Archive for October, 2009

Using Immigration to (Re)Inflate Housing

Posted in Econ on 20091019 by Avenging Sword

Recently read an interesting proposal by John Mauldin:  use immigrants to prop up the housing market.  After all, if housing is deflating because supply exceeds demand at current prices, we can avoid attempting to balance supply & demand via lower housing prices by increasing demand.

I’d read earlier proposals (*) along such lines, but Mauldin’s addressed many of the concerns I had about previous proposals.  E.g.,

Relation of such a proposal to current immigration levels:

I am suggesting we transform the already existing legal immigrant flow, which is going to happen anyway, into a form which helps us solve a major crisis. I am not talking about adding another 1 million immigrants on top of the current legal inflow. Just change the nature of that inflow until the excess housing inventory is settled, and then we can go back to the current program, if that is what is wanted…I am not suggesting we bring in or condone illegal immigrants.

Qualifications of the immigrants in question:

Background checks and references should be required. […] The immigrant should demonstrate the ability to support himself and his family for a period of time (at least one year, preferably two), including the purchase of health insurance. Cash or letters of credit or other guaranteed commitments would be required. Only immediate family members (spouse and children) would be allowed to come with the immigrant. Cousins and siblings must buy their own homes. The permanent visa should be contingent on not having gone on welfare or public assistance at any time in the past five years. […] I would make an exception in having 100% financing for immigrants with advanced degrees or special skills, especially those who did their schooling in the United States.

Alas, even given of such details, I’m not sure I can support this.  Which is annoying, since in good times I would probably favor it.  But now, in a time of recession, during deflation of a massive housing bubble?  I’m not so sure.

1.  For one thing, while housing deflation certainly hits some homeowners (namely, those with negative equity, whose mortgages were either always unaffordable, or suddenly become so), it also benefits others (e.g., first-time homebuyers, or current homeowners with plenty of equity who are looking to move).  I’m not so sure we ought to favor the former over the latter.

2.  Then again, there’s also the stimulative effect of massive investment by immigrants in our economy.  In a time of recession.  Something to consider.  OTOH, a “salutary effect on the value of the dollar”, resulting from the FDI attracted by this program, is exactly what we don’t need at present.  The dollar needs to come down, IOT close our trade deficit & spur our exports.  On the gripping hand, increasing exports also pressures the dollar upwards; and private-sector FDI is the type of foreign investment we should want to attract (as opposed to, say, hot money investments in highly-liquid securities).

3.  Re. housing prices & toxic assets – methinks making the latter whole requires more than simply housing purchases at current prices (which is what this plan would entail).  The credit quality of many of these assets was premised on zero housing deflation at the peak of the bubble (**).  Unless housing prices rose back to such peak levels, methinks many of those toxics will remain toxic.

4.  There’s also the (big) question of political feasibility.  This could be political dynamite (in a bad way) for those who support it.  The only upside to housing deflation is increased affordability for (mostly-American) homebuyers.  Importing immigrants to prop up demand (and hence prices) would eliminate that upside, while swelling the labor force in a time of unemployment.  Re. the latter, although sufficiently wealthy & skilled immigrants may indeed create jobs in the long term, unless they do so overnight (unlikely – any such effect would take years, as immigrants invested hereabouts, started new businesses, etc.), this plan will be perceived as basically contributing to unemployment.

The fact that we’re still currently allowing 1 million immigrants is irrelevant to the political feasibility of this proposal, IMHO.  (Are we, BTW?  I note that Mauldin’s only source for this stat is ’06 data.)  The same political factors I mentioned above (rising unemployment in particular) make me wonder whether this flow is sustainable either – particularly in the country that executed the Mexican Repatriation back in the ’30s.  On the best of days, American xenophobia remains latent, thanks to the Jacksonian tradition.  Xenophobia plus sufficiently high unemployment isn’t a pretty sight.

I find this unfortunate, since I actually agree with Mauldin et al’s take on the potential long-term contributions of such immigrants to our economy & society.

Other thoughts:

1.  Prohibiting rental of immigrant-purchased properties (as Mauldin suggests) would be key to propping up housing prices.  Otherwise, the latter continue to fall as millions of immigrant-owned rentals deflate rents – thereby preventing the necessary adjustment of price-rent ratios down to (non-bubble) trend levels.  However, I don’t see how feasible enforcement of this provision would be – are we going to inspect millions of immigrant-owned homes monthly, to ensure they’re owner-occupied?  Perhaps we could rely on local neighbors to report violators, but this doesn’t work if 1) most of the homes in a neighborhood are immigrant-owned (as is likely to be the case in many “bubble” neighborhoods; and 2) if the immigrant owner makes clear to neighbors that the choice is not between owner-occupancy & renter occupancy, but rather between rental or vacancy.

Then again, this may be a moot point.  AFAIK, foreigners are currently free to buy & rent out US-domiciled housing while they themselves remain domiciled abroad.  So, presumably, this sort of program would attract aliens indeed interested in becoming owner-occupiers who reside on US soil.  Even if such they didn’t live in the houses they bought, presumably they’d be living in a house somewhere in the US; as such, they’d still serve to prop up the overall US housing market.

2.  Even if we were to do this, I’d prefer a more general investment requirement (not limited to housing).  IMHO, we’ve historically overallocated resources to housing (and certainly in the last few years!).  We’d be better off encouraging investment in (say) export industries, or energy independence, or infrastructure than in housing.

Notes

(*) See, e.g., here, here, here, here, here, here, & here, for other mentions of this idea.

(**) See here (355 KB PDF), which notes that Fitch – the most conservative of the ratings agencies, didn’t even consider the possibility of sustained housing depreciation when rating CDO’s.  Also here (2 MB PDF), which notes that the credit quality of subprime mortgages for homebuyers (and hence of RMBS based thereupon) was basically premised on perpetual housing appreciation.

The Backstroke of the West

Posted in Random on 20091004 by Avenging Sword

A long time ago (ca. mid-’00s), in a country far, far, away (i.e., Iraq), I came across “The Backstroke of the West“, and found it utterly hilarious.

Well, this past (Chinese) New Year, an update was posted.  Still hilarious.

Signs of Intelligent Life, Redux

Posted in Poli-ticks on 20091003 by Avenging Sword

Perhaps I’m just taking this too seriously, but upon further consideration, it seems I have another bone to pick with John Perry’s silly coup idea.  In particular, there’s the apparent presumption, running through the article, that such a coup would be a relatively minor, surgical, “civilized” affair:

America isn’t the Third World. If a military coup does occur here it will be civilized. […]

[…]

Imagine a bloodless coup to restore and defend the Constitution through an interim administration that would do the serious business of governing and defending the nation. Skilled, military-trained, nation-builders would replace accountability-challenged, radical-left commissars. Having bonded with his twin teleprompters, the president would be detailed for ceremonial speech-making. [Emphases added]

Beyond a perfunctory observation that, “A coup is not an ideal option…”, the remainder of the article is similarly devoid of any discussion of the potential downsides of this course of action.

Color me overly-paranoid, but IMHO, this apparent idea that matters will stop with a “bloodless coup” & “interim administration” is naïve at best.  Perhaps Perry might view such a coup as a one-time thing prompted by an unprecedented crisis – as something that will never happen again (or at least, not until the Right discovers some other President is dislikes as much as Obama). And, perhaps he’s right, and this wouldn’t set a precedent; and both the American people and the U.S. military would somehow forget that a sitting President was removed from office by the officer corps of Armed Forces of the United States.  I strongly suspect, however, that the consequences of such a “bloodless coup” would reach beyond the immediate & obvious.

American civilians love their military. (Yes, there are the kooks, but even they are notable mainly because of their rarity.)  This is true, even though it’s the sort of standing army our country has historically feared.  There seem to be a couple of reasons for this.  First, when civilians look at the military, they do not see The Other.  They see a reflection of themselves – ordinary citizens who have chosen a life of service. But they also love the military because, by and large, they do not view said military as a threat, or an engine of oppression and despotism. Even though it is a standing army, it is a tame one; therefore, Americans see little problem with weapons procurement, military spending, etc., because the idea that such weapons might one day be turned against them is laughable.

All of this would change in the aftermath of Perry’s coup. That historically rare trust between the U.S. military and the American citizenry – now so strong that the prospect of an American military coup is almost never even considered, let alone taken seriously, by either the officer corps or the populace at large – would disappear overnight.  For a large proportion of the American populace, the Armed Forces of the United States would no longer be “our military” – an institution much honored & beloved by the citizenry – but rather “the military” – an organization whose leadership will have demonstrated that it possesses the means (if not – yet – the motive or opportunity) to rob the paymaster.

Such an attitude could have interesting political consequences.  For example:

  • Will American taxpayers remain supportive of military spending while simultaneously fearing that those military weapons might one day be turned against them?
  • If the (imaginary) threat of Obama-induced gun control is sufficient to keep the gun industry out of recession…just imagine the reaction when a for-real military coup demonstrates that the Constitution really is “ink on a page”.
  • What might happen to recruiting, when the military is shown to be both a threat to the Constitution, and a potential means of political advancement?

Moreover, both civilian and military men, however, a precedent would be set, loud and clear, in the political equivalent of bolded caps lock:

IF YOU WISH TO BECOME, OR REMAIN, LEADER OF THE MOST POWERFUL COUNTRY ON EARTH, DON’T BOTHER COURTING THE AMERICAN ELECTORATE IF YOU DON’T HAVE THE SUPPORT OF THE U.S. MILITARY.

Or, with apologies to Tacitus: “A well-hidden secret of the late American Republic shall have been revealed: that it is possible for Presidents to be made in places other than the ballot box.” (*)

With such a realization in place, how long will it be before interested parties realize that the way to political power lies in courting the loyalties of the military?  The easy way to do this is through bribes, bonuses, etc. Perhaps even a special tax dedicated to the funding of the military? As Septimus Severus advised his sons: “Stay together, pay the soldiers, and take no heed for the people.” Interesting things can happen when politicians place far more emphasis upon the vote of the Legions than of the public at large. It is not much of a stretch to imagine the Legions concluding that such a peaceful robbery of the paymaster is rather more convenient than a de jure coup.

But it is not difficult to imagine military officers, with their penchant for decisiveness & directness, growing tired of the vagaries of politics. Also, the loyalty of a Legionnaire is far more durable when earned, not bought: Bonuses or not, military men are more likely to respect a commander who leads from the front, who cares about his troops, and who’s led them to victory…than they are to respect some @#%$%$# politician. Perhaps some ambitious commander who fits this description, and whose ambitions know no limits, will eventually decide to cut out the middleman? And, what happens when there’s more than one such commander?

Even with “bloodless” military coups, TANSTAAFL still applies.

[Aside:  Seeker312 covers some of the same ground here.]

(*) The original, from Book I of The Histories, reads:

A well-hidden secret of the principate had been revealed: it was possible, it seemed, for an emperor to be chosen outside Rome.

This was in reference to the fact that support by the Legions – the Roman military – was a sine qua non for any imperial claimant after Nero.

Constitutional Coups, Foreign & Domestic

Posted in Law, Poli-ticks on 20091001 by Avenging Sword

Jonathan Alder of Volokh Conspiracy notes a recent report by the Law Library of Congress, which discusses whether Honduran ex-President Zelaya was legally removed from office.  Said report concludes:

Available sources indicate that the judicial and legislative branches applied constitutional and statutory law in the case against President Zelaya in a manner that was judged by the Honduran authorities from both branches of the government to be in accordance with the Honduran legal system.

However, removal of President Zelaya from the country by the military is in direct violation of the Article 102 of the Constitution, and apparently this action is currently under investigation by the Honduran authorities.

Interesting.  Except for aspects of the military’s actions, it appears the recent Honduran coup was entirely constitutional.

It’s worth noting that, under the US Constitution, there are three modes whereby one might execute a “constitutional coup”.

First, there’s impeachment.  Although, technically, a President can only be impeached for “high crimes and misdemeanors”, there is (AFAIK) no judicial review of impeachments.  Ergo, in reality, “high crimes and misdemeanors” means whatever a majority of the House & two-thirds of the Senate want it to mean.

Second, there’s the Twenty-Fifth Amendment, which permits removal of a sitting President given the concurrence of the VP, a majority of the Cabinet, and two-thirds of each house of Congress.  The latter makes this method less preferable than impeachment.

Finally, Congress could parcel out various Executive-branch functions to various agencies whose staff is not subject to Presidential supervision or removal – which basically describes the growth of the “administrative state”.  The efficacy of this method is somewhat limited by the Art. II, Sec. 2, Clause 2’s requirement that the President participate (via nomination) in the appointment of all “Officers of the United States”.

And while we’re on the topic of domestic coups…it seems we (once again) have some Bright Light, by the name of John Perry, suggesting (*) the extra-constitutional variety.  I suppose I could comment on this, but I already did so a few years back – after another Bright Light, by the name of Martin Lewis, suggested that the Joint Chiefs of Staff place President Bush under arrest.

(*) The original article was here, but appears to have been removed.  Fortunately (or not), both the left & right wings of the blogosphere have seen fit to maintain copies of this particular seditious libel.