Sheltering in Place
What if you didn't need a mortgage and could just lease-to-own a house via a seller-financed deal? It turns out this does not turn out well for would-be buyers:
[F]or buyers lured by the dream of homeownership, these seller-financed transactions can become a money trap that ends with a quick eviction by the seller, who can flip the home again. Before the housing crisis, low-income buyers got too much of a house that they couldn’t afford. Now, they are getting too little of a house that they can’t afford to repair...
Nationwide, more than three million people are estimated to have bought a home through a contract for deed. After the financial crisis, as banks retreated from lending to those with poor credit, this odd corner of the housing market began to draw interest from deep-pocketed investors who sometimes sell the homes for four times the price they paid.
The New York Times features research from the Economic Innocation Group fnding that the economic recovery has missed some of the country's poorest communities.
To come up with the rankings in the Distressed Communities Index, analysts focused on seven factors: the prevalence of adults with a high school degree, home vacancy rates, adults in the work force, the percentage of people living below the poverty line, median income as a percentage of the state average, change in employment and change in the number of businesses.
Many of the worst-off small and midsize cities on the index are synonymous with poverty, deindustrialization and other maladies affecting older urban areas. Camden, N.J.; Cleveland; Gary, Ind.; Youngstown, Ohio; and Hartford top the list.
That may be bad news, but over at the Atlantic, James Fallows offers up a more hopeful look at the way in which America is putting itself back together:
John Dearie, a co-author (with Courtney Geduldig) of Where the Jobs Are, argues that new-business formation is the single most important guide to future employment trends. This is because of the unlikely-sounding but true economic observation that, over the decades, all the net new job growth within the U.S. economy has come from firms in their first five years of existence (and mainly from fast-growing ones in their very first year)...
The Kauffman Foundation annually ranks the “start-up density” of metro areas: the number of new firms divided by population size. It covers larger metro areas than most we visited, but San Francisco is not even in the top 10 of the 2015 ranking (it’s No. 12). Miami, New York City, and Orlando are the top three, followed by Austin, Denver, and Tampa. Columbus, Ohio, showed the greatest increase in start-ups from the preceding year. In 2015 both New York State and Florida made the list of top 10 states in start-up density, at Nos. 4 and 5, respectively. The rest were flyover states—North Dakota, Wyoming, Montana, Utah, South Dakota, Colorado, Vermont, and Nevada. North Dakota and Wyoming might be downplayed as energy-boom outliers, but the rest reflected “normal” business growth.
Annie Maholtra of Heartland Capital Strategies discusses ways in which pension funds and others can use Economically Targeted Investments to help urban renewal:
[T]here is an opportunity for pension funds to capitalize on the rising demand for sustainable and resilient built environments that improve social and environmental health, increase operational efficiencies, and provide better investment returns in the long-run.
But barriers remain. Chief among these is the perception that such investments lead to concessionary financial returns. However, academic research and investor experiences confirm that pension fund investments in urban revival have been “based on sound investment practices driven by a market rate of return…. consistent with sound fiduciary standards.”
Over at Conscious Company Magazine, John Montesi discusses his father's efforts to bring conscious capitalism to real estate development.
Who Knows What Happens Next?
Cartoonist Tom Toles in the Washington Post calls economic inequality the elephant in the room in this election:
The strangest part of the now-colossal wealth gap is how it was never part of our public conversation. Probably the biggest change in American society in any of our lifetimes happened entirely under the radar. No one asked what you thought ahead of time, no one argued that it was good policy, no one even told us it was happening.
Somebody knew it was happening. Economists were tracking the numbers. But somebody forgot to tell us and ask our opinion twenty years ago when it might have done some good.
We’re finally talking about it now. The reason we’re talking about it is because of the election.
Meanwhile, Demos' Heather McGhee in this New York Times debate discusses the way in which inequality plays a role in political donations:
The campaign money chase makes the sliver of Americans who donate large sums the most important citizens, and they are both unrepresentative (90 percent of 2012 presidential donors were from majority-white neighborhoods) and, by definition, doing well in our inequitable economy. A quarter of all the money in the presidential race through 2015 came from donors who gave more than $1 million. It’s not much better in congressional races, with the majority of money coming from $1,000-plus donors. To put that in context, $1,000 is more than the average U.S. worker makes in a week.
Is this just an outgrowth of inequality, or does it actually help fuel it? Research suggests it’s both, because the donor class has outsized influence over policy outcomes. A recent study found that senators’ positions reflect the average donor’s wishes over their constituents’ views, and even over voters in their own party. And yet another study calculated that the wealthy have 15 times more political efficacy than the middle class.
Similarly, last year the Economist had this to say about inequality and the U.S. election.
The notion that an ever more unequal America would be a ghastly place has plenty of support. Already a presidential candidate need only secure the backing of a single billionaire to mount a credible campaign. The lone well-thatched billionaire who has gone one better and is actually running offers a vision of what truly plutocratic politics might be like. A further, more theoretical worry is that democracies may need a thriving middle to work. “We have known since Aristotle that stable constitutional democracy rests on a large, self-confident middle class,” writes Bill Galston of Brookings, a think-tank. A middle class whose members find their real pre-tax incomes forever stuck in the era of prog rock would presumably not be up to the job...
It may be that 2015 turns out to be the peak for income inequality in America, and that in a few decades the papers published on the subject can be filed in the museum of ex-problems, along with musings on what to do with all the leisure time created by domestic appliances. It is also possible that the trend will relentlessly continue. If that is so, then the sorts of policies required to return the country to a more equal age, which might include punitive taxes on high incomes and on inheritance, would probably be impossible to implement in a society that values individual liberty as highly as America does.
Viewed this way, income inequality looks like climate change: a great impersonal force that may be irreversible. Yet people who worry about climate change think about both mitigation and adaptation. Government can and does mitigate income inequality.
Last month, House Speaker Paul Ryan held an anti-poverty summit "billed as an opportunity for GOP candidates discuss conservative solutions to the problems of the American poor," reports CBS News. Here are some of his remarks from December:
I have found the poorest neighborhoods often are the most creative. They are full of entrepreneurs and innovators—people who really know how to fight poverty. They don’t need to be supplanted. They need to be supported. And so this is the difference between the Left and the Right: They look at people in need and see a burden to bear, people to take care of. We look at people in need and see potential.
Push wages up. Push the cost of living down. Get people off the sidelines. I could think of no better way to restore confidence in the American economy. And as we grow more secure at home, we will grow stronger on the world stage.
You also may be interested in this look at what the shrinking middle class means for the economy.
You may be interested this piece by Michael Hobbes on Mark Zuckerberg's philanthropic strategy in the Huffington Post:
If Zuckerberg really wants to get ambitious, he should challenge the Silicon Valley notion that giving money away is an activity unrelated to how it is earned. Last year, Travis Kalanick, the CEO of Uber, started allowing users to add a $5 donation to their ride for No Kid Hungry. In the UK, the company urged riders to donate old clothes to Save the Children. Kalanick would have a better impact on the planet if he stopped asking us for our clothes and, instead, started allowing his workers to unionize. Similarly, one of Zuckerberg's values for his philanthropy is “empowering communities.” He does the opposite when Facebook turns its data over to dictators. Now that the Giving Pledge is off and running, why not establish a Stop Routing Your Profits Through Tax Havens Pledge?
I know, I know, he's running a public company. Shareholder pressure, quarterly returns, impact on innovation, blah blah blah. But perhaps Zuckerberg should ask himself why it is impossible, as a CEO, to apply the same values he aims to embody as a philanthropist. If he really wants to change the world, Zuckerberg can start by changing his own.
Speaking of investment, the LA Times Michael Hiltzik discusses whether rich should get a tax break for donating to wealthy universities such as Stanford:
A data survey by Nexus Research last year put the mismatch in stark terms by comparing the implicit per-student subsidy at rich private institutions with the government funding of public colleges in their state. In California, it showed that Stanford received about $63,000 per student, while UC Berkeley got $10,500, Cal State Fullerton got $4,000 and Fullerton Community College $8,100...While one may quibble with the numbers, there's hardly any question that the difference in government contribution per student is enormous.
"What justifies the high per-student government subsidies at the elite private universities, and the low per-student subsidies in public universities?" former Labor Secretary Robert Reich, a professor at Berkeley, asked in a 2014 essay. "There is no justification."
In Yes! Magazine, climate warrior Bill McKibben looks at the road to keeping fossil fuels in the ground and says the divestment movement is working:
These divestments are hurting companies directly—coal giant Peabody formally told shareholders in 2014 that the campaign was affecting its stock price and making it hard to raise capital. But even more, they’ve driven the necessity of keeping carbon underground from the fringes into the heart of the world’s establishment. The Rockefeller Brothers Fund started divesting its fossil fuel stocks, while Deutsche Bank, the World Bank, and the International Monetary Fund have started down the same road. A month after the Rockefeller announcement, the governor of the Bank of England told a conference that “the vast majority” of carbon reserves are “unburnable,” warning of massive “stranded assets.” Trying to get out from under this “carbon bubble” is one reason why huge funds are now beginning to divest. The California Public Employees’ Retirement System, for instance, lost $5 billion before it saw the light and started selling its stock.
Speaking of fossil fuels, the New Yorker looks at oil prices and how they seem to be mysteriously tracking to the market and whether this is a boon or bad news.