a good deal, because it also included Brahms, Mendelssohn, Schumann, Tchaikovsky, Mozart and Haydn.
HvK's Mozart has never worked for me, so when I stuck a Haydn CD (Symphonies 103 and 104) in my car's player last night, I wasn't expecting much. But on first listen, at least, it was quite wonderful: the playing was at once lithe and powerful. It appears that the dead Nazi could really do Haydn.
HvK's Mozart has never worked for me, so when I stuck a Haydn CD (Symphonies 103 and 104) in my car's player last night, I wasn't expecting much. But on first listen, at least, it was quite wonderful: the playing was at once lithe and powerful. It appears that the dead Nazi could really do Haydn.
Tuesday, May 26, 2015
Differences in Urban Development: A Mystery
I spent the past weekend in two of my favorite cities: Philadelphia, where I taught Wharton Executive MBAs, and Boston, where I attended a wedding.
Over the past 25 years or so, the Boston MSA has done quite well, while the Philadelphia MSA has not. Among the 25 largest MSAs, Boston ranked 3rd in per capita income in the 2000 census, while Philadelphia ranked 11th. While neither area has rapid population growth by US standards, Boston has been growing more rapidly than Philadelphia. And while more than 40 percent of those over the age of 25 who lived in the Boston PMSA in 2002 had completed a bachelor's degree, only slight more than 30 percent of those in the Philadelphia PMSA had done so.
Yet the two cities have much in common: rich histories, great colleges and universities, large manufacturing bases that largely disappeared, some very beautiful architecture. The weather in Philadelphia is, if anything, better than in Boston; Boston has slightly better air service. Both cities live in the shadow of New York, although the shadow is probably darker in Philadelphia. I personally prefer the restaurants in Philadelphia.
But Philadelphia's impoverished neighborhoods have continued to deteriorate, while
Boston's have been gentrifying. The poverty rate in Philadelphia is also substantially higher than it is in Boston. My informal polling of students suggests that while those who go to school in Philadelphia enjoy doing so, they are looking to leave upon graduation. Those in Boston seek to stay.
Exploring how these differences came to be would make for an excellent book. Someone should write it.
Over the past 25 years or so, the Boston MSA has done quite well, while the Philadelphia MSA has not. Among the 25 largest MSAs, Boston ranked 3rd in per capita income in the 2000 census, while Philadelphia ranked 11th. While neither area has rapid population growth by US standards, Boston has been growing more rapidly than Philadelphia. And while more than 40 percent of those over the age of 25 who lived in the Boston PMSA in 2002 had completed a bachelor's degree, only slight more than 30 percent of those in the Philadelphia PMSA had done so.
Yet the two cities have much in common: rich histories, great colleges and universities, large manufacturing bases that largely disappeared, some very beautiful architecture. The weather in Philadelphia is, if anything, better than in Boston; Boston has slightly better air service. Both cities live in the shadow of New York, although the shadow is probably darker in Philadelphia. I personally prefer the restaurants in Philadelphia.
But Philadelphia's impoverished neighborhoods have continued to deteriorate, while
Boston's have been gentrifying. The poverty rate in Philadelphia is also substantially higher than it is in Boston. My informal polling of students suggests that while those who go to school in Philadelphia enjoy doing so, they are looking to leave upon graduation. Those in Boston seek to stay.
Exploring how these differences came to be would make for an excellent book. Someone should write it.
Has long term house price growth returned to normalcy?
Case-Shiller released their most recent indexes this morning. I used the data to graph annualized house price growth between 1989-2015 (I only use 1989 as the start date because this is the start date for the data series for some cities).
Nationally, house price growth has been about 3 percent per year. LA and San Francisco are also at about 3 percent. Phoenix and Las Vegas have (obviously) come back down to earth. Portland is obviously a high-flier, but it had a dramatic regime shift in land use planning.
Nationally, house price growth has been about 3 percent per year. LA and San Francisco are also at about 3 percent. Phoenix and Las Vegas have (obviously) come back down to earth. Portland is obviously a high-flier, but it had a dramatic regime shift in land use planning.
Ugly University Buildings I have Known
I have spent a fair amount of time at six universities as a student or faculty member. Five have astonishingly ugly buildings.
We begin with Mather Hall (below left) at Harvard: the Robert Taylor Homes of college dorms. On the right is USC's Hoffman Hall, which was actually designed by a great architect, IM Pei. It shows we all have bad days.
Next we have the Academic Center at George Washington (below left). The photo makes it look nicer than it is. Huntsman Hall at Penn is the new Wharton Building. It is a little, er, out of scale for the surrounding neighborhood, but if Philadelphia ever returns to an agriculture based economy, it will have a really nice silo.
.JPG&imgrefurl=http://commons.wikimedia.org/wiki/File:Huntsman_Hall_(Philadelphia).JPG&h=1984&w=1488&sz=400&tbnid=Mcz9eZxfMQNg6M:&tbnh=150&tbnw=113&prev=/images%3Fq%3Dhuntsman%2Bhall&usg=__80CeY1j6vqz0LMS5jxCByDJqK6Y=&ei=vEL9S6bmPJO6NbDF3d4H&sa=X&oi=image_result&resnum=4&ct=image&ved=0CCcQ9QEwAw){kind=link}
Finally we have the Humanities Building at Wisconsin. My understanding is that this ironically named building will soon be torn down. That will certainly produce addition from subtraction.
The Indian School of Business was designed by John Portman, and is simply beautiful.
Monday, May 25, 2015
Housing Inventories
The bad news for the US housing market: despite strong resales in April, the country had about 8.2 months of inventory. For real house prices to stay stable, inventories need to be in the four to six month range, and because inflation is nearly non-existent for the moment, downward pressure on real prices means downward pressure on nominal prices as well. This could be a problem for a housing market that had relied so heavily on FHA loans, which have lax downpayment requirements.
Things here in California are better:
The data come from CAR. Inventory under $500K is pretty thin, meaning that even if there is a shadow inventory that comes on line, California should be able to avoid much in the way of further price declines. Just as interesting to me is that while the $750K+ inventory is still pretty large, it has shrunk pretty dramatically. I actually wonder how these houses are getting financed--are there that many affluent buyers with cash? When I talk with lenders, they are telling me that to get a decent rate at $1 million+, buyers need at least 25 percent down, and sometimes more.
When is the bottom of the housing market coming?
I don't know--and neither does anyone else. Here are three things to consider, however:
(1) A good harbinger of the housing market is the months supply measure. When the months supply rises beyond six months, it is hard to make a case for house prices going up anytime soon, unless builders stop building altogether. The reason: it takes about six months to build a house in most markets (i.e., to get from the beginning of the permitting process to the finished product). Thus prices have to fall until the inventory is absorbed.
The good news is that homebuilding has slowed down a lot, and that the months supply measure for new homes fell well below six months in April. The bad news is that the months supply of Existing Home Sales continues to rise, and is currently at 8.4 months. The other bad news (in a sense) is that the Existing Sales number is much less prone to revision than the New Sales number, and reflects actual closed sales, instead of sales contracts. Until the Existing Home Sales months supply number turns around, it is hard to see when the bottom will come.
(2) While the national number is important from a macroeconomic and mortgage securitization standpoint, it is not helpful to buyers in local markets. Some markets have supplies of less than six months, and buyers in these markets, particularly those who are planning to live in one place for awhile, just shouldn't worry about short-term price fluctuations. But other markets have huge supply gluts; in these markets, potential first time homebuyers are better off renting for awhile.
(3) Housing markets have substantial intrametropolitan variation. The detached housing market can be considerably different from the Condo market; housing near transportation lines can retain its value better than housing in far-flung suburbs. Moreover, there are some opportunities in weakness. I was looking at the San Diego MLS listings recently. Houses that would have been out of range for a finance professor a few years ago (i.e., houses with ocean views) are now within range. The principal reason to buy a house is the consumption benefit of the house--when an opportunity arises to obtain a great place to live, it is worth considering. Just don't be naive about it--make sure you plan on living in one place for a long time (in which case resale value doesn't matter so much), that you can afford the place with a fixed rate mortgage, and that you don't mind knowing that its price might go down for awhile before starting back up again.
(1) A good harbinger of the housing market is the months supply measure. When the months supply rises beyond six months, it is hard to make a case for house prices going up anytime soon, unless builders stop building altogether. The reason: it takes about six months to build a house in most markets (i.e., to get from the beginning of the permitting process to the finished product). Thus prices have to fall until the inventory is absorbed.
The good news is that homebuilding has slowed down a lot, and that the months supply measure for new homes fell well below six months in April. The bad news is that the months supply of Existing Home Sales continues to rise, and is currently at 8.4 months. The other bad news (in a sense) is that the Existing Sales number is much less prone to revision than the New Sales number, and reflects actual closed sales, instead of sales contracts. Until the Existing Home Sales months supply number turns around, it is hard to see when the bottom will come.
(2) While the national number is important from a macroeconomic and mortgage securitization standpoint, it is not helpful to buyers in local markets. Some markets have supplies of less than six months, and buyers in these markets, particularly those who are planning to live in one place for awhile, just shouldn't worry about short-term price fluctuations. But other markets have huge supply gluts; in these markets, potential first time homebuyers are better off renting for awhile.
(3) Housing markets have substantial intrametropolitan variation. The detached housing market can be considerably different from the Condo market; housing near transportation lines can retain its value better than housing in far-flung suburbs. Moreover, there are some opportunities in weakness. I was looking at the San Diego MLS listings recently. Houses that would have been out of range for a finance professor a few years ago (i.e., houses with ocean views) are now within range. The principal reason to buy a house is the consumption benefit of the house--when an opportunity arises to obtain a great place to live, it is worth considering. Just don't be naive about it--make sure you plan on living in one place for a long time (in which case resale value doesn't matter so much), that you can afford the place with a fixed rate mortgage, and that you don't mind knowing that its price might go down for awhile before starting back up again.
Armidale Dark Ages 2002
I am not sure that I would ever want to go back to the European dark ages. But I can understand the fascination.
This video is set in the Pine Forest near Armidale, an area I know well.
This video is set in the Pine Forest near Armidale, an area I know well.
The Clarence River - a few notes
Photo: Clarence River, Grafton
The web frustrates me some times. I am used to getting information from the web, but often there are gaps.
The Clarence River is one such gap. This is a big river, yet I cannot find a proper description. So I thought that I should record a few basic facts.
The facts that follow are taken from various sources. I have not attempted to link all sources.
Key facts:
- The largest coastal river catchment in NSW at 22,700 square kilometres in the New England ranges extending into southern Queensland.
- Largest of all NSW coastal rivers - flows up to 16,800 m3/s have been recorded at Grafton while the average annual discharge is approximately 3.7 x 106 ML/yr.
- Length around 394k (394 miles).
- Road distance from river mouth to Grafton 62k.
- Main tributaries Mann River, Nymboida River, and Orara River.
- More than 100 islands form part of the Clarence River system.
- The limit of tidal influence is Smiths Falls near Copmanhurst, about 105 km from the ocean.
Key references
Sunday, May 24, 2015
Sarah Ritchie reminds me that today the Brooklyn Bridge is 127 years old.
Every time I visit New York, I am stunned at what a remarkable human accomplishment it is. I think there is a pretty good chance that among the most important contributors to that accomplishment are its bridges and tunnels.
I cannot think of any city in the world with remotely as many impressive bridges. The names roll off the tongue: Brooklyn, Manhattan, Williamsberg, 59th Street, George Washington, Verrazano, Throg's Neck and Whitestone. London, Paris, Rome and Seoul have very nice bridges, too, but because their rivers are so much narrower than the East (yes, I know it's not really a river) and Hudson, the bridges don't quite so stir my imagination. San Francisco's bridges span great distances, but there are only two that are impressive (the San Matao and Dumberton bridges are just strips of pavements on pillars, and the Richmond Bridge is, well, "interesting").
So happy birthday to Brooklyn Bridge, the first of a wonderful family.
I cannot think of any city in the world with remotely as many impressive bridges. The names roll off the tongue: Brooklyn, Manhattan, Williamsberg, 59th Street, George Washington, Verrazano, Throg's Neck and Whitestone. London, Paris, Rome and Seoul have very nice bridges, too, but because their rivers are so much narrower than the East (yes, I know it's not really a river) and Hudson, the bridges don't quite so stir my imagination. San Francisco's bridges span great distances, but there are only two that are impressive (the San Matao and Dumberton bridges are just strips of pavements on pillars, and the Richmond Bridge is, well, "interesting").
So happy birthday to Brooklyn Bridge, the first of a wonderful family.
The Instability of Dynamic Consumer Credit Pricing
I am attempting to come up with a model demonstrating that dynamic risk-based pricing of consumer credit could well be unsustainable. The foundation of my thinking is a 27 year old paper by Sargent and Wallace entitled "Some Unpleasant Monetarist Arithmetic". In that paper, SandW show that when real interest rates exceed economic growth in the presence of deficit spending, tight monetary policy is not sustainable. I have only a sketch so far.
Suppose consumer credit markets price debt using some sort of Modigliani-Miller formulation: as the leverage ratios of households rise, the price the pay for debt rises. We can think of the leverage ratio as the value of household assets (including human capital) divided by assets less debt outstanding, or equity. For households operating at the margin, human capital may contain all assets.
Interest charges in each period is a function of the household's leverage ratio in the previous period. So
r(t) = rf + LR(t-1)(rh -rf)
LR(t)= LR(t-1) + f(Min payment - r(t-1))
Where r(t) is the interest rate on consumer credit at time t, rf is a rick free rate, rh is the return on assets for an unleveraged household, and LR(t-1) is the leverage ratio at time t-1.
Suppose a household is on a path where it is amortizing its debt. Then the cost of credit falls over time, which accelerates the point at which a household becomes debt-free.
But now suppose that household receives a negative permanant shock: a job loss, a health problem or a divorce. In the short tun, it can make a minimum payment on a credit card balance, but not enough to pay interest due, so the balance gets bigger. This raises the cost of interest in the following period, which in turn means that the minimum payment pays even a smaller share of interest costs. The leverage ratio increases.
Under these circumstances, the amount owed is increasing as rapidly as the discount rate, and so a traversality condition (where in the limit, the present value of debt goes to zero) is violated. This implies (I think) that some sort of interest rate ceiling might improve stability. Thoughts are welcome.
Suppose consumer credit markets price debt using some sort of Modigliani-Miller formulation: as the leverage ratios of households rise, the price the pay for debt rises. We can think of the leverage ratio as the value of household assets (including human capital) divided by assets less debt outstanding, or equity. For households operating at the margin, human capital may contain all assets.
Interest charges in each period is a function of the household's leverage ratio in the previous period. So
r(t) = rf + LR(t-1)(rh -rf)
LR(t)= LR(t-1) + f(Min payment - r(t-1))
Where r(t) is the interest rate on consumer credit at time t, rf is a rick free rate, rh is the return on assets for an unleveraged household, and LR(t-1) is the leverage ratio at time t-1.
Suppose a household is on a path where it is amortizing its debt. Then the cost of credit falls over time, which accelerates the point at which a household becomes debt-free.
But now suppose that household receives a negative permanant shock: a job loss, a health problem or a divorce. In the short tun, it can make a minimum payment on a credit card balance, but not enough to pay interest due, so the balance gets bigger. This raises the cost of interest in the following period, which in turn means that the minimum payment pays even a smaller share of interest costs. The leverage ratio increases.
Under these circumstances, the amount owed is increasing as rapidly as the discount rate, and so a traversality condition (where in the limit, the present value of debt goes to zero) is violated. This implies (I think) that some sort of interest rate ceiling might improve stability. Thoughts are welcome.
Annoying anti-car headline of the day
From Richard Florida's twitter feed, I get:
So let us think what this means for people who drive one hour per day every day for 60 years. Expected life expectancy is reduced by 60 years times 365 days per year times one hour times 1/3 hour of life lost per hour of driving. This all comes to 7227 hours, or about 300 days. So driving every day for one hour means we lose 10 months of life expectancy (move these numbers around as you wish).
But what if we weren't able to drive at all (and buses and shared-rides vans count as forms of driving)? I am guessing we would be much poorer--mobility has at least something to do with our affluence. Maybe we wouldn't be as well nourished. Maybe we would face more economic stress. I can't be certain, but I would be willing to bet that if we stopped driving altogether, our life expectancy would fall.
I have long supported Pigou taxes on the negative externalities created by automobiles. I support subsidies for transit as a matter of social justice. But do I think cars have provided a net benefit to living standards and life expectancy? Sure!
One Hour Spent Driving = 20 Minutes Lost Life Expectancy:
So let us think what this means for people who drive one hour per day every day for 60 years. Expected life expectancy is reduced by 60 years times 365 days per year times one hour times 1/3 hour of life lost per hour of driving. This all comes to 7227 hours, or about 300 days. So driving every day for one hour means we lose 10 months of life expectancy (move these numbers around as you wish).
But what if we weren't able to drive at all (and buses and shared-rides vans count as forms of driving)? I am guessing we would be much poorer--mobility has at least something to do with our affluence. Maybe we wouldn't be as well nourished. Maybe we would face more economic stress. I can't be certain, but I would be willing to bet that if we stopped driving altogether, our life expectancy would fall.
I have long supported Pigou taxes on the negative externalities created by automobiles. I support subsidies for transit as a matter of social justice. But do I think cars have provided a net benefit to living standards and life expectancy? Sure!
Saturday, May 23, 2015
Lismore's CBD feels the pinch of dollar drain
Interesting story in the Lismore Northern Star about the challenges facing retailers in the Lismore CBD where retail sales are down. Part of the problem is apparently due to a revamped Lismore Shopping Square, but Lismore also faces a broader problem.
According to Lismore Unlimited president Phil Hanlon. Lismore shopper dollars are being lured away from its CBD not just by a revamped Lismore Shopping Square, but to a Gold Coast made more accessible by improved roads. “You can be at Robina or Pacific Fair in an hour and a half and shop all weekend – you can’t shop in Lismore all weekend,” he said.
Mr Hanlon suggests that the dollar drain was more dramatic than most people realised, estimating between $200 million and $300 million crossing the NSW/Queensland border from the Northern Rivers each year.
Pressure on Lismore has also also came from the coast where, over the past few years, retail business between Lennox Head and Byron Bay had doubled.
Lismore is fighting back, trying to reach the 750,000 people living just over the border in Queensland. But it's not easy.
I found the story interesting in its own right, but also because it illustrates some of the changes taking place in New England, changes that help explain New England's relatively poor economic performance together with the decline in its sense of self-identity.
Our problem is that New England is squeezed, cannibalised, between the growing Sydney and Brisbane conurbations.
In an earlier story I spoke of the way in which Newcastle in the south was now being treated by the Sydney Government as simply another part Greater Sydney. This story shows the fragmentation process in the north.
Like Mr Hanlon, when I was chair of Tourism Armidale I used to talk about the opportunities offered by the big population concentrations to the north and south of Armidale. But it's very hard to do anything meaningful to fight back when everything has to be done at an increasingly fragmented local level.
David Barker comments on the growth path of GDP
He writes:
I think in general it is difficult to draw casual inferences about macroeconomic data. More specifically, I agree with David that there is not sufficient statistical evidence to ascribe a cause to the relatively weak performance in growth after 1980. I do think rampant deregulation of financial institutions has been on net harmful (we seem to have financial crises more frequently now), but we haven't sufficient numbers of data points to establish that fact scientifically.
But it is also true that what Wallison wrote is demonstrably false. Life was not barren in the pre-Reagan years, and it has not been the land of milk-and-honey since. The evidence, limited thought it may be, is consistent with the idea that the New Deal was a good thing. On the other hand, Wallison wears very nice suits.
I just did a quick Chow test to see if there is a structural break in per capita GDP growth between 1935 and 2015 and there is not.
This is just a growth over time model (log GDP on time), and I also checked consumption and disposable income. If I did it right, there are no breaks - not even close. So you are right about Wallison, but one can't draw the opposite conclusion either.
I think in general it is difficult to draw casual inferences about macroeconomic data. More specifically, I agree with David that there is not sufficient statistical evidence to ascribe a cause to the relatively weak performance in growth after 1980. I do think rampant deregulation of financial institutions has been on net harmful (we seem to have financial crises more frequently now), but we haven't sufficient numbers of data points to establish that fact scientifically.
But it is also true that what Wallison wrote is demonstrably false. Life was not barren in the pre-Reagan years, and it has not been the land of milk-and-honey since. The evidence, limited thought it may be, is consistent with the idea that the New Deal was a good thing. On the other hand, Wallison wears very nice suits.
My new Governor may be OK
From Thinkprogress:
Speaking in San Francisco yesterday, Gov. Arnold Schwarzenegger (R) said he hopes that the state Supreme Court’s recent ruling allowing gay marriage will lead more couples to come to the state to be wed:
You know, I’m wishing everyone good luck with their marriages and I hope that California’s economy is booming because everyone is going to come here and get married.
The San Francisco Convention and Visitors Bureau also expects a tourism boom this summer, and its website now “promotes a gay travel section” and “explains that same-sex couples are ‘officially allowed to marry in the state of California.’” Schwarzenegger has promised to oppose any amendments banning gay marriage.
Friday, May 22, 2015
Conflicted
I am not crazy about the way Elizabeth Warren, Chair of the TARP Congressional Oversight Panel, looks at the world. I have heard her speak at conferences, from which it is clear to me that (1) she thinks consumer credit is generally a bad thing and (2) has no understanding of present value. I inferred the second of these points because she claimed that total interest paid over the life of a loan is the relevant measure of cost. In particular, she thought households should pay off their mortgages as quickly as possible.
Yet some of the reforms she is suggesting now make some sense to me. I find myself surprised at myself in now thinking that some sort of usury ceiling might make sense--one where, say, credit card rates may be no higher than LIBOR + 20 percent, or some such thing. The reason: there is a point at which it is not possible to map risk to prices, and therefore it is socially optimal not to have credit available. In particular, there is a point at which higher rate creates more risk which should lead to higher prices, etc. I am not sure that it is analytically possible to determine the threshold, so a government limitation would be a second best policy. But usury ceilings might have prevented the current crisis.
Yet some of the reforms she is suggesting now make some sense to me. I find myself surprised at myself in now thinking that some sort of usury ceiling might make sense--one where, say, credit card rates may be no higher than LIBOR + 20 percent, or some such thing. The reason: there is a point at which it is not possible to map risk to prices, and therefore it is socially optimal not to have credit available. In particular, there is a point at which higher rate creates more risk which should lead to higher prices, etc. I am not sure that it is analytically possible to determine the threshold, so a government limitation would be a second best policy. But usury ceilings might have prevented the current crisis.
Road Tunnel Old Grafton Road
This photograph by Gordon Smith, Inside, looking out, shows the view towards Grafton down the old Glen Innes Grafton Road from inside the road tunnel.
It may seem hard to believe that this was the main road to Grafton for more than one hundred years.
Down this road crawled heavy drays and bullock waggons laden with wool for shipment from the busy port at Grafton. Is it any wonder that fights for better transport should form such a constant theme in New England's history?
Gordon noted that the road was built by convicts in the 1800’s, while the tunnel was cut by a contractor in the 1860s.
Thursday, May 21, 2015
It's been too long
The past two months have passed too quickly. One week I spent teaching finance in Busan. Korea is a remarkable place. When first I visited in 1992, it was clearly a place on the rise, but also one that retained a large number of very poor people, many of whom lived in very poor housing conditions. I have been back three times since then. The extreme poverty seems pretty much gone now, as its per capita GDP has risen from about 1/4 US and Japanese levels in 1990 to 1/2 US and 2/3 Japanese levels today. At the end of the Korean War, per capita GDP was roughly a dollar a day.
Korea is an exilerating place, because it has come so far so quickly, and as such, is an example for poor countries all over the world. It is hard to know the "secret," though, other than the fact that education has been an important part of the culture for a long time, and Korean parents probably care even more than Montgomery County parents about how well their kids do in school.
The infrastructure in Busan is quite remarkable, with a wonderful metro system, good roads, and one of the most beautiful suspension bridges I have ever seen. (The image below is from Slate). The city is the second largest in Korea, and trying to become the financial services center of the country. But it is still off the beaten path--as a Westerner I felt quite conspicuous.
Peter Wallison: Opinions without Data
He writes in his screed against financial regulation:
Using the National Income and Products Account, I looked at real annual GDP growth between 1933 and 1980 (the stultifying years) and 1980 to 2015 (the "rapid economic growth" years). Between 1933 and 1980, GDP grew by about 8-fold, or more than 4 percent per year (actually 4.5 percent per year). Between 1980 and 2015, real GDP did slightly better than doubling, or 2.7 percent per year.
I try to respect people whose points-of-view differ from mine, but who decides to let this guy waste ink?
In the rapturous days after Barack Obama's victory and the Democratic congressional sweep that accompanied it, House Financial Services Committee Chairman Barney Frank declared that the new Congress would enact a "new New Deal." Few people really thought at the time that he or his party meant this seriously. After all, the original New Deal—as anyone who has read history knows—failed to revive the economy.
Indeed, the modern era of rapid economic growth commenced after both Democratic and Republican presidents undertook to lift costly and stultifying New Deal regulations.
Using the National Income and Products Account, I looked at real annual GDP growth between 1933 and 1980 (the stultifying years) and 1980 to 2015 (the "rapid economic growth" years). Between 1933 and 1980, GDP grew by about 8-fold, or more than 4 percent per year (actually 4.5 percent per year). Between 1980 and 2015, real GDP did slightly better than doubling, or 2.7 percent per year.
I try to respect people whose points-of-view differ from mine, but who decides to let this guy waste ink?
California is a fiscal mess: it needs a grand bargain that will never happen
Californians just voted down ballot initiatives whose purpose was to bring fiscal balance to California. While I voted for them, I understand why the electorate (thhe small share that voted anyway) didn't like them. They were poorly worded (as are many initiatives), and still didn't get at the fundamental problems facing California. California ranks fourth in the country in per capita state and local government spending, and yet government services--particularly schools--are disappointing.
But voters themselves are partly responsible for the mess California finds itself in. Proposition 13, passed 31 years ago, leaves California with a property tax system that is inequitable, and a school funding mechanism that decouples funding from performance. Bill Fischel and others have shown that schools funded with local revenues--particularly property tax revenues--perform better than schools that are funded remotely. Because property taxes are so limited in California (one pays property taxes based on the value of a house at the time of purchase, rather than current value), a large share of school funding flows through Sacramento. When people's houses are paying for school, they have a strong incentive to make sure the benefits provided by the schools are larger than the taxes they are paying, lest their property values fall. I have little doubt that one of the reasons California public schools--once among the best in the country--have fallen so far is because of how they are funded (note: using property taxes to fund schools does create a problem for those places where property values are low, so there is a role for some state funding of schools. I will write more about this in another post).
On the other hand, it is also striking how hide-bound and inflexible public employees unions behave in California. When I ask long-term Californians why the state has such large fiscal problems, they almost inevitably list the Prison Guards Union toward the top of the list. When Mayor Villaraigosa suggested that city employees in Los Angeles take pay cuts so that he wouldn't have to lay people off, the unions balked. When I listen to union officials on the radio, it is clear that they place the interests of the median voter in their union above those of the state (this is only natural).
For California ever to return to fiscal stability, it will need to repeal Proposition 13 and reign in its unions. To put it crudely, the right would dislike the first of these ideas, the left would dislike the second. This is why the ingredients of a grand bargain would be to do something about both. Unfortunately, because both have strong constituencies behind them, it is doubtful that anything ever will happen, and California will lurch from crisis to crisis.
Despite this, I like living here...
But voters themselves are partly responsible for the mess California finds itself in. Proposition 13, passed 31 years ago, leaves California with a property tax system that is inequitable, and a school funding mechanism that decouples funding from performance. Bill Fischel and others have shown that schools funded with local revenues--particularly property tax revenues--perform better than schools that are funded remotely. Because property taxes are so limited in California (one pays property taxes based on the value of a house at the time of purchase, rather than current value), a large share of school funding flows through Sacramento. When people's houses are paying for school, they have a strong incentive to make sure the benefits provided by the schools are larger than the taxes they are paying, lest their property values fall. I have little doubt that one of the reasons California public schools--once among the best in the country--have fallen so far is because of how they are funded (note: using property taxes to fund schools does create a problem for those places where property values are low, so there is a role for some state funding of schools. I will write more about this in another post).
On the other hand, it is also striking how hide-bound and inflexible public employees unions behave in California. When I ask long-term Californians why the state has such large fiscal problems, they almost inevitably list the Prison Guards Union toward the top of the list. When Mayor Villaraigosa suggested that city employees in Los Angeles take pay cuts so that he wouldn't have to lay people off, the unions balked. When I listen to union officials on the radio, it is clear that they place the interests of the median voter in their union above those of the state (this is only natural).
For California ever to return to fiscal stability, it will need to repeal Proposition 13 and reign in its unions. To put it crudely, the right would dislike the first of these ideas, the left would dislike the second. This is why the ingredients of a grand bargain would be to do something about both. Unfortunately, because both have strong constituencies behind them, it is doubtful that anything ever will happen, and California will lurch from crisis to crisis.
Despite this, I like living here...
Technorati Sucks - Day 363
This is one of a continuing series of posts.
It is now 363 days since Technorati has updated this blog. This is not the only blog of mine that this has happened too.
This blog presently rank's 3,260,072 in the world. I have pinged them and recently emailed them. But they won't update.
I need to do something.
I assume that someone from T scans the web. So what I am now doing is this. Each day I will ping them. Each day that they fail to update I will run another Technorati sucks post. Let's see how long it takes them to pick it all up and do something about it.
In T's words:
Thanks for the Ping!
Technorati will now check newenglandaustralia.blogspot.com for new content. You can bookmark this page and return to it to notify Technorati of updates.
Update - 24 May Day 366
Still no luck with Technorati, I fear.
Great Northern Railway - End of the Line continued: Wallangarra Railway Station
This photo shows the Wallangarra Railway Station. Yes, Neil, I still use the term railway station.The Sydney train came in on the right. Passengers then carried their luggage across to the Queensland train on the left. This station was the main rail junction point between NSW/New England and Queensland for almost eighty years.
Wednesday, May 20, 2015
One reason I'm so looking forward to USC
Ignore the lyrics about Chicago and New York though. In fact, Daughter H is going to college in Chicago; Daughter M in NYC. The family will have America's three largest cities covered!
Get Well, Senator Kennedy
His politics are to the left of mine, but I still think him to be among the greatest Senators of my lifetime. It is too soon to lose him.
Cap Rates and Commercial Real Estate Default
Commercial real estate mortgages are different from residential mortgages in a number of dimensions. One of the most important is term: while residential mortgages are generally self-amortizing, commercial mortgages usually have "bullets" or balloon payments arising from terms that are shorter than amortization schedules. For instance, a commercial mortgage might have a ten year term with a 40 year amortization schedule.
Many of these commercial loans are currently due or will soon be due. Many of them are performing well, in the sense that buildings, even after rent reductions, are producing sufficient cash flow to cover debt service. But because expectation have changed, capitalization rates have risen. This creates a problem.
Real Estate may be valued similarly the way stocks are values using the Gordon Growth Model. Income gets capitalized into value via a capitalization rate, which has two basic terms: a required rate of return, or discount rate, and an expected rental growth rate. The formula for valuation is simply V = Income/(r-g), where V is value, r is the discount rate and g is the expected growth rate.
Five years ago, a high quality office building would have a cap rate of 5.5 percent. The ten year treasury rate at the time was around four percent, so the 5.5 cap rate might have reflected that four percent rate plus a three percent risk premium less a 1.5 percent expected growth rate in rents (4+3-1.5).
Now, the ten year treasury rate is around 3 percent (actually 3.24 at this writing), which would tend to push down cap rates. but risk premia have widened, and rents are expected to fall. Suppose the risk premium is now 5 and rents are expected to fall one percent per year (they don't change that much from one year to the next because long term leases are in place). Now we get a cap rate of 3+5+1, or 9 percent. This would imply property values falling by (1-5.5/9), or a little less than 40 percent. This may overstate what is happening--as best as I can tell, values have fallen by about 1/3.
Consider a loan originated 5 years ago at a 5.5 percent cap rate and a 70 percent LTV. The loan to value ratio would have been conservative, and yet if the loan had no amortization (certainly a possibility), the building owner would be upside down, with a loan due greater than the value of the real estate. These are the properties that are extremely difficult to refinance, and may produce the next credit crisis.
Of course, had the mortgages been self-amortizing without a bullet, many of the loans would not have turned into problems.
Many of these commercial loans are currently due or will soon be due. Many of them are performing well, in the sense that buildings, even after rent reductions, are producing sufficient cash flow to cover debt service. But because expectation have changed, capitalization rates have risen. This creates a problem.
Real Estate may be valued similarly the way stocks are values using the Gordon Growth Model. Income gets capitalized into value via a capitalization rate, which has two basic terms: a required rate of return, or discount rate, and an expected rental growth rate. The formula for valuation is simply V = Income/(r-g), where V is value, r is the discount rate and g is the expected growth rate.
Five years ago, a high quality office building would have a cap rate of 5.5 percent. The ten year treasury rate at the time was around four percent, so the 5.5 cap rate might have reflected that four percent rate plus a three percent risk premium less a 1.5 percent expected growth rate in rents (4+3-1.5).
Now, the ten year treasury rate is around 3 percent (actually 3.24 at this writing), which would tend to push down cap rates. but risk premia have widened, and rents are expected to fall. Suppose the risk premium is now 5 and rents are expected to fall one percent per year (they don't change that much from one year to the next because long term leases are in place). Now we get a cap rate of 3+5+1, or 9 percent. This would imply property values falling by (1-5.5/9), or a little less than 40 percent. This may overstate what is happening--as best as I can tell, values have fallen by about 1/3.
Consider a loan originated 5 years ago at a 5.5 percent cap rate and a 70 percent LTV. The loan to value ratio would have been conservative, and yet if the loan had no amortization (certainly a possibility), the building owner would be upside down, with a loan due greater than the value of the real estate. These are the properties that are extremely difficult to refinance, and may produce the next credit crisis.
Of course, had the mortgages been self-amortizing without a bullet, many of the loans would not have turned into problems.
Tuesday, May 19, 2015
Technorati Sucks - Day 362
It is now 362 days since Technorati has updated this blog. This is not the only blog of mine that this has happened too.
This blog presently rank's 3,260,072 in the world. I have pinged them and recently emailed them. But they won't update.
I need to do something.
I assume that someone from T scans the web. So what I am going to do is this. Each day I will ping them. Each day that they fail to update I will run another Technorati sucks post. Let's see how long it takes them to pick it all up and do something about it.
Urban Densities Around the World
Paul Krugman this morning was contrasting Atlanta and Berlin for Urban Density. That ain't nothing: check out Atlanta vs. Mumbai. The graph comes from Alain Bertaud.
A Former Student of mine writes from Sichuan
From Yanmei Xie
INTO THE MOUNTAINS
It seemed luck was compensating me after a sleepless night stranded in Shanghai. The cab driver who picked me up at the Chengdu Shuangliu Airport told me he had been driving into earthquake stricken towns a lot and that he knew ways to by pass the government's traffic control.
We set off immediately after I dropped off my luggage.
The cabbie's name is Lai Si, and I call him uncle Lai. He told me he had been working as a volunteer, sending rescue supplies to disaster zones and shuttling victims out in the fast few days.
We drove into the mountains. The road became narrower and steeper, some portions partially blocked by boulders or giant piles of mud. The force of the quake had stripped some of the cement surface, pushed some parts up and pressed others down. A four-inch crack split the road in the middle. Uncle Lai deftly navigated on this terrain and tried to stable the vehicle to accommodate my attempt to videotape the scene.
We picked up a villager on our way. A few more miles up in the mountain, he said we had arrived in Hongbai village, or what's left of if—piles of smashed bricks, broken wood columns, pieces of clothes, dangling concrete frames. Abandoned chickens and pigs were roaming in the debris looking for food. For miles and miles, not a single building was standing. The village used to sit in a valley. The villager pointed across the valley and showed us a mountainside covered by a yellow blanket of mud and rocks. "More than a dozen families," the villager said, "were buried by the landslide over there."
Some survivors moved to government supplied tents, but there were not enough for everyone. On the roadside stood a makeshift tent haphazardly cobbled together with wood columns and tarp. A woman stooped outside of the tent, washing some odd pieces of frying pans and bowls. I walked over and said: "Hi, sorry for interrupting." She looked up, eyes swollen, and stared at me blankly.
"Could you, could you tell me what happened?" I stuttered.
"My house was here." She murmured, raised one arm slightly and gestured towards the tent. The gesture seemed to be too much for her. Her arm collapsed into her body, her head dropped, lower than before, and started to scrub a pan again and again. It was too much for me, too. I turned my video camera away and walked back to my car.
Many soldiers and volunteers had arrived. They were busy distributing food and water and spray the debris with disinfectant. No one could tell how many died in the village.
Some told me more than a thousand had perished. One villager said the death toll was much higher than that. All said that the local government tried to understate the casualties to higher ups initially. They believed it delayed rescue and relief for them as attention was turned to other hard-hit counties and villages.
Uncle Lai called me back to the car and told me that we'd better head back before it turned dark. Deeper in the mountains, there are still towns that haven't been heard since the earthquake.
On our way back, a medical team stopped us and sprayed our car and ourselves with disinfectant.
INTO THE MOUNTAINS
It seemed luck was compensating me after a sleepless night stranded in Shanghai. The cab driver who picked me up at the Chengdu Shuangliu Airport told me he had been driving into earthquake stricken towns a lot and that he knew ways to by pass the government's traffic control.
We set off immediately after I dropped off my luggage.
The cabbie's name is Lai Si, and I call him uncle Lai. He told me he had been working as a volunteer, sending rescue supplies to disaster zones and shuttling victims out in the fast few days.
We drove into the mountains. The road became narrower and steeper, some portions partially blocked by boulders or giant piles of mud. The force of the quake had stripped some of the cement surface, pushed some parts up and pressed others down. A four-inch crack split the road in the middle. Uncle Lai deftly navigated on this terrain and tried to stable the vehicle to accommodate my attempt to videotape the scene.
We picked up a villager on our way. A few more miles up in the mountain, he said we had arrived in Hongbai village, or what's left of if—piles of smashed bricks, broken wood columns, pieces of clothes, dangling concrete frames. Abandoned chickens and pigs were roaming in the debris looking for food. For miles and miles, not a single building was standing. The village used to sit in a valley. The villager pointed across the valley and showed us a mountainside covered by a yellow blanket of mud and rocks. "More than a dozen families," the villager said, "were buried by the landslide over there."
Some survivors moved to government supplied tents, but there were not enough for everyone. On the roadside stood a makeshift tent haphazardly cobbled together with wood columns and tarp. A woman stooped outside of the tent, washing some odd pieces of frying pans and bowls. I walked over and said: "Hi, sorry for interrupting." She looked up, eyes swollen, and stared at me blankly.
"Could you, could you tell me what happened?" I stuttered.
"My house was here." She murmured, raised one arm slightly and gestured towards the tent. The gesture seemed to be too much for her. Her arm collapsed into her body, her head dropped, lower than before, and started to scrub a pan again and again. It was too much for me, too. I turned my video camera away and walked back to my car.
Many soldiers and volunteers had arrived. They were busy distributing food and water and spray the debris with disinfectant. No one could tell how many died in the village.
Some told me more than a thousand had perished. One villager said the death toll was much higher than that. All said that the local government tried to understate the casualties to higher ups initially. They believed it delayed rescue and relief for them as attention was turned to other hard-hit counties and villages.
Uncle Lai called me back to the car and told me that we'd better head back before it turned dark. Deeper in the mountains, there are still towns that haven't been heard since the earthquake.
On our way back, a medical team stopped us and sprayed our car and ourselves with disinfectant.
The frustrations of Academic Life
Was about to ship a paper off for journal consideration and discovered a mistake. I am just hoping it turns out not to be material.
End of the Line - the Great Northern Railway
In an earlier post I looked in a preliminary way at the history of New England's railways.
This photo looks south across the border from Queensland and shows the end of what was once the Great Northern Railway.
Just to the right of the photo, the Queensland railway lines still cut through the road.
Unlike the New South Government which simply abandoned the lines, Queensland has kept its tracks open.
Karen Pence Showed that TALF may be working
Karen Pence of the Fed gave a talk at the Homer Hoyt Institute meetings the other day. She had a couple of interesting points:
(1) With respect to auto loans, the Term Asset-Backed Securities Loan Facility (or TALF) seems to be working. Spreads on Auto-loan related ABS, while still high, have come down considerably since the autumn. Auto relted lending has also loosened since December.
(2) The availability of auto credit has an important impact on auto spending. As bad as the demand for autos is, it would be even worse in the absence of TALF.
I would post Karen's graphs, but I don't have a copy of a paper yet. They are pretty interesting and revealing.
TALF is an awfully good deal for investors, because they can lever up without recourse to buy pretty good securities. It is not alas available for retail investors.
(1) With respect to auto loans, the Term Asset-Backed Securities Loan Facility (or TALF) seems to be working. Spreads on Auto-loan related ABS, while still high, have come down considerably since the autumn. Auto relted lending has also loosened since December.
(2) The availability of auto credit has an important impact on auto spending. As bad as the demand for autos is, it would be even worse in the absence of TALF.
I would post Karen's graphs, but I don't have a copy of a paper yet. They are pretty interesting and revealing.
TALF is an awfully good deal for investors, because they can lever up without recourse to buy pretty good securities. It is not alas available for retail investors.
Monday, May 18, 2015
Four quick takeaways from a subprime conference in Florida
Your's truly just returned from a conference he organized (with help from Susan Wachter, Marsha Courchane, Carol Reynolds, Bobbi Bernardini and Ron Donohue) on the subprime crisis the Weimer School of the Homer Hoyt Institute. I will speak in more detail about some of the issues later this week, but in the meantime, I want to put out four quick takeaways:
(1) Dennis Capozza says that defaults will not peak until around 2011.
(2) Amy Cutts says that the optimal statutory foreclosure period is something like 4 to 6 months--enough time to allow borrowers who can be saved to fix their problem, but not so long that they like the benefits of free rent.
(3) Something like 30 percent of subprime borrowers who used subprime to purchase a home put none of their own money into the transaction.
(4) Charles Leung has a nice model that shows that Central Banks are better off targeting the general price level, rather than asset prices.
More to come...
(1) Dennis Capozza says that defaults will not peak until around 2011.
(2) Amy Cutts says that the optimal statutory foreclosure period is something like 4 to 6 months--enough time to allow borrowers who can be saved to fix their problem, but not so long that they like the benefits of free rent.
(3) Something like 30 percent of subprime borrowers who used subprime to purchase a home put none of their own money into the transaction.
(4) Charles Leung has a nice model that shows that Central Banks are better off targeting the general price level, rather than asset prices.
More to come...
Sunday, May 17, 2015
A little experiment in house price indexes
Among my favorite web site's is Morris Davis'. One feature of the site is a page of data that Morris and his colleagues have developed: among them is an estimate of land prices in the United States.
This morning, I looked at the change in real land prices in the United States. Between 1980 and 1997, real land prices (as deflated by the CPI) increased by 4.4 percent per year. I chose 1980 because Morris told me the data has some problems previous to that year, and 1997 because that was the year of the first inflection point in the movement of house prices (an even more impressive inflection began around 2002). The 4.4 percent rate is thus almost certainly fundamental, and does not reflect any bubble.
The question I wanted to ask is whether land is now over-valued or under-valued based on a 4.4 percent long-term real growth path. Unfortunately, Morris' data ends with 2007. For land values to have returned to a 4.4 percent long-term growth path, land values would have needed to have fallen about 1/3 since the end of 2007.
Actually, it is plausible that they have fallen more than this. From the end of 2015 to the end of 2015, the Case-Shiller house price index fell by 20 percent. But the value of structure changes very slowly, while the value of land changed quite rapidly. Land makes up about 1/3 of house values, implying that for house prices to fall by 20 percent, land prices must have fallen around 60 percent. Let's say that falling labor costs and commodity prices meant that construction costs fell a little bit, and that land value fell by only 40 percent. This still means that relative to its long term fundamental trend, land values overshot on their way down.
[Update. Morris has more recent data on the Lincoln Institute Web Site. His estimate is that land prices fell by 53 percent just between the end of 2007 and the beginning of 2015. This suggests that relative to long term trends, land prices overshot downward.]
This morning, I looked at the change in real land prices in the United States. Between 1980 and 1997, real land prices (as deflated by the CPI) increased by 4.4 percent per year. I chose 1980 because Morris told me the data has some problems previous to that year, and 1997 because that was the year of the first inflection point in the movement of house prices (an even more impressive inflection began around 2002). The 4.4 percent rate is thus almost certainly fundamental, and does not reflect any bubble.
The question I wanted to ask is whether land is now over-valued or under-valued based on a 4.4 percent long-term real growth path. Unfortunately, Morris' data ends with 2007. For land values to have returned to a 4.4 percent long-term growth path, land values would have needed to have fallen about 1/3 since the end of 2007.
Actually, it is plausible that they have fallen more than this. From the end of 2015 to the end of 2015, the Case-Shiller house price index fell by 20 percent. But the value of structure changes very slowly, while the value of land changed quite rapidly. Land makes up about 1/3 of house values, implying that for house prices to fall by 20 percent, land prices must have fallen around 60 percent. Let's say that falling labor costs and commodity prices meant that construction costs fell a little bit, and that land value fell by only 40 percent. This still means that relative to its long term fundamental trend, land values overshot on their way down.
[Update. Morris has more recent data on the Lincoln Institute Web Site. His estimate is that land prices fell by 53 percent just between the end of 2007 and the beginning of 2015. This suggests that relative to long term trends, land prices overshot downward.]
Friday, May 15, 2015
Keeping a blog up to date - and interesting
I spent a fair bit of time on New England New State Movement - consolidated posts linked to the fight for New England self government because I wanted to make the post as useful as possible. However, in doing so I became a more than a tad dissatisfied.
I found the posts that I had written too fragmentary to properly support the story I wanted to tell. I also became dissatisfied with the standard and variety of some of the posts that I had written.
I know that all bloggers struggle sometimes in keeping their posting up to date, especially where more than one blog is involved. There is then a temptation, one that becomes especially strong when posting is behind, to rush stories just to keep the posting up.
As is true of the web in general, content is king when it comes to a successful blog. I have found two things to be of importance here.
The first is momentum. When I am posting regularly I find it much easier to generate new ideas, to find things to say, because the posts themselves generate ideas.
The second important thing is depth. Where there are a number of posts on a topic that together tell a story or provide information in a linked way, then there is greater value for a reader. Depth also encourages further posts as a way of filling gaps.
Depth takes time and effort. At first the stories are fragmented, isolated. Only with time does the depth build so that past stories come to paint a picture rather than isolated blobs of colour.
Looking back, I can see a slow upward trend in traffic. That's good. But looking now, I can see the gaps. I think that I need to spend more time filling some of those gaps if I am to really achieve what I want.
Will this make the blog interesting? I don't know. Interest is always in the eye of the beholder. I suppose the only way that I can measure interest is through traffic.
Freddie Mac's losses--worse than they look
Charles Duhigg has a good explanation in today's New York Times. The really scary part is that the company's capital has been reduced to about $16 billion, which puts it at a 50-to-one leverage ratio. They need to raise capital now--I am guessing they will find their common stock offering to be expensive for their current shareholders.
Thursday, May 14, 2015
What makes liberal economists...liberal?
I like economics a lot. Every time a new issue of The Quarterly Journal of Economics (my favorite journal right now--AER is a strong second)comes out, I am very excited.
Yet I am a liberal. I think incentives are important (I support Welfare Reform and School Choice), but I also think that all working people should be able to live at a reasonably decent living standard (so I also support a generous EITC and minimum wage), and that we as a society as a whole should provide all manner of social insurance, including Social Security and universal health care. I therefore find myself disappointed when smart people like Kenneth Rogoff and Anne Krueger support McCain's economic policies--particularly since I took a class in graduate school from Rogoff and had the same dissertation adviser as Krueger.
But while I learned a lot from Rogoff, it struck me when I was a student that there was a fundamental difference between us (beyond the fact that he is an order of magnitude smarter than I), a difference that hit home when he lectured on his political business cycle work. While I think economics helps give us powerful insights into how humans behave, I think he believes that economics by itself explains how humans behave. And while I think that random shocks (such as being born smart, or in the United States) are at least as important as individual effort in determining our fate in life, I think he believes the converse.
We as a society do want to encourage effort, because it leaves us all better off. But as the recent natural disasters in Burma, China, and, yes, New Orleans have shown, we never will have anything like complete control of our lives. Those of us who have gotten good draws should have some empathy for those that haven't.
Yet I am a liberal. I think incentives are important (I support Welfare Reform and School Choice), but I also think that all working people should be able to live at a reasonably decent living standard (so I also support a generous EITC and minimum wage), and that we as a society as a whole should provide all manner of social insurance, including Social Security and universal health care. I therefore find myself disappointed when smart people like Kenneth Rogoff and Anne Krueger support McCain's economic policies--particularly since I took a class in graduate school from Rogoff and had the same dissertation adviser as Krueger.
But while I learned a lot from Rogoff, it struck me when I was a student that there was a fundamental difference between us (beyond the fact that he is an order of magnitude smarter than I), a difference that hit home when he lectured on his political business cycle work. While I think economics helps give us powerful insights into how humans behave, I think he believes that economics by itself explains how humans behave. And while I think that random shocks (such as being born smart, or in the United States) are at least as important as individual effort in determining our fate in life, I think he believes the converse.
We as a society do want to encourage effort, because it leaves us all better off. But as the recent natural disasters in Burma, China, and, yes, New Orleans have shown, we never will have anything like complete control of our lives. Those of us who have gotten good draws should have some empathy for those that haven't.
Means, Variances, and Coaching.
Malcolm Gladwell writes that basketball teams with inferior talent should run full court presses. The full court press is a high risk defensive strategy: it raises the likelihood that a defensive team gets a steal and an easy basket, but it also raised the likelihood that the opponent will get an easy basket. It is a higher variance strategy than a standard defensive strategy.
Such a strategy makes sense for a team with little talent. Such a team wants to raise the variance of outcomes, because it is the only way it can win. If an inferior team pursues a variance minimizing strategy, it will always lose, because its mean outcomes are lower than those of superior teams.
The worst coach I ever saw in any sport was the football coach for the Wisconsin Badgers before Barry Alvarez, a man named Don Morton. He was a horrible recruiter, so the team's talent was poor. He also ran a minimum variance strategy: three rushes in a row (around 2 yards per rush) and then a punt. During his time at Wisconsin, the Badgers won three Big Ten games in three years.
On the other hand, superior teams should attempt to minimize variance in the game. It is why I am not sure Brett Favre was a net plus to his teams over the past few years--he probably added too much variance. Mike Holmgren was a genius at reducing Favre's variance. I think had he stayed with the Packers, the two of them would have won a couple of more Super Bowls.
A study I would like to do at some point is a determination as to whether Walter Payton was more valuable than Barry Sanders. Sanders yards per carry average was much high than Payton's, but he surely gained the yards with a lot more variance. Someone needs to measure the two variances and run simulations. Perhaps after I retire.
The ideal back would get 3.5 yards per carry with no variance: such a back would guarantee scores and burn clock, giving the defense an opportunity to rest.
Such a strategy makes sense for a team with little talent. Such a team wants to raise the variance of outcomes, because it is the only way it can win. If an inferior team pursues a variance minimizing strategy, it will always lose, because its mean outcomes are lower than those of superior teams.
The worst coach I ever saw in any sport was the football coach for the Wisconsin Badgers before Barry Alvarez, a man named Don Morton. He was a horrible recruiter, so the team's talent was poor. He also ran a minimum variance strategy: three rushes in a row (around 2 yards per rush) and then a punt. During his time at Wisconsin, the Badgers won three Big Ten games in three years.
On the other hand, superior teams should attempt to minimize variance in the game. It is why I am not sure Brett Favre was a net plus to his teams over the past few years--he probably added too much variance. Mike Holmgren was a genius at reducing Favre's variance. I think had he stayed with the Packers, the two of them would have won a couple of more Super Bowls.
A study I would like to do at some point is a determination as to whether Walter Payton was more valuable than Barry Sanders. Sanders yards per carry average was much high than Payton's, but he surely gained the yards with a lot more variance. Someone needs to measure the two variances and run simulations. Perhaps after I retire.
The ideal back would get 3.5 yards per carry with no variance: such a back would guarantee scores and burn clock, giving the defense an opportunity to rest.
Stunning Overbuilding Fact of the Day
I am listening to a presentation at the Homer Hoyt meetings on the condo meltdown in South Florida. Developers planned on building 95,000 units in the city of Miami between 2002 and 2007. In the 2000 census, the whole city had 163,000 units.
Tuesday, May 12, 2015
How do you produce a 63 day winning streak?
Here is how I have been trying to figure this out. Suppose we wanted to figure out what a daily winning percentage had to be in order to observe a 50 percent probability of a 63 day winning streak. It would be (.5)^(1/63), because the probability of 63 straight wins would be Pr(one win)^(63). It turns out that (.5)^(1/63)=.989, which I will round to .99.
Now lets say a firm has a proprietary trading model that is correct 51 percent of the time. This means that on the average day, it will come out ahead (suppose all trades are $1 trades). But if a trader makes one trade a day, he will close the day ahead only 51 percent of the time. If he makes 100 trades a day, however, while his winning percentage per trade remains the same, put his winning percentage per day goes up a lot. Specifically, the standard error for a daily outcome goes down by 1/10, from sqrt(.51*.49) to sqrt(.51*.49/100), or from about .25 to .025. The chance of finishing the day losing on average is based on how many standard deviations away .5 is from .51. In this case, it does from .01/.25 (or not far at all) to .01/.025, or .4 standard deviations away. In a normally distributed world, this means there is a 65 percent chance of finishing the day ahead, assuming each trade has a .51 batting average and 100 trades per day.
To get to winning 99 percent of days, we need to get the standard error for the day to be sufficiently low that .5 is more 2.4 standard deviations away from .51, so the standard error needs to be .01/2.4 or about .004. So we need to find X such that sqrt((.49*.51)/X)=.004. or X=.25/(.004^2)=15,625 trades per day.
Three big assumptions go into this calculations. First, it assumes a stable model. Over the course of one quarter, this may be reasonable. Second, it assumes a model with a 51 percent winning percentage. This is a huge assumption (I do not know what a reasonable number might be). Third, it assumes normality. This is probably not too bad; we do know that Chebyshev's Inequality says that (1-1/k^2) share of any distribution must be within k standard deviations of the mean. This means that 99 percent of any distribution is within 10 standards deviations, but that is an extreme outcome.
Now lets say a firm has a proprietary trading model that is correct 51 percent of the time. This means that on the average day, it will come out ahead (suppose all trades are $1 trades). But if a trader makes one trade a day, he will close the day ahead only 51 percent of the time. If he makes 100 trades a day, however, while his winning percentage per trade remains the same, put his winning percentage per day goes up a lot. Specifically, the standard error for a daily outcome goes down by 1/10, from sqrt(.51*.49) to sqrt(.51*.49/100), or from about .25 to .025. The chance of finishing the day losing on average is based on how many standard deviations away .5 is from .51. In this case, it does from .01/.25 (or not far at all) to .01/.025, or .4 standard deviations away. In a normally distributed world, this means there is a 65 percent chance of finishing the day ahead, assuming each trade has a .51 batting average and 100 trades per day.
To get to winning 99 percent of days, we need to get the standard error for the day to be sufficiently low that .5 is more 2.4 standard deviations away from .51, so the standard error needs to be .01/2.4 or about .004. So we need to find X such that sqrt((.49*.51)/X)=.004. or X=.25/(.004^2)=15,625 trades per day.
Three big assumptions go into this calculations. First, it assumes a stable model. Over the course of one quarter, this may be reasonable. Second, it assumes a model with a 51 percent winning percentage. This is a huge assumption (I do not know what a reasonable number might be). Third, it assumes normality. This is probably not too bad; we do know that Chebyshev's Inequality says that (1-1/k^2) share of any distribution must be within k standard deviations of the mean. This means that 99 percent of any distribution is within 10 standards deviations, but that is an extreme outcome.
My colleague Richard Little makes me revisit my view on High Speed Rail
He writes to the Wall Street Journal:
I had not considered his counter-factuals before. Such is always the problem with benefit cost analysis.
The decision by the Obama administration to add more funds for high-speed rail needs to be read in the context of the Environmental Protection Agency's intention to regulate greenhouse-gas emissions ("U.S. Commits $13 Billion to Aid High-Speed Rail," U.S. News, April 17).
High-speed electrified trains, properly designed and located, could provide much needed interurban passenger capacity while minimizing these emissions. Although high-speed rail probably won't "pencil out" financially in the short term, in the longer view the rail transportation system won't be competing with cheaper options from the past. The EPA decision could place significant limits on additional highway capacity and the ability to add to the number of flights at already overcrowded urban airports.
Under these conditions, what appears too costly today may, in fact, be a prudent investment for tomorrow.
I had not considered his counter-factuals before. Such is always the problem with benefit cost analysis.
Monday, May 11, 2015
New England Beer - Murray's Craft Brewing Co
In my last post I commented on the demise of the Grafton brewery. I have now discovered a new New England beer. My thanks to the Australian Regional Food Guide for alerting me to it.
In an earlier story on Slim Dusty I referred to his classic song The Pub with no Beer. The pub in question was located at Taylor's Arm (population 50) on New England's Mid North Coast.
I now find that Murray ’s Craft Brewing Co. was launched in December 2005 and is based at the Pub With No Beer. The unconventional brewer has quickly gained a reputation for brewing distinctive and adventurous beers, with the world class quality of its ales recognised not only through a fast-growing following of beer lovers, but also through beer awards.
Murray' s Craft Brewing Co. has won Silver medals for both its entrants in this year’s Australian International Beer Awards (AIBA) - Murray’s Nirvana Pale Ale and Murray’s Sassy Blonde.
With results announced in Melbourne last Thursday, the AIBA is Australia’s most prestigious beer event and the second largest awards of its type in the world. The awards were established in 1987 to reward excellence in the field of brewing and to assist in the promotion of the Australian brewing industry. A renowned barometer of diversity in beer brewing across the world, the 2015 event attracted 941 beers from a record 189 exhibitors across 39 countries.
Murray's Nirvana Pale Ale won Silver in the American Style Pale Ale class and Murray's Sassy Blonde, a Belgian-style Pale Ale believed to be the only beer of its kind brewed in the southern hemisphere, took out a Silver medal in the Other category of Packaged Ales.
The AIBA accolades follow two medal wins at the inaugural Sydney Royal Beer Competition, announced in February this year, which saw Murray's Nirvana Pale Ale receive a Silver medal (the highest award issued), and Murray’s Sassy Blonde a Bronze medal.
"The Silver medals are a great result for our little brewery, given the standard of competition this year. We’re especially thrilled to have our Sassy Blonde recognised at this level among its international peers. We’ve come a long way in just 18 months," says Assistant Brewer, Shawn Sherlock.
You can get a feel for the brewery from this you tube item.
You can buy the beer at the pub or by order. Details can be found on the Murray's site. This also includes a beer blog.
New England New State Movement - consolidated posts linked to the fight for New England self government
Graphic: New England New State Movement Anthem, National Library
We will raise the banner of New England
Work for New England,
Fight for New England
We will raise the battle cry of freedom
Fight for our Liberty
Part of the New England Anthem
Way up in the north of Northern NSW
There is a new state movement that's sort of on the go
But what will be the capital of this new state of ours?
That is the burning question that's being worrying them for hours
Will it be in Armidale, Tamworth or Bendameer?
Or will it be in Grafton the place where they make beer?
Song, University of New England Student Review, 1960s
I was browsing Wikedpia and I found a talk section on the New England New State Movement. I also found two of my blogs including this one listed as not suitable for citation but as a useful entry point for source material.
I added some information, and then thought that my own writing on the New England New State Movement is all over the place in terms of blogs and post topics. I have been meaning to put up a Wikipedia page on the movement, there is not one at present, but it would sensible to do something about consolidating my own stuff first.
My own biases on this matter will be clear. I was a member of the Movement and was in fact on the Executive for a period representing the University of New England New State Society. I remain a strong supporter of New England self government.
Since the Movement went into decline following the defeat at the 1967 plebiscite, its history and indeed that of New England itself has become lost. I believe that's a pity.
This post is intended to provide a consolidated entry point for my posts on the New England New State Movement. It is broken into two parts. The first simply provides a short overview of New England and the Movement. The second is an annotated list of posts broken up by topic.
I hope that the post is of some use to those interested in the topic. I will try to update from time to time.
The Snapshot
Name: New England was initially called Northern NSW, the North, the Northern Districts or the Northern Provinces. The name New England was originally the name of the Tableland area forming New England's core. The Tablelands are known as the Northern Tablelands, the New New England Tablelands or sometimes just the New England to distnguish them from the broader New England area.
The name New England was adopted for the whole area by the Northern Separation Movement at its 1931 Maitland convention. From there its usage spread, contracting again as the New State Movement went into decline after 1967.
Area: Because New England has never had a formal identity, its boundaries have varied with time. In broad terms, it covers the humid coastal strip from the Hunter Valley to the Queensland border, the New England Tablelands and the immediately adjoining Western slopes and Plains.
In economic and geographic terms, New England forms a natural unit that has survived to the present day. The modern TV aggregation boundaries, as an example, reflect the New England core.
In political terms,the boundaries have varied. The initial separation discussions excluded the Hunter, in part because of tensions between the industrial and mining heartland of the lower Hunter and the rest of the area. The problem with this is that Newcastle and the Hunter are a logical part of New England. The boundaries recommended by the 1935 report of the Nicholas Royal Commission into areas of NSW suitable for self-government included Newcastle and the Hunter. These boundaries were adopted by the New England New State Movement and used as the basis for the 1967 self-government referendum.
New State Agitation. The first separatist agitation occurred during colonial times at the the time of the separation of Queensland from NSW. While this was followed by outbreaks of agitation,these remained sporadic.
This changed in the twentieth century. Agitation began again at Grafton ltowards the end of the First World War led by Earle Page, a local doctor and later a prominent Australian politician. This was picked up a little later by Victor Thompson, editor of the Tamworth Northern Daily Leader who launched a sustained newspaper campaign that involved papers as far south as Cessnock in the lower Hunter. This led to the creation of a formal movement. One outcome was the 1924 Cohen Royal Commission into New States.
The Cohen Commission ruled against to the movement and it went into decline, resurging at the start of the depression. This forced another Royal Commission, the Nicholas Commission. While this recommended in favour, the movement was again in decline as economic conditions improved.
Agitation started again at the end of the Second World War and this time was sustained by permanent staff. In 1961 the movement launched Operation Seventh State, raising over 100,000 pounds. This allowed more staff and greater agitation, culminating in the 1967 referendum.
The no vote was led by the Labor Party who campaigned hard. The very high no vote in the Labor strongholds of Newcastle and the Lower Hunter offset the majority yes vote elsewhere, although the no margin was not high. Exhausted, the movement collapsed.
The Posts
Because of the importance of the topic to me, material about the separation movements and the New England self government cause can be found in many posts. I have tried to select posts that will give the interested reader an entry point. Uou will find the material somewhat fragmented. Looking at the posts reminded me just how many unfinished series and indeed incomplete posts I have.
Geography
New England's geography is central to its story because it both divided and provided a natural unity.
- Geography of New England - Introduction
- On Travel Time and Our Sense of Space. This post explores the relationship between travel modes and our perception of the world, taking New England in 1907 as a key example.
- Geography of New England - Impact of Great Dividing Range
- New England & Queensland - a truncated relationship
- Early European Settlement in New England. Geography, settlement and the formation of long-standing patterns.
- New England & Queensland - a further note
The Changing Definition of New England
As indicated in the introduction to this post, both the names used to describe New England and the meaning attached to New England itself has varied with time.
Introduction to the History of New England
The history of Northern NSW has yet to be written, with the area squeezed between the state or national level on one side, the narrow regional or local on the other.
- New England Timelines
- Towards a Course on the History of New England - Introduction
- Towards a Course on the History of New England- The Colonial Period. Includes discussion of the influence of geography
- The Economic Basis of Traditional Aboriginal Life in New England. Part completed post, including discussion on geography.
- History of New England: the impact of transport costs. Fights for better transport form one of the enduring themes in New England's history. Drawing from Geoffrey Blainey, this post looks at the economics of transport.
- New England Australia - Railways Introduction also looks at the influence of transport, this time focused on railways.
Politics - historical
During the colonial period, New England politics was dominated by the Sydney based factional political system, with particular local manifestations. The emergence of the party political system saw the new Labor Party and the Progressive/Country Party compete for influence. Labor influence was strongest in Newcastle and the mining areas of the Lower Hunter, the Country Party came to dominate elsewhere. New England interests dominated the NSW Country Party.
In addition to the political parties, the separation movement exercised varying degrees of influence. There were close links between the separation movement and the Country Party in terms of leadership and aspirations, especially in the period between the wars. This added to Labor's opposition to separation.
Today the National Party (the name the Country Party came to take) is in serious decline in its previous New England heartland, in part because of the rise of the New England independents who better represent continuing local differences.
- The past is always present. A note on the Labor Party.
- The past is always present - the Country Party
- The past is always present: the Country Party continued
- Country Party - annotated bibliography
Separation Movements - history
From sporadic outbreaks in colonial times, the various separation movements came to represent a unique and powerful element in New England's history, creating common views across sectional and parochial interests.
- New England's Boundaries. Includes brief note on the colonial period.
- References Colonial Period New England New State Movement
- New England New State Movement - Reference Sources
- The New England New State Movement and Regional Movements in Australia 1
Current Politics
I have selected a few posts on current politics that contain information linking present and past.
- New England, Australia - State Electorates
- NSW Ten Year Plan - New England's needs
- Does the NSW Ten Year Plan meet New England's needs?
- NSW Ten Year Plan and New England - Conclusions
- NSW Elections 2015 - final Legislative Assembly results
- New England's Federal Electorates - Welcome Visitor 8,000
- New England Australia - Newcastle's decline
- Australia's Water Wars - Introduction
- The Clarence River and the Great Big Water Grab 2 - the issues
- New England Australia Demography - Stocktake of posts as at 28 September 2015
- Regional Variation and Australia's Aborigines
- Why I remain a New England New Stater 1 - Introduction. This is a series of short posts taking examples to show why I remain a new stater.
- Teasing Neil - but with a serious point compares the Sydney and New England Federal electorates.
- New England's Federal Electorates - Cowper
- New England - Federal Election Eve 2015: and the next day
New England Thought
New England developed its own forms of thinking conditioned by its geography and history.
- Sunday Essay - The beliefs of a New England populist
- Saturday Morning Musings - literature, locale and license
- Populism - the New England Tradition: Introduction
- Kansas, Thomas Frank, New England, Jim Belshaw
- Constitutional Change in Australia - the view from 1926: Introduction. This is the first post in a series taking the writings of David Drummond, the New England Movement's main constitutional writer, as a base.
- Constitutional Change in Australia - the view from 1926: Three streams of constitutional thought
- Constitutional Change in Australia - the view from 1926: Constitutional principles
- Water, new states and the intellectual poverty of current Australian discussions on Federalism
To be continued
Subscribe to:
Posts (Atom)