Sunday, March 01, 2009

Using the stimulus to accelerate the downturn

$10.1 billion in federal stimulus money has been released to the states by the Department of Housing and Urban Development, and Arizona is receiving more than $150 million of that. And what is that money to be used for, in a state where there are tens of thousands of homes for sale with few buyers (50,000+ in Maricopa county alone)?

Building more housing.

The Arizona Republic reports that
Millions of dollars more will go to state and local programs. That includes $32 million to begin construction of affordable rental housing, $22 million to prevent homelessness and $12 million to build or repair public housing across the state.
To the extent this money is used to build new homes, as opposed to repairing deteriorating ones, it's just going to accelerate the decline of home prices, putting more homeowners underwater and providing them with more incentive to walk away from their mortgages. Now, I think that a further decline in home prices is inevitable, no matter what the stimulus money tries to do, but it's ridiculous to throw additional money at accelerating that process. It makes about as much sense as using federal stimulus money to give grants to investment bankers to develop more complex collateralized debt obligations.

Now, this isn't actually quite that bad, since it does apparently focus on some particular communities--a third of the money is for Native American communities that didn't get a housing bubble of speculative buying. Some of it is also for families that need short-term help with utility bills, rent, or other expenses (something that the Modest Needs Foundation has been doing for years with private donations). And Tucson is apparently using it to improve energy efficiency of existing public housing units. Those are all much more reasonable uses of the money than building more houses.

6 comments:

Ktisophilos said...

Well, good thing Obama has such great economic advisers, otherwise the stockmarket could tank too. Oh, wait ...

Ktisophilos said...

The Obama Economy: As the Dow keeps dropping, the President is running out of people to blame.

Yet moderate Obama supporters claim to be surprised that he's governing like the rabid socialist he always was.

Jim Lippard said...

Response:

Barry Ritholtz, "Was the '00-03 crash Bush's fault? '09 Obama's?"

Ktisophilos said...

This is not a fair comparison: NASDAQ with the whole market, which has dropped to its lowest level in 12 years. Furthermore, the current falls happen right after Obama or a minion makes a pronouncement.

It's hardly surprising: why should people invest if Obama wants to tax profits more? Why invest in sound companies while the government rescues their competitors? E.g. decent carmakers must not only compete with Detroit but with the Government as well.

The article Jim cited says:

"I am not an Obama cheerleader. For the record, I found his selection of Larry Summers to be awful, and his choice of Tim Geithner as Treasury Secretary ill-advised [he of the Kent Hovind school of tax compliance ;) -- KT.]. But to hold him responsible for a market collapse on day 41 of his Presidency — following 8 years of gross negligence and ruinous incompetency under the Bush regime — is simply too much stupidity for any damaged nation to bear."

Well yes: Bush presided over increased spending and indebtedness that caused immense problems. So the solution is far more of the same?

BTW, Former Australian Prime Minister and Treasurer Paul Keating (and a Labor man, akin to the Dems) just denounced Geithner, as the ”gigantic fool” who helped to create the “greatest mess” the IMF ever made.

Jim Lippard said...

I think that (a) capital injections into the banks were necessary, though done poorly--the toxic loans need to be exposed and written off, the insolvent banks need to be shut down and those that are strong enough to survive supported; and (b) some form of stimulus is probably essential, so long as it does things like build and improve infrastructure that will be used for many decades to come.

Hyperinflation is not a real concern now, though it may become one later (probably years later)--I think we're in a deflationary spiral already, and the amount of the stimulus is tiny compared to the amount of credit destruction that is occurring.

There's a lot of counter-productive stuff going on--throwing good money after bad at AIG, Citibank, GM, and Chrysler, for example. But I don't think Obama tax policy has anything to do with the market tanking. It may cause some significant problems for charities, since he's reducing deductions for charitable contributions for those who make over $250K.

Ktisophilos said...

The above makes far more sense.

Investors can have little confidence because of the way this big spending was handled. Once again, it's the Politician's Logic exposed by Yes Minister:

We must do something.
This particular Stimulus bill is something.
Therefore we must do it.

Yet this thousand-page monstrosity was passed before anyone had a chance to read it. What moron signs something without reading it?

The assault on charities is consistent with Obama's real religion: "In Big Government We Trust". I.e. the government knows how to spend money better both than those who earn it and the charities they donate to.