I just finished reading Stanford economist Thomas Sowell’s new book, The Housing Boom and Bust. It’s a really easy read, not too technical, but filled with a lot of good statistics. The thesis of the book can basically be summed up by the following paragraph:

In a complex story about intricate financial arrangements, it is possible to lose sight of a plain and fundamental fact - that behind all the esoteric securities and sophisticated financial dealings are simple, monthly mortgage payments from millions of home buyers across the country. When many of those payments stop coming, no amount of financial expertise in Wall Street or government regulatory intervention from Washington can save the whole investment structure built up on the foundation of those mortgage payments.

The bedrock question then is: Why did so many monthly mortgage payments stop coming? And the bedrock answer is: Because mortgage loans were made to more people whose prospects of repaying them were less than in the past. Nor was this simply a matter of misjudgment by banks and other lenders. The political pressures to meet arbitrary lending quotas, set by officials with the power of economic life and death over banks and over Fannie Mae and Freddie Mac, led to riskier lending practices than in the past.”

I wish Sowell wrote more about the effect of credit default swaps and other complex financial derivatives, but he pretty much dismisses those as “downstream effects”, while the real cause of the crisis was that people were living in homes they couldn’t afford, due to the political pressures on banks and regulators to lend or allow lending to those people, in the name of “affordable housing”.

Sowell also raises an interesting argument that I haven’t heard before. He says that the boom in real estate prices was really a local issue, and that most communities across the country did not see prices rise much more than inflation and incomes. In localities such as coastal California, Miami, Phoenix, Las Vegas, etc. land use restrictions were put in place to limit the land available for building homes. For example, in bubble areas such as San Mateo County in California, more than half of all land is designated as “open space” and cannot be developed. In places like Houston and Dallas, which have no such restrictions and which have seen incomes rise faster than the national average, there was no housing bubble. He argues that such land use restrictions are often put in place by wealthy elites in the name of environmental friendliness, smart planning, or protecting the community from urban sprawl. It has the secondary effect of artificially raising the home values for the people that already live in the community. Furthermore, he argues that these restrictions are unconstitutional, as it allows people to restrict building on land (the “open spaces”) that they do not own.

Sowell also leaves us with this discouraging statement regarding President Obama and his various economic interventions:

Whatever its shortcomings economically, what government job creation programs can do politically is create a large class of people beholden to the government and likely to vote for those who gave them jobs in hard times. The political success of the New Deal is beyond dispute. That FDR could be re-elected in a landslide in 1936 and re-elected again to an unprecedented third term in 1940, despite never having gotten unemployment down into single digits during his first two terms, is a sign that President Obama may also be able to succeed politically, even if his policies turn out to be an economic disaster for the country as a whole.”

Of course, large companies sometimes have advantages in other ways (industries with high startup costs, economies of scale, etc.) And also some might say that the regulations are put in place because the companies became too large. Nevertheless, it’s interesting to look at a list of the largest companies in 2008 (by revenue) in the U.S., and to see what industries they represent:

1. Wal-Mart - Retail
2. ExxonMobil - Energy/Oil
3. Chevron - Energy/Oil
4. General Motors - Automobiles
5. ConocoPhillips - Energy/Oil
6. General Electric - Congolmerate
7. Ford Motor - Automobiles
8. Citigroup - Banking
9. Bank of America - Banking
10. AT&T - Telecommunications

So in the top 10 we have companies representing banking, energy/oil, the auto industry, and telecom. Though I haven’t proved anything, I don’t think it’s a coincidence that these are some of the most heavily regulated industries in the country.

Another way of looking at is to look at the age of companies. The idea is that regulations would give the advantage to older, more entrenched corporations. That’s exactly what Brian Gongol has done. His data shows that corporations in countries with heavy regulations tend to be much older. Again, correlation doesn’t imply causation, but the data is interesting nonetheless.

So next time someone suggests that government somehow needs to restrain the size of banks, auto companies, or pharmaceutical companies, so that they don’t become too big (to fail) and powerful, think for a second that the reason those companies are so large may due to government involvement in the first place.

Get it on a t-shirt here:  http://thoseshirts.com/rob.html

She was born in Zambia, educated at Harvard and Oxford, and she worked for Goldman Sachs and The World Bank. And now she believes that it’s high time to cut off aid to Africa - within 5 years. I recently listened to Moyo’s appearance on NPR’s On Point with Tom Ashbrook. Her ideas are radical but they make perfect sense to me. Here are some points I picked up from the show:

• Most current aid to Africa is open-ended and without conditions - leads to indefinite dependence on foreign governments
• Only 20% of aid money actually gets to the intended recipients, due to corruption and inefficiencies in distribution.
• African governments are not accountable to Africans, but to non-governmental organizations (NGOs) and foreign governments.
• Total foreign aid since 1960 has reached $1 trillion.
• African governments must provide infrastructure, education, health care - reliance on foreign governments to provide these services will at the same time damage the long-term ability of African governments to do the same.
• Foreign aid has some benefits when it comes to disease treatment (malaria, AIDS/HIV), but it does not produce JOBS, which are the essential component to long-term economic development.
• Foreign aid mostly creates jobs for westerners, but not for Africans.
• Free cash disincentives Afircans to work and produce, and for governments to take responsibility.
• We know what works: India, Chile, Botswana, China, South Africa - these countries did not rely heavily on foreign aid but rather had accountable governments which embraces free market principles.
• No country in the history of the world has achieved long-term economic development by relying on the amount of aid that African countries do.

Also she has a new book coming out, entitled Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa.

It may be a bit of an unnecessary comparison, but Free to Choose is revealing in the same way that the book Freakonomics is revealing when the author exposes the data - it just makes perfect sense. Free to Choose is like that. All of the issues in the world that most good people care about - poverty, education, prosperity, freedom - are discussed in this book. And after reading the book, it must be clear to any rational human being, that most of the attempts that federal government has made to address these issues, has done little good, and has likely made any problems far worse than they would have been had the government done nothing.

Since reading the book, I’ve also viewed some of the Free to Choose videos that preceded it, to which you can find links at this site:

http://miltonfriedman.blogspot.com/

Milton Friedman died in 2006, at the age of 94. It’s too bad he couldn’t have lived another few years to witness what is going on today. I’d like to hear his thoughts.

There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy. —President-Elect Barack Obama, January 9, 2009

With all due respect Mr. President, that is not true. Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we the undersigned do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

I’m a little late blogging about this, but the preceding excerpt is from a full-page ad taken out in the New York Times by the Cato Institute in January. It lists some 200 economists including 3 Nobel Laureates (take that Krugman) who are against Barack Obama’s stimulus plans. You can view the ad here:

http://www.cato.org/special/stimulus09/cato_stimulus.pdf

Wednesday March 4

I return home from work and I have no Internet, and most of my cable TV channels aren’t working, including most of my HD channels and some of my standard channels. For some reason, ESPN HD works and at least I can watch NBA. I give Comcast a call and the earliest they can schedule a service visit is on Friday, but I opt for the Saturday afternoon slot from 12-4 pm so I don’t have to miss any time from work.

Thursday March 5 – Friday March 6

No Internet, and now ESPN is out. WTF. It doesn’t help that I need Internet access to get some work done from home. Having no Internet even for a day sucks I can’t wait to get it fixed. I twitter my frustration with Comcast in the meantime.

Saturday March 7

After a long and brutal winter, the temperature reaches 70 degrees in the Boston area – it’s a beautiful day! But I’m inside waiting for the Comcast technician to come between 12-4 pm. He’s a no-show! I call at 3:55 to complain that I’ve been stuck inside my apartment on the nicest day in three months waiting for the tech. They promise to send someone by 7 to fix the problem.

At 6:30 the technician finally arrives. He runs a few checks, and says that my signal level is way low, so he needs to run a dedicated line from the box outside. He needs a ladder to get on the roof but it’s almost dark outside so that’s dangerous. He tells me he’ll escalate the situation to his supervisor. After a little complaining, he says he can probably come out tomorrow with a ladder and another guy to help, but that he’ll give me a call. My expectations are low. He’s gone within 10 minutes.

Sunday March 8

Another 70 degree day – no Internet, about three channels I would pay extra to not have, and no call from Comcast or any technician. $130/month for this treatment?

Monday March 9

I call Comcast around 9 pm to give someone an earful. I talk to the first person, who can do nothing but offer banal apologies every 15 seconds, which is like pouring gasoline on the fiery explosion that is my head. I then ask to talk to a “supervisor”, and tell him the whole story. He seems genuinely concerned, and offers to personally look into the matter. He says he’ll call the local supervisors to make sure they know the situation, and send someone between 4-7 pm the next day, which is the latest appointment available and the most accommodating he can be to my 8-5 pm work schedule. I tell him that my empIoyer is currently laying off people left and right, but what the heck I can duck out of work around 3:30 to get home by 4 – why not live dangerously? I tell him the tech better get to my place on the early side if the guy needs to get on the roof. He also promises to personally call me at 6 pm to make sure that the technician arrived and fixed the problem, or to assure me that the tech is on his way.

Tuesday March 10

Duped again. I reluctantly tell my boss and slip out of work uncomfortably to make it home by 4. I wait patiently, until the clock strikes 6 and there’s no call from the supervisor I spoke to the previous night. At 6:35, my patience is wearing really thin when my door bell rings. A technician I haven’t seen before arrives. He runs a few checks, and says that my signal level is way low, so he needs to run a dedicated line from the box outside. He needs a ladder to get on the roof but it’s almost dark outside so that’s dangerous. He tells me he’ll escalate the situation to his supervisor. At this point it takes every fiber of my being to restrain myself from throwing the cable box through the closed window. I didn’t want to take it out on the tech, because I think that those guys actually do a fine job, but it’s the bureaucracy of Comcast that hurts the technicians, and sends them into situations woefully unprepared. I ask him what he knows and he says he had no previous knowledge of my issue, and that he only got a work order that same afternoon to come out and take a look. Take a look? His supervisor should have had him ready to scale the motherf***ing Lohtse Face by candlelight. But again, I don’t blame the uninformed tech for not wanting to get up there in the dark and potentially break his neck so I can check my email among other things. Again, he’s out the door in less than 10.

I call ASAP to give another supervisor an earful. Instead of trite apologies, this time it’s trite recognition that apologies won’t suffice. I end up with the direct phone number of the supervisor to whom I’m talking, and of the local supervisor. I debate whether to call the local supervisor and whether it’s a good idea to go ballistic on somebody who likely lives nearby, has my address and whose nerves are probably even more frazzled than mine at this point.

Conclusion

How does this story end? I don’t know yet. My service probably gets fixed – eventually. But it doesn’t matter. What matters is the complete incompetence of Comcast and their customer (lack of) service department. They don’t care if you leave to go to a competitor – there’s little competition in this market anyway. But more importantly, there is no sense of urgency and no one actually capable of taking any responsibility for fixing a problem. I spent a total of 10+ hours either waiting for a technician or on the phone, and Comcast had about 6 people spend an average of 10 minutes working on the issue. Do you see a problem here? Comcast is a massively inefficient bureaucracy, and until it faces a legitimate competitive threat or two, it will continue to produce epic failures when it comes to customer service issues.