Monday, May 18, 2009
Russian Dachas and American Credit
Sixteen years ago while living in St. Petersburg, Russia I remember having a discussion with a good friend of mine regarding the extreme complexities of securing a home loan through the Russian banking system. She had been building a tiny home just outside the city for over four years at the time that I met her, and she planned on working for at least two or three more years before she would finally finish the diminutive structure. Every weekend and for a full two months every summer, she could be found from sun-up to sun-down laboring on her 800 square-foot dream home. As a spoiled American, I knew that I would never have to work that hard to obtain the home that I hoped to live in one day and I most certainly knew that I would not be the one to pour the concrete, install the toilets and tile the roof. While I greatly admired her persistence, endurance and willingness to wait almost a decade to enjoy the fruits of her labor, after two days of laying bricks and hand-mixing concrete I was really glad that those virtues were not necessarily the virtues that I have to exhibit in order to obtain my dream home.
Living in Russia, she did not have access to a vast network of banks and lenders like we do in America, so she did not even have the option to apply for a home loan. Since she could not obtain a home loan, all of her materials had to be purchased up front with the cash that she had been saving for almost a decade. The vast majority of the labor was done by her (a woman that had absolutely no building experience whatsoever), her friends (who also had zero experience) and occasionally, was obtained by bartering her services with someone who actually had enough knowledge to hang a few wires for the couple of lights she had in her house. The fact that all of this work was done by unskilled labor meant that much of the learning was done by trial and error.
My experiences in post-communist Russia helped me take a peek into what the world would be like without a well-functioning credit system. My husband is a dentist. After four years of dental school and two years of residency we had racked up a tremendous amount of debt to pay for all of his schooling. Toward the end of his residency he decided that he would be better off building up a practice from scratch rather than working for someone else for a few years, so he proceeded to call around to a number of lenders to secure funding. Amazingly, even with all of his student debt, he was approved for a $300,000 business loan within a few days. He had no job and no collateral...the only thing that he possessed were the skills that he attained while in dental school and the determination that he would one day pay it all back.
While some may look at my husband’s story as a prime example of the loose lending standards by American banks (lending standards that they believe led to the current crisis) it is banks like the one that he went to in order to obtain a business loan that separate us from the desperation and despair that I saw so often in Russia. Without the ability to borrow the cash needed to obtain the proper equipment, his productivity would have severely been hindered since his lack of funds would drive him to work with outdated and inefficient dental equipment and limit the number of operatories that he could fully equip. In fact, without our credit system, my husband would still be working at Geneva Steele in Orem, Utah since his parents were certainly not in the position to bankroll the $30,000 a year in tuition required to fund his dental school education. Come to think of it, it is doubtful that Geneva Steele would even be in existence since they most certainly required a massive outlay of cash to fund such an enormous project.
Unfortunately, success stories that are a direct result of our credit system are not being told by the media today. The current administration has made a point to demonize our credit system with constant accusations of chicanery and malfeasance.
With credit, we were able to hire a contractor to build our 5000 square foot home in less than 7 months. My Russian friend spent 7 years building what would be considered a shack by American standards. With credit, my contractor was able to hire a concrete company to bring in massive trucks filled with concrete, pouring my sturdy foundation in only a few days. My friend mixed all of her concrete by hand in a well-barrel, and poured it over a period of a couple months which resulted in an unsightly patchwork of concrete full of cracks, bumps and divots. With the extension of credit, the concrete company hired by my contractor purchased massive dump trucks that continually mix the concrete insuring that it maintain the correct levels of moisture uniformly throughout until the time when it needed to be poured. Unfortunately, my friend did not have that same benefit, so she deals with the headache of water seeping in through her foundation every time it rains.
While the Obama administration claims to understand the pivotal role that the free flow of credit plays in the immense success of our nation, I am not confident that they understand some of the basic principles that made it so that capital flows so freely in our country. Our government’s exceptional track record of enforcing contracts impartially and securing private property rights in the past has allowed the credit markets to deepen and expand to the point where they are accessible to just about every American citizen, not just the rich. But the growing attacks on the entire banking system (credit card companies, hedge fund stock holders, Chrysler’s bond holders, TARP banks wanting to pay back government loans) makes me believe that in the not-too-distant-future our market will be filled with timid lenders nervous to take the kind of risks involved with loaning funds to individuals.
They certainly have good reason to be nervous...all indications are that the current administration does not respect contracts that were entered into freely and does not see the need to enforce them impartially. The most advanced instrument for the formation and creation of wealth ever devised was the invention of our credit markets…with all of the credit bashing going around, I am very nervous that the powers that be are about to destroy the instruments of wealth so vital to our economy.
Living in Russia, she did not have access to a vast network of banks and lenders like we do in America, so she did not even have the option to apply for a home loan. Since she could not obtain a home loan, all of her materials had to be purchased up front with the cash that she had been saving for almost a decade. The vast majority of the labor was done by her (a woman that had absolutely no building experience whatsoever), her friends (who also had zero experience) and occasionally, was obtained by bartering her services with someone who actually had enough knowledge to hang a few wires for the couple of lights she had in her house. The fact that all of this work was done by unskilled labor meant that much of the learning was done by trial and error.
My experiences in post-communist Russia helped me take a peek into what the world would be like without a well-functioning credit system. My husband is a dentist. After four years of dental school and two years of residency we had racked up a tremendous amount of debt to pay for all of his schooling. Toward the end of his residency he decided that he would be better off building up a practice from scratch rather than working for someone else for a few years, so he proceeded to call around to a number of lenders to secure funding. Amazingly, even with all of his student debt, he was approved for a $300,000 business loan within a few days. He had no job and no collateral...the only thing that he possessed were the skills that he attained while in dental school and the determination that he would one day pay it all back.
While some may look at my husband’s story as a prime example of the loose lending standards by American banks (lending standards that they believe led to the current crisis) it is banks like the one that he went to in order to obtain a business loan that separate us from the desperation and despair that I saw so often in Russia. Without the ability to borrow the cash needed to obtain the proper equipment, his productivity would have severely been hindered since his lack of funds would drive him to work with outdated and inefficient dental equipment and limit the number of operatories that he could fully equip. In fact, without our credit system, my husband would still be working at Geneva Steele in Orem, Utah since his parents were certainly not in the position to bankroll the $30,000 a year in tuition required to fund his dental school education. Come to think of it, it is doubtful that Geneva Steele would even be in existence since they most certainly required a massive outlay of cash to fund such an enormous project.
Unfortunately, success stories that are a direct result of our credit system are not being told by the media today. The current administration has made a point to demonize our credit system with constant accusations of chicanery and malfeasance.
With credit, we were able to hire a contractor to build our 5000 square foot home in less than 7 months. My Russian friend spent 7 years building what would be considered a shack by American standards. With credit, my contractor was able to hire a concrete company to bring in massive trucks filled with concrete, pouring my sturdy foundation in only a few days. My friend mixed all of her concrete by hand in a well-barrel, and poured it over a period of a couple months which resulted in an unsightly patchwork of concrete full of cracks, bumps and divots. With the extension of credit, the concrete company hired by my contractor purchased massive dump trucks that continually mix the concrete insuring that it maintain the correct levels of moisture uniformly throughout until the time when it needed to be poured. Unfortunately, my friend did not have that same benefit, so she deals with the headache of water seeping in through her foundation every time it rains.
While the Obama administration claims to understand the pivotal role that the free flow of credit plays in the immense success of our nation, I am not confident that they understand some of the basic principles that made it so that capital flows so freely in our country. Our government’s exceptional track record of enforcing contracts impartially and securing private property rights in the past has allowed the credit markets to deepen and expand to the point where they are accessible to just about every American citizen, not just the rich. But the growing attacks on the entire banking system (credit card companies, hedge fund stock holders, Chrysler’s bond holders, TARP banks wanting to pay back government loans) makes me believe that in the not-too-distant-future our market will be filled with timid lenders nervous to take the kind of risks involved with loaning funds to individuals.
They certainly have good reason to be nervous...all indications are that the current administration does not respect contracts that were entered into freely and does not see the need to enforce them impartially. The most advanced instrument for the formation and creation of wealth ever devised was the invention of our credit markets…with all of the credit bashing going around, I am very nervous that the powers that be are about to destroy the instruments of wealth so vital to our economy.
Sunday, May 17, 2009
While I also agree that home schooline and private schools offer many benefits, I think that there are certain failings of both systems. My biggest concern in this regard is the restriction, and sometimes the nearly complete lack of, social interaction. In the public school system you must not only learn to interact with a wider variety of people, you also must compete with the the other students. In the public school system, you are in constant competition in everything from social status to time spent with the teacher in an overcrowded classroom. This forces a student to differentiate himeself in order to receive the attention that may be needed for that student to excel. While this may not be fair, it is closer to the experiences they will daily encounter in the adult world. As such, I believe it to be great preparation. Granted, ebonics doesn't serve a great purpose and yes, correct use of the english language can be a casualty of the public school system. I don't see this so much as a failing of the public school system as a reflection of the prevailing culture.
The idea of vouchers to choose schools I think is not the answer. Even the best schools have only so many slots that can be filled before they begin to be overcrowded and thus less effective. The real problem I believe is in the teachers. Rather than allowing parents to funnel all of their kids to a few renowned schools, why not increase the incentive for teachers to be better at their jobs. As it is, teaching is not a profession that is very glamorous or lucrative. If a system were implemeted that was incentive based and tied to student performance, teachers would have a real reason to invest in their students and would see tangible, financial results from their investments. Test scores, reading comprehension levels and graduation rates are all things that should be tied into a teacher's pay rate. We look at teachers now and hope that they are in the profession because they care about our future, but that isn't always the case. Teachers are no different than the rest of the world in that they are largely motivated by self interest. By funding incentives for teachers, we as a nation invest in our own children and their devlopment, which will prove profitable to all of us in the future.
The idea of vouchers to choose schools I think is not the answer. Even the best schools have only so many slots that can be filled before they begin to be overcrowded and thus less effective. The real problem I believe is in the teachers. Rather than allowing parents to funnel all of their kids to a few renowned schools, why not increase the incentive for teachers to be better at their jobs. As it is, teaching is not a profession that is very glamorous or lucrative. If a system were implemeted that was incentive based and tied to student performance, teachers would have a real reason to invest in their students and would see tangible, financial results from their investments. Test scores, reading comprehension levels and graduation rates are all things that should be tied into a teacher's pay rate. We look at teachers now and hope that they are in the profession because they care about our future, but that isn't always the case. Teachers are no different than the rest of the world in that they are largely motivated by self interest. By funding incentives for teachers, we as a nation invest in our own children and their devlopment, which will prove profitable to all of us in the future.
Saturday, May 16, 2009
Education Reform
Having been home schooled for the first 4 years of my education, then private school for another 4, I received an elementary education that was above average. Extensive reading was not only encouraged, but required and mastery of the concepts was graded and rewarded. We worked on a self motivated goal setting system in which I did as much or as little as I pleased and if I advanced beyond the allotted work for my grade level, I progressed to the next grades work. There was faculty on hand with general knowledge in all areas and specific knowledge in 1 or 2 areas who were available to assist or encourage us. Similar to college, we had certain marks we had to achieve each semester and we were permitted to learn at our own ability levels. The majority of students excelled and those who had more difficulty certainly improved over their performance in the public school system they came out of.
My freshmen year of high school, I entered the public school system and found myself relearning the same material that I had covered in 5th grade. Additionally, the majority of my peers were taken aback by the way that I spoke. Why did I have to use all those big words? I eventually learned to speak in the common language that is not english, but rather the bastardized form we call ebonics. This is a failing that I believe can be placed squarely on our school system. How can students be expected to learn about philosophy, economics, science, or any other topic when they don't understand the words that are being read? Public schools vary in their degree to which they have backslid, but overall there are major gaps to be filled. Classes are taught to the lowest ability and standardized for everyone, regardless of desire or ability to learn.
The idea of school choice through the use of vouchers is one that has been suggested over the years. In this manner, parents could take the education funding that their tax dollars pay for and send their child to any school of their choosing. When asked his views on the voucher system, Obama responded, ""if there was any argument for vouchers it was ‘Let's see if the experiment works'". However, despite these words, he came out in opposition to the new voucher system that would have allowed parents the choice of using federal funding for private rather than public education. Not a big surprise, but certainly another disappointment.
My freshmen year of high school, I entered the public school system and found myself relearning the same material that I had covered in 5th grade. Additionally, the majority of my peers were taken aback by the way that I spoke. Why did I have to use all those big words? I eventually learned to speak in the common language that is not english, but rather the bastardized form we call ebonics. This is a failing that I believe can be placed squarely on our school system. How can students be expected to learn about philosophy, economics, science, or any other topic when they don't understand the words that are being read? Public schools vary in their degree to which they have backslid, but overall there are major gaps to be filled. Classes are taught to the lowest ability and standardized for everyone, regardless of desire or ability to learn.
The idea of school choice through the use of vouchers is one that has been suggested over the years. In this manner, parents could take the education funding that their tax dollars pay for and send their child to any school of their choosing. When asked his views on the voucher system, Obama responded, ""if there was any argument for vouchers it was ‘Let's see if the experiment works'". However, despite these words, he came out in opposition to the new voucher system that would have allowed parents the choice of using federal funding for private rather than public education. Not a big surprise, but certainly another disappointment.
Friday, May 15, 2009
Par le vous Francais?
While doing research for our final paper in this class, I came across a you tube video that the Cato institute had posted. Apparently our fearless leader, President Obama, has been vacationing in France ( yes, you did pay for this). Upon returning to our country, he spoke about how wonderful the country is and how delightful his time was and then he proceeded to speak about their wonderful welfare system. He seems to think that we should enact some of the policies that the French enjoy. Welfare programs that exceed 50% of GDP. Per capita income of around 33,000. Oh, and the best part...a yearly disposable income after taxes of approximately 18,000. All so everyone can enjoy nationalized health insurance that decreases the quality of care received and the affordability of health care for those who don't qualify but who are paying for everyone who does. I can't wait to see what his next great idea is.
Saturday, May 02, 2009
Death of the 111th Filibuster--A Dark Specter Ahead
With Senator Specter's transfer to the Democratic party, Nancy Pelosi and Harry Reid effectively face no opposition to their plans. None whatsoever. This has several possible effects, some good, others not.
First, not only will Congressional Democrats be able to pass on runaway spending programs with their President in power--just as the Republicans did 8 years ago--they also will be able to do it on a scale much larger and quicker than the Republicans ever had. The Republicans never had that filibuster or veto proof majority. And you thought their spending was bad.
Next, Obama will have much less opposition. Even the Democrats who were not too comfortable with him will now find it harder to oppose him: With so much power, the Democrats will be able to exert significantly more party pressure over their members. The few conservative Democrats more inclined towards fiscal responsibility will be even LESS likely to defect to the Republican coalition. I see this as a negative development in that it opens up Congress to quicker, smoother passage of their legislation, which means more rent-seeking and interest group muddling in DC politics.
One other thing: The Republicans have to now come up with something outside of their principles that will attract voters. They are clearly on the run here, and need something new and fresh to gain some appeal back from the Democrats. The rampant spending likely to come will also probably mean lots of handouts, which means votes for Democrats in many cases.
Overall, I see Specter's defection as negative, as I would see it as a negative if it were the vice versa situation. Too much power in one party opens the way for rent-seeking and highly inefficient policies that centralize and corporatize American industry, resulting in deadweight losses, I believe, for consumers.
First, not only will Congressional Democrats be able to pass on runaway spending programs with their President in power--just as the Republicans did 8 years ago--they also will be able to do it on a scale much larger and quicker than the Republicans ever had. The Republicans never had that filibuster or veto proof majority. And you thought their spending was bad.
Next, Obama will have much less opposition. Even the Democrats who were not too comfortable with him will now find it harder to oppose him: With so much power, the Democrats will be able to exert significantly more party pressure over their members. The few conservative Democrats more inclined towards fiscal responsibility will be even LESS likely to defect to the Republican coalition. I see this as a negative development in that it opens up Congress to quicker, smoother passage of their legislation, which means more rent-seeking and interest group muddling in DC politics.
One other thing: The Republicans have to now come up with something outside of their principles that will attract voters. They are clearly on the run here, and need something new and fresh to gain some appeal back from the Democrats. The rampant spending likely to come will also probably mean lots of handouts, which means votes for Democrats in many cases.
Overall, I see Specter's defection as negative, as I would see it as a negative if it were the vice versa situation. Too much power in one party opens the way for rent-seeking and highly inefficient policies that centralize and corporatize American industry, resulting in deadweight losses, I believe, for consumers.
Friday, May 01, 2009
More on global warming
After writing the last policy analysis on global warming am still confused weather I should pick neither carbon tax nor cap-and-trade. I understand that we should keep our city clean to reduce pollution. An article in The Associated Press on April 24, mentions that electricity providers warn plan would raise prices if the Congress passes a global warning bill without giving utilities some allowances to emit greenhouse gasses. I would be worry just because the Utilities where we lived are monopoly, I’m not sure if everyone in town are able to afford gasses or electricity during the winter season. President Obama proposed that providers says the best way to keep the electricity sector from passing on the cost of reducing greenhouse gasses is to initially give away allowances to emit pollutions, not sell them. The president’s budget assumes that allowances will be sold and uses the projected $650 billion in revenue to help people pay for higher energy cost and to develop new, more climate friendly energy sources. Its sound nice but I’m sure a lot of people out there are not agree to this plan because of using tax money to pay for someone else. Most of the electric utilities told the lawmakers they if they were giving the allowances, they could protect consumer from higher energy prices. I believe that this is another example of why Cap and Trade won’t work. The industries will just use the political pressure to ensure they have sufficient free pollution certificates that they don’t have to do anything. As for carbon surcharge with reductions in the income and payroll taxes are needed so that the consumer can afford to pay the higher fuel prices, rather than just put the money in energy companies.
Farm Aid is not only a Concert
The United States government continues to provide farm subsidies to our farming industry. This continues in a country that possesses ample/fertile land, clean water and world leading farming technology. The United States spent over $20 billion on farm subsidies in 2008. This transfer of taxpayers income to a thriving, self-sufficient industry has got to stop.
A common misconception is that farm subsidies are provided to 1) Help small family farms and 2) Lower the price of food. Unfortunately, this is not the case as a majority of subsidies (72-percent) are provided to only 10 percent of farmers. In addition, "conservation" subsidies are paid to farmers not to farm on their land. This actually decreases the supply of food, thus raising food prices,
In troubled economic times the United States government must be ended to fund other government programs or maybe, just maybe cut our federal budget. The United States farming industry does not need government involvement or aid to succeed. It is a perfect example of government "pork" in an industry that does not need government intervention.
A common misconception is that farm subsidies are provided to 1) Help small family farms and 2) Lower the price of food. Unfortunately, this is not the case as a majority of subsidies (72-percent) are provided to only 10 percent of farmers. In addition, "conservation" subsidies are paid to farmers not to farm on their land. This actually decreases the supply of food, thus raising food prices,
In troubled economic times the United States government must be ended to fund other government programs or maybe, just maybe cut our federal budget. The United States farming industry does not need government involvement or aid to succeed. It is a perfect example of government "pork" in an industry that does not need government intervention.
