A primer on Keynesian economic philsophy

We've been hearing a lot lately from economists and pundits enamored of John Maynard Keynes and his philosophies on government intervention in times of crisis, especially when compared against laissez-faire fan Milton Friedman. What's always amused me is hearing from struggling, die-hard conservatives (at least in theory) who've declared bankruptcy (more than once) or lost homes in foreclosure and don't want any government intervention into the marketplace at all because it's just going to get in their way of gettin' rich! You know, someday. Like when the sun burns out.

My favorite magazine, The Week, has a great summary of Keynes, his economic theories, and why his ideas are back in vogue:

Born in 1883, Keynes was educated at Eton and Cambridge, and became a prolific writer on subjects ranging from philosophy to probability. He joined the British Treasury during World War I, representing it in negotiations in Versailles over the treaty that ended the war.

His experience in Versailles led him to write The Economic Consequences of the Peace, in which he condemned the onerous reparations imposed on Germany and sagely predicted the ruin that loomed ahead for Europe.

Such unconventional views left him out of political favor for much of the 1920s. But the market crash of 1929 increased demand for his theories—and counsel—on both sides of the Atlantic. In 1936, he published his magnum opus, The General Theory of Employment, Interest, and Money, which for decades exerted a profound influence on economic thinking and practice...

Disputing the classical free-market belief in an “invisible hand” that guides economies in a natural cycle, Keynes viewed recessions and depressions as symptoms of economic distress that must be treated...

In the current economic crisis, monetary policy has been pushed to its limit. The interest rate charged to lenders is near zero, but lending remains stalled and economic activity has plummeted along with employment. With no tools left in the monetarist kit, many economists favor a government boost to aggregate demand—just as Keynes would have advised. That’s the idea behind the $787 billion stimulus package...

Click here for entire article.

No job? No problem!

Since it's all too easy to get depressed about the ongoing situation in the housing sector (not to mention rising unemployment), for Christmas Eve I wanted to share an article I read in The Week magazine on how to take advantage of this newfound free time for other endeavors based on a book called "No Job? No Problem!" by Nicolas Nigro. From the article:

1. Start your day as early as possible. The human brain tends to be more focused and alert earlier in the day, and more tired and distracted later on. Simply put: Always take full advantage of the finite hours of daylight.

2. Keep your learning curve perpetually greased. Further your education any way you can. If there are courses or workshops available at nearby colleges, attend them when the subject matter interests you. Would an advanced degree in your field, or a degree in another discipline entirely, benefit your job search or, perhaps, inspire a future career? Look into the possibilities, including degree programs that can be completed entirely online.

3. Cavort with genuinely successful people. Not rich people, necessarily. People who neatly blend the best qualities of humanity, people who are good to the core. You can learn from them.

4. Learn to cook.

5. Practice yoga.

6. Nurture your family tree. While you’re job-hunting, you might want to allocate some time for genealogical research or piecing together your family history. Get in touch with relatives for missing pieces of the puzzle. (One of these people may even hold the key that unlocks the door to your next job or career.)

7. Paint your living quarters. Get in touch with your inner Bob Vila or Martha Stewart. There is no better time to tackle the challenge of getting your house in order—literally. Besides, physical order goes hand in hand with psychological and emotional order.

8. Balance your checkbook.

9. Play smart. There are all kinds of games you can play with your friends, and many more you can play when you are all alone. Why not opt for the ones that will make you smarter, or at least exercise your brain as much as possible? Play games like Scrabble and chess with others. When you’re all by your lonesome, pull out a Rubik’s Cube or do the daily crossword in your newspaper.

10. Sample bizarre foods. Take a prompt from chef Andrew Zimmern’s popular program on the Travel Channel, Bizarre Foods. Zimmern travels the planet to sample local foods that most of us might deem a wee bit strange, like barbecued cow scrotum and still-beating frog hearts. Since you have to eat lunch anyway, why not broaden your horizons by trying some foods that you never considered before? You don’t have to go to the fantastic lengths of Zimmern. Maybe ordering shish kebab from a street vendor is bizarre for you.

11. Witness a sunrise.

12. Go hiking. No matter where you call home—a thriving metropolis, a bedroom community in suburbia, or a sleepy small town—there are more than likely locations nearby with circuitous trails through woodlands or indig-enous shrubbery. Visit Local-Hikes.com for ideas.

13. Go Dumpster diving. Okay, so maybe you shouldn’t physically climb into any garbage Dumpsters. (No. 1: It could be dangerous. No. 2: It’s actually against the law in many places to be crawling around in other people’s refuse.) Nevertheless, Dumpster diving—and just plain old garbage picking—has a long and vaunted tradition. The bottom line is that people toss out things of real value. Many garbage pickers find furniture that they refinish. Working lamps are regularly put out to the curb. Ditto perfectly good rugs. Traverse your neighborhood on garbage pickup dates and look for bits and pieces that you could take home and use, or, perhaps, sell on eBay or in a yard sale. Just be sure to wash your hands after any of your adventures.

14. Read a good book. This recommendation is an old favorite. Read a book in lieu of excessive television viewing and aimless surfing on the Internet. Your overall psyche will benefit tremendously.

15. Fast for a day.

16. Contact a long-lost friend.

17. Keep a journal. Spend some time each and every day documenting everything from the weather to your innermost feelings about all that’s transpiring during your unemployment odyssey. Journal writing serves as a psychological catharsis. It also improves your communication skills, which—by the way—are highly coveted in the workplace.

18. Become a shutterbug. If you’ve got a camera—preferably a digital one (no photo development costs)—take it with you on both your job safari and leisure activities. Get a shot of the sunset. Take shots of neighborhood hot spots. Snap photos of family and friends.

19. Volunteer your time. Volunteer at a local hospital, nursing home, school, or some other institution looking for help. Join a volunteer fire brigade. You can’t go wrong by giving something back to the community. In addition, volunteering your time while you are unemployed increases your visibility and your network. You now have more people invested in the ultimate success of your job search.

20. Make a video for YouTube.

21. Invent something

22. Go ‘green.’ Install low-flow showerheads. Attend to leaky faucets. Insulate your home.

23. Work at different jobs. If you’re working part-time to plug the income gap until you find a permanent position, it certainly helps to experience new job challenges. Do things you’ve never done before. In the end, you’ll be smarter for it. For instance, working in a restaurant kitchen could teach you an awful lot, including some useful new skills. It may, in fact, teach you that you never want to go near one again. The larger point here is that working in different kinds of jobs with different kinds of people adds layers to your character and overall know-how.

24. Try new things all across the board. The same benefits of working different jobs arise with just about any other experience that’s new to you. So work at tasks at which you’re not especially proficient. Instead of hiring a house painter, paint a room for yourself. Instead of calling in a geeky neighbor to install a new computer system for you, try following the instructions without a helping hand. And this new stuff applies in all parts of your day. Sample new foods while cooking at home. Patronize unusual shops. Travel to places you’ve never before seen.

How the U.S. government cooks the economic books

There's a great column in the 5/23/08 issue The Week magazine on how the U.S. government plays with economic data to make the economy seem stronger than it is. That's why you can find your own household budget straining to meet higher energy and food prices but then read official government reports that seem to ignore reality. I have a saying I tell clients: "You can't fix what you don't admit." Too bad the government doesn't know that one. From the article (subscription required):

The federal government’s economic numbers simply cannot be trusted, said Kevin Phillips in Harper’s. To see how the numbers have been “corrupted,” check out the three most closely watched economic measures—the Consumer Price Index, which tallies inflation at the retail level; the Gross Domestic Product, which tracks the economy’s overall growth; and the monthly unemployment figure.

All three sets of data give a falsely cheerful picture of the economy, not because of “any concerted or cynical schemes,” but because policymakers of both parties have found it expedient to distort the numbers.

By low-balling the inflation number, for example, the government can hold down interest rates and control the cost of pension and disability payments, which are indexed to inflation. A low inflation rate, in turn, makes the nation’s gross domestic output look more robust. That’s because when inflation is low, quarterly increases in the dollar value of the nation’s goods and services are attributed largely to greater output rather than higher prices. And by undercounting the unemployed, the government can downplay the severity of economic downturns. The inflation statistics most dramatically show the disconnect between the official numbers and reality, said Dean Calbreath in The San Diego Union-Tribune. Government spokesmen like to cite the so-called core inflation rate, which smoothes out fluctuations in food and energy costs. But “many economists say the core rate does not show how inflation is affecting the typical consumer.”

For instance, the official statistics give “nearly as much weight to high-ticket items such as cars and electronics,” which people buy infrequently, as they give to everyday purchases such as food and gasoline. The core rate also doesn’t capture how the prices of food and energy, among other items, have risen far more rapidly than incomes.

As a result, people are spending an ever-greater share of their wages to buy an ever-smaller amount of food or gasoline. Another oddity of the inflation calculation is what’s called the “hedonic adjustment,” said Bill Fleckenstein in MSN’s Moneycentral.com. In effect, the government says that some product improvements, such as cameras in mobile phones, amount to price reductions. In other words, a $300 phone with a camera is “cheaper” than a $300 phone without one. Such trumped-up price deflators make the government’s inflation calculation a “cheat.” The inflation numbers are dubious, but it’s the unemployment figures that deserve “the Pulitzer Prize for Fiction,” said Alan Abelson in Barron’s. The government reported this month that payrolls shrank by only 20,000 jobs in April, and that the unemployment rate dropped to 5 percent from 5.1 percent.

But the job losses would have been closer to 287,000, if not for the so-called birth/death adjustment that supposedly measures jobs added or lost by businesses that either started up or closed their doors in the past month. Using the adjustment, government economists surmised that the financial services industry added 8,000 jobs last month; construction added 45,000. Those are quite some feats, considering that banks and brokerage houses are laying off people left and right, and “construction is not exactly booming.” Say this for the government’s numbers, though: They might not be accurate, but they’re “carefully designed to leave you with a comfy feeling in these rather trying times.”

L.A. Times story on reverse mortgages cited by The Week magazine

I've been a big fan of The Week magazine (which summarizes national and int'l news in less than 45 pages each week) for about 3 years, and have bought gift subscriptions for friends and family members as a form of introduction. So I was pretty excited today to see that the article I recently wrote for the L.A. Times on reverse mortgages was cited in the current issue of The Week, along with other articles on the same subject in The New York Times and Kiplinger's Personal Finance.

I'm working on other articles as a freelancer for the L.A Times, and remain open to story pitches to run past the real estate section editor; in fact, it was due to an email from some real estate agents in Southern California that I'm now writing an article on California's Props. 60, 90 and 110, which allow homeowners to transfer their existing Prop. 13-protected tax rates to new purchases of the same or lesser value one time in their lives (available only to people 55 or older or those with severe disabilities).

The purpose of writing these articles is simple: provide a balanced overview of real estate-related issues in order to educate the L.A. Times' readership so they can make informed decisions or know where to call or write to find out more. While I am an "industry insider" and work as a consultant for homebuilders and certainly benefit from heightened awareness among clients and colleagues, for these articles I truly have no agenda other than education, and hope that I can provide a valuable service.