BlackChampagne -- no longer new; improvement also in question.
Tuesday, May 27, 2008
Cars and Gas Prices
NY Times finance article points out another of the spiraling kaleidescope of economic woes being wrought by the popping steady leaking of the housing bubble and the wild loan speculation that fueled it. New car sales are plummeting, since way back in 2007, when home prices still "always went up," about 1/9 of new car purchases were made with cash from home loan refinancing. People using their houses as ATMs, taking out new mortgages for $100k or more above the equity, and blowing the cash on fun stuff. Like new cars.
It was a easy game, since after all, housing prices always went up. All the bankers and realtors agreed on that, so it had to be true. And since prices always went up, owing $700k on a house you bought 5 years ago for $350k, (with a down payment of about $25k) was just fine, recommended even, since your house was now worth $800k, and if you wanted to you could sell it and pay off the loans with a profit for your trouble. Now that those houses are more realistically valued at $450k, with a rental-approximate actual value of $350k, owing $600k is kind of a problem. That would be what the financial gurus call "negative equity," and when it's compounded by a person having taken one of those exotic non-fixed rate loans that ballooned to credit card level interest rates after a couple of years, it's driving people to "jingle mail."
Those forces, on top of the softening economy, are putting enormous pressure on the American auto industry as it faces what may be its worst year in more than a decade. About 15 million vehicles are expected to be sold in 2008, down from 16.2 million last year, as sales reach the lowest levels since 1995, according to the marketing firm J. D. Power & Associates.
The impact on the broader American economy could be profound. Not only is the car a consumer’s biggest purchase after the home, but the auto industry remains one of nation’s most important economic engines. With less money available to bolster the industry’s growth, the businesses that support it are also facing the prospect of a sharp slowdown.
"It is a bleak picture, and it all hinges on the availability of financing," said William Ryan, a financial analyst at Portales Partners who has followed the auto business for years. "The whole universe related to the auto industry is touched in some way — parts suppliers, manufacturers, salespeople, trucking people, the paint and metals industries. Even semiconductors."
On a semi-related issue, is anyone else changing their driving habits yet, thanks to increasing gas prices? There are plenty of stories about that in the news; the increased ridership of public transportation, people carpooling, the cratering resale value of SUVs and other gas guzzlers, but is everyone reacting in that fashion? Personally, it's making me drive faster.
When I pay $4.17 for mid-grade, as I did a few days ago (and that's the cheapest gas in the area; Chevron station nearer my apt was at $4.54 for hi-grade yesterday), I goddamn well want to get my money's worth. So I've been enjoying the driving experience more than ever. I'm laughing at 85 in the passing lane, and stomping it to savor my sports car's 0-70 acceleration in on-ramps. This must be how Spitzer felt paying $1000 a ride to high class hookers. If you're going to get fucked for top dollar, you might as well enjoy it, eh? So I floor it and feel the engine press me back into the seat, and as I slide into freeway traffic several seconds later, I smile, puff an imaginary cigarette, and think, "Yeah, that was worth $.50."
Sure, it's kind of like admiring the upholstery on the bar stools on the Titanic while you order a double shot on the rocks, but if you're on the boat (the US economy, in this case) and it's going down no matter what you do, you might as well enjoy the ride as long as you can. Remember last year, when we all thought $3 gas was outrageously expensive? Imagine the line you'd wait in today to pay that much for a fill up? Bet you wish you'd burned a little more rubber back then, when you could still afford it...
Troubling article on Salon about a new book examining the actual financial state of "middle class" Americans. Turns out that quite a few people with college degrees, working in white collar jobs, earning what would seem to be good incomes (up to $70k a year) are actually in fairly dire financial straits. College costs and debts have risen, healthcare costs are skyrocketing and being steadily moved from business to employees, retirement planning is following the same path. This bit caught my eye, given my ongoing dalliance with the idea of grad school.
In the '70s, we were barely taking out student loans. In 1977, collectively students were borrowing about $6 billion. By now, they're borrowing over $85 billion. That's a remarkable number. The number of students enrolled in college grew 44 percent between 1977 and 2003, but student loan volume rose 833 percent in that same time period.
There are fewer grants and scholarships available. If students go through graduate school, they can end up taking out over $100,000 of student loans. And if you go into a field that's not high-paying that can be a real burden on you for 20, 30, 40 years.
We are seeing more people going to college, which is definitely a positive move, but they're getting into a lot of debt to do it. The college degree now is what the high school degree used to be. You really need a basic bachelor's degree in order to be eligible for a lot of jobs.
You can see the math fairly easily there: 4-5 years more time in school = 4-5 years less earning money and 4-5 years more racking up debt. And if the white collar job at the end of that is no better paying (adjusted for inflation) than jobs in industry and manufacturing that were formerly available without college, and that have now been largely moved overseas in the name of higher corporate profits, today's college grad is materially far worse off than his father or grandfather. No wonder people were treating their houses like ATMs during the last few years when "real estate values always went up." At least they're better off then people who bought during that period, and are now sitting on hundreds of thousands of dollars in negative equity.
This issue of being middle class ties into a larger sociological topic I've had sitting on my notes file for a couple of weeks. The nut of the matter is that almost all Americans consider themselves to be "middle class," almost regardless of their actual income or financial situation. I can imagine people who are poor, or are living without much income/expenses (like myself) who tell themselves they're middle class in order to boost their ego or salve their pride. Or who just do it reflexively, without considering actual numbers, or who don't really think about it since their income isn't their priority in life (like me). The interesting thing is that this goes both ways. People who are clearly rich, or at least have an income that puts them well above the median, also claim to be "middle class," even when that's demonstrably false.
Sunday I learned that I am insensitive after I wrote a column arguing that families who earn as much as $200,000 to $250,000 are "rich."
A San Francisco couple earning $205,000 informed me they "shouldn't be considered anything but working middle class." A $215,000 couple told me, "Families making $200,000 a year are not rich. They're not even close to rich." A San Francisco lawyer explained that a $200,000 salary cannot make one rich because a "a 'rich' person does not need to work."
...Clinton promised not to raise "a single tax on middle-class Americans, people making less than $250,000 a year." Obama made a similar pledge for incomes up to between $200,000 and $250,000.
These figures are clearly etched into the national consciousness, as shown by both Democratic contenders adopting them into their tax plans. Americans do not think earning $200k a year makes you anything but middle class. What's the reality? Rather different.
As the cited columnist shows, earning $200k a year puts you into the 93rd percentile in the Bay Area, and the 97th percentile nationally. By what reasonable definition of "middle class" does earning more than 93%, or 97% of people, slot you into it?
I think this goes to the widely (though inconsistently applied) views Americans have of themselves (ourselves?) as "the common man," imbued with a "Protestant work ethic" and all striving to become (or remain) "middle class." They're psychological buzz words, ones that set off a resonance in our national psyche, and how well, if at all, they describe is us irrelevant to the satisfaction we get at their usage. Furthermore, people tend to generalize by their own standards, so most people earning $200k a year think they're middle class, and think that other people live lives somewhat like their own. They're largely ignorant of what sort of life is lived by people who actually are "middle class," and they confuse their "we just vacation in Hawaii, we don't own a second house there" situation for the actual "working a second job on weekends to pay off medical bills" middle class reality.
On the other hand, there is a point to people making $200k who think they're not upper class. And that point comes about from the (almost) historically unprecedented level income inequality in modern day America. If you're earning $200k a year, and the CEO of your company is earning $50m a year, you can't possibly see himself and yourself as of the same class. And you're not. You're earning 3x what an actual middle class family does, "$77,076 -- less if the family does not have to buy its own health care or pay for child care." according to the California Budget, as cited by the afore-linked SF Game columnist. But if your CEO earns 250x what you do, and 750x what a middle class worker does, and he's "upper class," you are indeed nowhere near that class.
Still, I do find it interesting that for most Americans, you need to be Bill Gates, or Tom Cruise, to actually be rich. You need to have several homes, servants, several vehicles you use simply for fun rather than transportation, etc. It's an interesting definition of rich, where a person must have an income not tens or dozens of times your own, but hundreds, or even thousands of times greater, to qualify.
That leads to my second digression, in which I quote part of an email I wrote Malaya on this issue a couple of weeks ago. I'll present it without further comment, and edit it simply to fix some typos:
America, where everyone wants to be rich but no one admits when they are.
This ties into something I was thinking in the shower this morning. How people normalize everything to their own standards, and assume that the rest of the world is moving inexorably towards it. Quite noticeable amongst atheists, who believe everyone else will gradually shed their religion and become secular (Worldwide evidence of this... ?). But capitalists and libertarians and even democracy-ists fall into the same trap. 1) We think our economic/political systems are the best, and 2) that everyone will gradually move into them. (And we're sure there's evidence to back this up.)
The first might be true, but #2 is far less clear. Most of the world is now moving towards capitalism, but Europe has far more central control and economic planning, as does Japan, the Asian tigers, etc. And then you get China with limited capitalism controlled by a semi-tyrannical bureaucracy, India is similar, though more democratic in the selection of the bureaucrats. And the rest of the world is more of a chaotic scramble, with a plutocrat class raking in the pesos/rubles, while most people struggle to survive.
Americans tend to assume that more freedom and democracy is best, but the evidence for this is spotty, and the evidence that it will ever be the majority opinion worldwide is nonexistent. Truth (arguable as that definition is) is largely irrelevant; how well is non-superstition doing in winning the battle amongst competing mental/philosophical memes?
There's a grand unified theory here somewhere, incorporating the fact that people think they're the heroes of their own story, and that their (usually inherited) beliefs about freedom or not, democracy or not, capitalism (to what degree), etc, all factor in. Westerners are full of conceit and hubris and lack objectivity. We're always saying that those poor women born and raised in backwards Islamic/tribal countries would want freedom and want to take off their burkas if they were only given the chance, and that if they don't it's only because they grew up in those societies and are brainwashed by them.
I happen to agree with that, but how is that any different than my inculcated beliefs? Americans only believe what we believe since we grew up believing it. We're just granting our inherited positions higher moral authority since that's a convenient reason for us to perpetuate them for everyone's own good. It's convenient to say freedom and capitalism are better and everyone should aspire to them, but if we only believe that since that's what we grew up believing, how is it any different than arguing that the Bible is the inerrant word of God because the Bible says its the inerrant word of God? (An argument atheists and rationalists rightly find laughable.)
What if it could be "proved" that people live happier, more content lives in largely egalitarian, politically controlling, centrally-planned theocracies? Would that convert Libertarians? Or Communists? Or democracy advocates? Of course not. They'd continue to believe their world view would be better if only everyone would convert to it.
The annual NCAA men's basketball tournament is underway, and as always, it's getting a lot of media attention. I've not seen any games nor do I care who wins, but I find the process people go through as they fill out their brackets and engage in office and online pools amusing. Basically, it's a huge crap shoot, with 64 teams in a single elimination bracket and no one ever picks even half the games right, since you've got to pick the whole thing in advance. One high seed loses early and you picked them to go to the finals = half your bracket is ruined. No one ever picks all the upsets, or backs all the correct favorites, and while I've never filled out a tournament bracket or been involved in such a pool, I imagine the winners of such things get some small % of the games correct. 25/63, or something like that, mostly in the early rounds when the higher seeds usually win, and then by the luck of picking a few of the #1 seeds that make the final four and rack up 4 or 5 wins on their way.
I bring this absurdity up since ESPN.com has an absurd front page video interview today with some 15 y/o from Ohio; famous by dint of being the only person to get every game right so far, out of the hundreds of thousands who took the time to fill out the ESPN.com online tournament bracket. It's an amusingly idiotic interview, since the reporter woman is so earnest and respectful with her semi-worshipful questions about his selection methodology. The kid tries to play along, but it's pretty clear he can't take the whole thing too seriously. He didn't spend hundreds of hours researching this bullshit, and he doesn't really care who wins. He picked a few of the clear favorites, threw darts at random fun names for some upsets, and got really, really, lucky. This is why no one will ever pick every game right, and why exactly 1 person out of a million got even the first 2 rounds right.
What's funny about it is the reverence the ESPN reporter places on the idiotic subject, as if we could somehow learn from the kid's example, and emulate his successful research methods next year. No cable TV. Read the newspaper. Research online.
It reminds me of the stock market. Everyone who makes a living from financial markets must pretend that there's some science to it and that it reacts to logic and reason and that it can be predicted and controlled with the proper methods and tools. Clearly that's all bullshit; stocks go up and down largely at random based on irrational investor psychology, hot new things pop up and then go bankrupt just when everyone thought they were wonderful, and chaos theory reigns. No one picking stocks or investments is any more accurate than sports experts offering up their NCAA brackets, and none of those experts ever get even half the games correct. Who does? Random 15 y/o's from Ohio. Is that an investment leader you want to follow?
The one advantage of real life financial gambling is that you don't have to bet on every game, so to speak. You can just back UCLA and UNC and Duke and a few other mega teams/companies and count on them to be consistently profitable, while ignoring the hot, short term, trendy picks that make huge profits until, as the ongoing high risk mortgage meltdown, they go from being the best investments on earth to worthless in a matter of months. My objection is that people in the field, aside from the occasional honest Warren Buffet types, refuse to admit this. That's no surprise; they're selling an investing service and of course they're going to say you can be sure to make money with them, or in the market in general, since they're making their money by skimming off of your money. The house wants you to keep gambling, since their profits come from your action, whether you win or lose.
One of the better political blog posts I've ever read can be seen here. I highly recommend if it you want to get a sense of the larger, underlying principles and concepts that shape the superficial, surface level of politics that is more discussed, yet much less important.
Yet if you look at the history of the last thirty or so years, it seems (says Krugman) that conventional wisdom has been stood on its head, and that politics drove economics.
...And that is our history as we know it. Starting in the 1970s, at about the time of the Lewis Powell memo, an interlocking network of right wing billionaires and theocrats began to fund the institutions whose dominance we take for granted today: The American Enterprise Institute, the Heritage Foundation, The Family Research Council, the Federalist Society, the Brookings Institute (over time), and on and on...
For these billionaires, the ROI of the Conservative Movement is absolutely spectacular. At the micro level, for example, if you want to create an aristocracy, then you want to eliminate any taxes on inherited wealth, despite what Warren Buffet or Bill Gates might say about the values entailed by that project. So, the Conservative Movement goes to work, develops and successfully propagates the "death tax" talking point (meme, frame) -- which they may even believe in, as if sincerity were the point -- and voila! Whoever thought that "family values" would translate to "feudal values" and dynastic wealth? At the macro level, their ROI has been spectacular as well. Real wages have been flat for a generation; unions have been disempowered; the powers of corporations greatly increased; government has become an agent for the corporations, rather than a protector of the people; the safety net has been shredded; and so on and on and on.
The picture tells the story. The Conservative Movement succeeded beyond the wildest dreams of the billionaires who invested in it. Despite the remarkable gains that we have made in productivity, they creamed most of it off.
This part just summarizes the economic thrust that's driven the pro-rich policies (and results) of the Republican Party over the past few decades, and does it very neatly, which is why I thought it was worth a link. The rest of the post is largely about why Obama's kumbaya-style "let's end partizan rancor" is doomed to failure; the Republicans in Washington are funded by the beneficiaries of this wild income spike, and they are not going to give in on policies that would take some steps towards equalizing the slices of the economic pie distributed to all Americans. You're free to agree or disagree with the specific policy recommendations made in the post, but however you feel about that, I thought the big picture info was well worth a look.
All that being said, congrats to Barack Obama for his win in the Iowa primary, and check out his victory speech if you haven't seen it already. He and Clinton (the male, ex-president Clinton) are the two best speech-makers I've ever heard, and this is a prime example of Obama doing his uplifting, "together we can change the world" thing.
For all the man's charisma and speaking ability, I've been hesitant to support Obama since he's way too happy with the religious stuff. I'm sure he's committed to a secular nation and upholding the constitution (far more so than Bush, certainly), but while I'm not hoping to see major party atheist candidates anything soon, I'd like one who seemed a bit more grounded in reality. Happily, Obama doesn't mention God or Jesus or even Allah in this victory speech, though one can't judge too much from just one 14-minute triumph.
On a larger level though, I've thought his presidential run, while interesting, was ultimately doomed by his race and background. America is still too white, and too racist a society to elect a black man to the presidency, even in 2008, even with Republican approval ratings in the 25% range. I think it's a shame, but I think that's the case. I thought it was, at least. Obama pulling 37% in the Iowa primary, with Edwards and Clinton going around 30% each, is an amazing development, though. Especially since Iowa is a very conservative, old-fashioned state, and it's something like 90% white, by the figures I've seen posted along with the election returns. I'm sure Obama, if he does get the nomination, could win California and New York and other blue states. But the South? The Midwest? True, Gore and Kerry didn't win there either, in 2000 and 2004, and they nearly won anyway (well, Gore actually did win, before the Supreme Court stepped in and stopped the recounts and appointed Bush, but let's not get into that again) but they were just boring, uninspiring candidates. They weren't black(ish) on top of that.
That being said, it's always possible that Obama in the race will motivate a lot of people who don't usually vote to get out there (that's said every time some alternative candidate pops up though, and it usually turns out to be a non-factor), and it's equally possible that while the racist vote exists, the Republican nominee will be so awful that people who would never vote for a black man simply won't vote at all.
I've been paying little attention to the primaries since I figuring Hillary Clinton would get the Democratic nomination. Edwards has been saying some good things (in my opinion; not good in terms of getting popularly elected) about turning the power structure upside down, but he's too young-looking and pretty and diminutive to get the nomination, in this image-dominated day and age. The endless Rush Limbaugh/Ann Coulter hate towards him and his pretty hair has sunk into the media narrative, and that may be true of all the "Hitlery is a ball-busting lesbian." stuff too. I still think she'd win if she were nominated; everyone but the fanatical rightwing still loves Bill Clinton, and she'd get all that vote plus women would turn out to support her, if only from the novelty of having someone other than an aging WASP male to cast a ballot for. Obama, in a nationwide election, though? Not just in Illinois, against awful Republican options? Unknown. I just hope he's got some damn good security; charismatic black national figures have a long history of taking bullets in the US, guns have never been more available in the US, and there are powerful forces profoundly disturbed by his uplifting rhetoric.
