Month: March 2021

Good news for a change

PNRJ current events, politics, public policy , , , ,

Mar 28 JDN 2459302

When President Biden made his promise to deliver 100 million vaccine doses to Americans within his first 100 days, many were skeptical. Perhaps we had grown accustomed to the anti-scientific attitudes and utter incompetence of Trump’s administration, and no longer believed that the US federal government could do anything right.

The skeptics were wrong. For the promise has not only been kept, it has been greatly exceeded. As of this writing, Biden has been President for 60 days and we have already administered 121 million vaccine doses. If we continue at the current rate, it is likely that we will have administered over 200 million vaccine doses and fully vaccinated over 100 million Americans by Biden’s promised 100-day timeline—twice as fast as what was originally promised. Biden has made another bold promise: Every adult in the United States vaccinated by the end of May. I admit I’m not confident it can be done—but I wasn’t confident we’d hit 100 million by now either.

In fact, the US now has one of the best rates of COVID vaccination in the world, with the proportion of our population vaccinated far above the world average and below only Israel, UAE, Chile, the UK, and Bahrain (plus some tiny countries like Monaco). In fact, we actually have the largest absolute number of vaccinated individuals in the world, surpassing even China and India.

It turns out that the now-infamous map saying that the US and UK were among the countries best-prepared for a pandemic wasn’t so wrong after all; it’s just that having such awful administration for four years made our otherwise excellent preparedness fail. Put someone good in charge, and yes, indeed, it turns out that the US can deal with pandemics quite well.

The overall rate of new COVID cases in the US began to plummet right around the time the vaccination program gained steam, and has plateaued around 50,000 per day for the past few weeks. This is still much too high, but it is is a vast improvement over the 200,000 cases per day we had in early January. Our death rate due to COVID now hovers around 1,500 people per day—that’s still a 9/11 every two days. But this is half what our death rate was at its worst. And since our baseline death rate is 7,500 deaths per day, 1,800 of them by heart disease, this now means that COVID is no longer the leading cause of death in the United States; heart disease has once again reclaimed its throne. Of course, people dying from heart disease is still a bad thing; but it’s at least a sign of returning to normalcy.

Worldwide, the pandemic is slowing down, but still by no means defeated, with over 400,000 new cases and 7,500 deaths every day. The US rate of 17 new cases per 100,000 people per day is about 3 times the world average, but comparable to Germany (17) and Norway (18), and nowhere near as bad as Chile (30), Brazil (35), France (37), or Sweden (45), let alone the very hardest-hit places like Serbia (71), Hungary (78), Jordan (83), Czechia (90), and Estonia (110). (That big gap between Norway and Sweden? It’s because Sweden resisted using lockdowns.) And there is cause for optimism even in these places, as vaccination rates already exceed total COVID cases.

I can see a few patterns in the rate of vaccination by state: very isolated states have managed to vaccinate their population fastest—Hawaii and Alaska have done very well, and even most of the territories have done quite well (though notably not Puerto Rico). The south has done poorly (for obvious reasons), but not as poorly as I might have feared; even Texas and Mississippi have given at least one dose to 21% of their population. New England has been prioritizing getting as many people with at least one dose as possible, rather than trying to fully vaccinate each person; I think this is the right strategy.

We must continue to stay home when we can and wear masks when we go out. This will definitely continue for at least a few more months, and the vaccine rollout may not even be finished in many countries by the end of the year. In the worst-case scenario, COVID may become an endemic virus that we can’t fully eradicate and we’ll have to keep getting vaccinated every year like we do for influenza (though the good news there is that it likely wouldn’t be much more dangerous than influenza at that point either—though another influenza is nothing to, er, sneeze at).

Yet there is hope at last. Things are finally getting better.

Because ought implies can, can may imply ought

PNRJ core principles, ethics, futurism, inequality , , , , , , , ,

Mar21JDN 2459295

Is Internet access a fundamental human right?

At first glance, such a notion might seem preposterous: Internet access has only existed for less than 50 years, how could it be a fundamental human right like life and liberty, or food and water?

Let’s try another question then: Is healthcare a fundamental human right?

Surely if there is a vaccine for a terrible disease, and we could easily give it to you but refuse to do so, and you thereby contract the disease and suffer horribly, we have done something morally wrong. We have either violated your rights or violated our own obligations—perhaps both.

Yet that vaccine had to be invented, just as the Internet did; go back far enough into history and there were no vaccines, no antibiotics, even no anethestetics or antiseptics.

One strong, commonly shared intuition is that denying people such basic services is a violation of their fundamental rights. Another strong, commonly shared intuition is that fundamental rights should be universal, not contingent upon technological or economic development. Is there a way to reconcile these two conflicting intuitions? Or is one simply wrong?

One of the deepest principles in deontic logic is “ought implies can“: One cannot be morally obligated to do what one is incapable of doing.

Yet technology, by its nature, makes us capable of doing more. By technological advancement, our space of “can” has greatly expanded over time. And this means that our space of “ought” has similarly expanded.

For if the only thing holding us back from an obligation to do something (like save someone from a disease, or connect them instantaneously with all of human knowledge) was that we were incapable and ought implies can, well, then now that we can, we ought.

Advancements in technology do not merely give us the opportunity to help more people: They also give us the obligation to do so. As our capabilities expand, our duties also expand—perhaps not at the same rate, but they do expand all the same.

It may be that on some deeper level we could articulate the fundamental rights so that they would not change over time: Not a right to Internet access, but a right to equal access to knowledge; not a right to vaccination, but a right to a fair minimum standard of medicine. But the fact remains: How this right becomes expressed in action and policy will and must change over time. What was considered an adequate standard of healthcare in the Middle Ages would rightfully be considered barbaric and cruel today. And I am hopeful that what we now consider an adequate standard of healthcare will one day seem nearly as barbaric. (“Dialysis? What is this, the Dark Ages?”)

We live in a very special time in human history.

Our technological and economic growth for the past few generations has been breathtakingly fast, and we are the first generation in history to seriously be in a position to end world hunger. We have in fact been rapidly reducing global poverty, but we could do far more. And because we can, we should.

After decades of dashed hope, we are now truly on the verge of space colonization: Robots on Mars are now almost routine, fully-reusable spacecraft have now flown successful missions, and a low-Earth-orbit hotel is scheduled to be constructed by the end of the decade. Yet if current trends continue, the benefits of space colonization are likely to be highly concentrated among a handful of centibillionaires—like Elon Musk, who gained a staggering $160 billion in wealth over the past year. We can do much better to share the rewards of space with the rest of the population—and therefore we must.

Artificial intelligence is also finally coming into its own, with GPT-3 now passing the weakest form of the Turing Test (though not the strongest form—you can still trip it up and see that it’s not really human if you are clever and careful). Many jobs have already been replaced by automation, but as AI improves, many more will be—not as soon as starry-eyed techno-optimists imagined, but sooner than most people realize. Thus far the benefits of automation have likewise been highly concentrated among the rich—we can fix that, and therefore we should.

Is there a fundamental human right to share in the benefits of space colonization and artificial intelligence? Two centuries ago the question wouldn’t have even made sense. Today, it may seem preposterous. Two centuries from now, it may seem preposterous to deny.

I’m sure almost everyone would agree that we are obliged to give our children food and water. Yet if we were in a desert, starving and dying of thirst, we would be unable to do so—and we cannot be obliged to do what we cannot do. Yet as soon as we find an oasis and we can give them water, we must.

Humanity has been starving in the desert for two hundred millennia. Now, at last, we have reached the oasis. It is our duty to share its waters fairly.

What if everyone owned their own home?

PNRJ current events, public policy , , , , , , , , ,

Mar 14 JDN 2459288

In last week’s post I suggested that if we are to use the term “gentrification”, it should specifically apply to the practice of buying homes for the purpose of renting them out.

But don’t people need to be able to rent homes? Surely we couldn’t have a system where everyone always owned their own home?

Or could we?

The usual argument for why renting is necessary is that people don’t want to commit to living in one spot for 15 or 30 years, the length of a mortgage. And this is quite reasonable; very few careers today offer the kind of stability that lets you commit in advance to 15 or more years of working in the same place. (Tenured professors are one of the few exceptions, and I dare say this has given academic economists some severe blind spots regarding the costs and risks involved in changing jobs.)

But how much does renting really help with this? One does not rent a home for a few days or even few weeks at a time. If you are staying somewhere for an interval that short, you generally room with a friend or pay for a hotel. (Or get an AirBNB, which is sort of intermediate between the two.)

One only rents housing for months at a time—in fact, most leases are 12-month leases. But since the average time to sell a house is 60-90 days, in what sense is renting actually less of a commitment than buying? It feels like less of a commitment to most people—but I’m not sure it really is less of a commitment.

There is a certainty that comes with renting—you know that once your lease is up you’re free to leave, whereas selling your house will on average take two or three months, but could very well be faster or slower than that.

Another potential advantage of renting is that you have a landlord who is responsible for maintaining the property. But this advantage is greatly overstated: First of all, if they don’t do it (and many surely don’t), you actually have very little recourse in practice. Moreover, if you own your own home, you don’t actually have to do all the work yourself; you could pay carpenters and plumbers and electricians to do it for you—which is all that most landlords were going to do anyway.

All of the “additional costs” of owning over renting such as maintenance and property taxes are going to be factored into your rent in the first place. This is a good argument for recognizing that a $1000 mortgage payment is not equivalent to a $1000 rent payment—the rent payment is all-inclusive in a way the mortgage is not. But it isn’t a good argument for renting over buying in general.

Being foreclosed on a mortgage is a terrible experience—but surely no worse than being evicted from a rental. If anything, foreclosure is probably not as bad, because you can essentially only be foreclosed for nonpayment, since the bank only owns the loan; landlords can and do evict people for all sorts of reasons, because they own the home. In particular, you can’t be foreclosed for annoying your neighbors or damaging the property. If you own your home, you can cut a hole in a wall any time you like. (Not saying you should necessarily—just that you can, and nobody can take your home away for doing so.)

I think the primary reason that people rent instead of buying is the cost of a down payment. For some reason, we have decided as a society that you should be expected to pay 10%-20% of the cost of a home up front, or else you never deserve to earn any equity in your home whatsoever. This is one of many ways that being rich makes it easier to get richer—but it is probably the most important one holding back most of the middle class of the First World.

And make no mistake, that’s what this is: It’s a social norm. There is no deep economic reason why a down payment needs to be anything in particular—or even why down payments in general are necessary.

There is some evidence that higher down payments are associated with less risk of default, but it’s not as strong as many people seem to think. The big HUD study on the subject found that one percentage point of down payment reduces default risk by about as much as 5 points of credit rating: So you should prefer to offer a mortgage to someone with an 800 rating and no down payment than someone with a 650 rating and a 20% down payment.

Also, it’s not as if mortgage lenders are unprotected from default (unlike, say, credit card lenders). Above all, they can foreclose on the house. So why is it so important to reduce the risk of default in the first place? Why do you need extra collateral in the form of a down payment, when you’ve already got an entire house of collateral?

It may be that this is actually a good opportunity for financial innovation, a phrase that should in general strike terror in one’s heart. Most of the time “financial innovation” means “clever ways of disguising fraud”. Previous attempts at “innovating” mortgages have resulted in such monstrosities as “interest-only mortgages” (a literal oxymoron, since by definition a mortgage must have a termination date—a date at which the debt “dies”), “balloon payments”, and “adjustable rate mortgages”—all of which increase risk of default while as far as I can tell accomplishing absolutely nothing. “Subprime” lending created many excuses for irresponsible or outright predatory lending—and then, above all, securitization of mortgages allowed banks to offload the risk they had taken on to third parties who typically had no idea what they were getting.

Volcker was too generous when he said that the last great financial innovation was the ATM; no, that was an innovation in electronics (and we’ve had plenty of those). The last great financial innovation I can think of is the joint-stock corporation in the 1550s. But I think a new type of mortgage contract that minimizes default risk without requiring large up-front payments might actually qualify as a useful form of financial innovation.

It would also be useful to have mortgages that make it easier to move, perhaps by putting payments on hold while the home is up for sale. That way people wouldn’t have to make two mortgage payments at once as they move from one place to another, and the bank will see that money eventually—paid for by new buyer and their mortgage.

Indeed, ideally I’d like to eliminate foreclosure as well, so that no one has to be kicked out of their homes. How might we do that?

Well, as a pandemic response measure, we should have simply instituted a freeze on all evictions and foreclosures for the duration of the pandemic. Some states did, in fact—but many didn’t, and the federal moratoria on evictions were limited. This is the kind of emergency power that government should have, to protect people from a disaster. So far it appears that the number of evictions was effectively reduced from tens of millions to tens of thousands by these measures—but evicting anyone during a pandemic is a human rights violation.

But as a long-term policy, simply banning evictions wouldn’t work. No one would want to lend out mortgages, knowing that they had no recourse if the debtor stopped paying. Even buyers with good credit might get excluded from the market, since once they actually received the house they’d have very little incentive to actually make their payments on time.

But if there are no down payments and no foreclosures, that means mortgage lenders have no collateral. How are they supposed to avoid defaults?

One option would be wage garnishment. If you have the money and are simply refusing to pay it, the courts could simply require your employer to send the money directly to your creditors. If you have other assets, those could be garnished as well.

And what if you don’t have the money, perhaps because you’re unemployed? Well, then, this isn’t really a problem of incentives at all. It isn’t that you’re choosing not to pay, it’s that you can’t pay. Taking away such people’s homes would protect banks financially, but at a grave human cost.

One option would be to simply say that the banks should have to bear the risk: That’s part of what their huge profits are supposed to be compensating them for, the willingness to take on risks others won’t. The main downside here is the fact that it would probably make it more difficult to get a mortgage and raise the interest rates that you would need to pay once you do.

Another option would be some sort of government program to make up the difference, by offering grants or guaranteed loans to homeowners who can’t afford to pay their mortgages. Since most such instances are likely to be temporary, the government wouldn’t be on the hook forever—just long enough for people to get back on their feet. Here the downside would be the same as any government spending: higher taxes or larger budget deficits. But honestly it probably wouldn’t take all that much; while the total value of all mortgages is very large, only a small portion are in default at any give time. Typically only about 2-4% of all mortgages in the US are in default. Even 4% of the $10 trillion total value of all US mortgages is about $400 billion, which sounds like a lot—but the government wouldn’t owe that full amount, just whatever portion is actually late. I couldn’t easily find figures on that, but I’d be surprised if it’s more than 10% of the total value of these mortgages that would need to be paid by the government. $40 billion is about 1% of the annual federal budget.

Reforms to our healthcare system would also help tremendously, as medical expenses are a leading cause of foreclosure in the United States (and literally nowhere else—every other country with the medical technology to make medicine this expensive also has a healthcare system that shares the burden). Here there is virtually no downside: Our healthcare system is ludicrously expensive without producing outcomes any better than the much cheaper single-payer systems in Canada, the UK, and France.

All of this sounds difficult and complicated, I suppose. Some may think that it’s not worth it. But I believe that there is a very strong moral argument for universal homeownership and ending eviction: Your home is your own, and no one else’s. No one has a right to take your home away from you.

This is also fundamentally capitalist: It is the private ownership of capital by its users, the acquisition of wealth through ownership of assets. The system of landlords and renters honestly doesn’t seem so much capitalist as it does feudal: We even call them “lords”, for goodness’ sake!

As an added bonus, if everyone owned their own homes, then perhaps we wouldn’t have to worry about “gentrification”, since rising property values would always benefit residents.

What I think “gentrification” ought to mean

PNRJ public policy , , , , , , , ,

Mar7 JDN 2459281

A few years back I asked the question: “What is gentrification?”

The term evokes the notion of a gentry—a landed upper class who hoards wealth and keeps the rest of the population in penury and de facto servitude. Yet the usual meaning of the term really just seems to mean “rich people buying houses in poor areas”. Where did we get the idea that rich people buying houses in poor areas constitutes the formation of a landed gentry?

In that previous post I argued that the concept of “gentrification” as usually applied is not a useful one, and we should instead be focusing directly on the issues of poverty and housing affordability. I still think that’s right.

But it occurs to me that there is something “gentrification” could be used to mean, that would actually capture some of the original intended meaning. It doesn’t seem to be used this way often, but unlike the usual meaning, this one actually has some genuine connection with the original concept of a gentry.

Here goes: Gentrification is the purchasing of housing for the purpose of renting it out.

Why this definition in particular? Well, it actually does have an effect similar in direction (though hardly in magnitude) to the formation of a landed gentry: It concentrates land ownership and makes people into tenants instead of homeowners. It converts what should have been a one-time transfer of wealth from one owner to another into a permanent passive income stream that typically involves the poor indefinitely paying to the rich.

Because houses aren’t very fungible, the housing market is one of monopolistic competition: Each house is its own unique commodity, only partially substitutable with others, and this gives market power to the owners of houses. When it’s a permanent sale, that market power will be reflected in the price, but it will also effectively transfer to the new owner. When it’s a rental, that market power remains firmly in the hands of the landlord. The more a landlord owns, the more market power they can amass: A large landholding corporation like the Irvine Company can amass an enormous amount of market power, effectively monopolizing an entire city. (Now that feels like a landed gentry! Bend the knee before the great and noble House Irvine.)

Compare this to two other activities that are often called “gentrification”: Rich people buying houses in poor areas for the purpose of living in them, and developers building apartment buildings and renting them out.

When rich people buy houses for the purpose of living in them, they are not concentrating land ownership. They aren’t generating a passive income stream. They are simply doing the same thing that other people do—buying houses to live in them—but they have more money with which to do so. This is utterly unproblematic, and I think people need to stop complaining about it. There is absolutely nothing wrong with buying a house because you want to live in it, and if it’s a really expensive house—like Jeff Bezos’ $165 million mansion—then the problem isn’t rich people buying houses, it’s the massive concentration of wealth that made anyone that rich in the first place. No one should be made to feel guilty for spending their own money on their own house. Every time “gentrification” is used to describe this process, it just makes it seem like “gentrification” is nothing to worry about—or maybe even something to celebrate.

What about developers who build apartments to rent them out? Aren’t they setting up a passive income stream from the poor to the rich? Don’t they have monopolistic market power? Yes, that’s all true. But they’re also doing something else that buying houses in order to rent them doesn’t: They are increasing the supply of housing.

What are the two most important factors determining the price of housing? The same two factors as anything else: Supply and demand. If prices are too high, the best way to fix that is to increase supply. Developers do that.

Conversely, buying up a house in order to rent it is actually reducing the supply of housing—or at least the supply of permanent owner-occupied housing. Whereas developers buy land that has less housing and build more housing on it, gentrifiers (as I’m defining them) buy housing that already exists and rent it out to others.

Indeed, it’s really not clear to me that rent is a thing that needs to exist. Obviously people need housing. And it certainly makes sense to have things like hotels for very short-term stays and dorms for students who are living in an area for a fixed number of years.

But it’s not clear to me that we really needed to have a system where people would own other people’s houses and charge them for the privilege of living in them. I think the best argument for it is a libertarian one: If people want to do that, why not let them?

Yet I think the downsides of renting are clear enough: People get evicted and displaced, and in many cases landlords consistently fail to provide the additional services that they are supposed to provide. (I wasn’t able to quickly find good statistics on how common it is for landlords to evade their responsibilities like this, but anecdotal evidence would suggest that it’s not uncommon.)

The clearest upside is that security deposits are generally cheaper than down payments, so it’s generally easier to rent a home than to buy one. But why does this have to be the case? Indeed, why do banks insist on such large down payments in the first place? It seems to be only social norms that set the rate of down payments; I’m not aware of any actual economic arguments for why a particular percentage of the home’s value needs to be paid in cash up front. It’s commonly thought that large down payments somehow reduce the risk of defaulting on a mortgage; but I’m not aware of much actual evidence of this. Here’s a theoretical model saying that down payments should matter, but it’s purely theoretical. Here’s an empirical paper showing that lower down payments are associated with higher interest rates—but it may be the higher interest rates that account for the higher defaults, not the lower down payments. There is also a selection bias, where buyers with worse credit get worse loan terms (which can be a self-fulfilling prophecy).

The best empirical work I could find on the subject was a HUD study suggesting that yes, lower down payments are associated with higher default risk—but their effect is much smaller than lots of other things. In particular, one percentage point of down payment was equivalent to about 5 points of credit score. So someone with a credit score of 750 and a down payment of 0% is no more likely to default than someone with a credit score of 650 and a down payment of 20%. Or, to use an example they specifically state in the paper: “For example, to have the same probability of default as a prime loan, a B or C [subprime] loan needs to have a CLTV [combined loan-to-value ratio] that is 11.9 percentage points lower than the CLTV of an otherwise identical prime loan.” A combined loan-to-value ratio 12 percentage points lower is essentially the same thing as a down payment that is 12 percentage points larger—and 12% of the median US home price of $300,000 is $36,000, not an amount of money most middle-class families can easily come up with.

I also found a quasi-experimental study showing that support from nonprofit housing organizations was much more effective at reducing default rates than higher down payments. So even if larger down payments do reduce defaults, there are better ways of doing so.

The biggest determinant of whether you will default on your mortgage is the obvious one: whether you have steady income large enough to afford the mortgage payment. Typically when people default it’s because their adjustable interest rate surged or they lost their job. When housing prices decline and you end up “underwater” (owing more than the house’s current price), strategic default can theoretically increase your wealth; but in fact it’s relatively rare to take advantage of this, because it’s devastating to your credit rating. Only about 20% of all mortgage defaults in the crisis were strategic—the other 80% were people who actually couldn’t afford to pay.

Another potential upside is that it may be easier to move from one place to another if you rent your home, since selling a home can take a considerable amount of time. But I think this benefit is overstated: Most home leases are 12 months long, while selling a house generally takes 60-90 days. So unless you are already near the end of your lease term when you decide to move, you may actually find that you could move faster if you sold your home than if you waited for your lease to end—and if you end your lease early, the penalties are often substantial. Your best-case scenario is a flat early termination fee; your worst-case scenario is being on the hook for all the remaining rent (at which point, why bother?). Some landlords instead require you to cover rent until a new tenant is found—which you may recognize as almost exactly equivalent to selling your own home.

I think the main reason that people rent instead of buying is simply that they can’t come up with a down payment. If it seems too heavy-handed or risky to simply cap down payments, how about we offer government-subsidized loans (or even grants!) to first-time home buyers to cover their down payments? This would be expensive, but no more so than the mortgage interest deduction—and far less regressive.

For now, we can continue to let people rent out homes. When developers do this, I think the benefits generally outweigh the harms: Above all, they are increasing the supply of housing. A case could be made for policies that incentivize the construction of condos rather than rentals, but above all, policy should be focusing on incentivizing construction.

However, when someone buys an existing house and then rents it out, they are doing something harmful. It probably shouldn’t be illegal, and in some cases there may be no good alternatives to simply letting people do it. But it’s a harmful activity nonetheless, and where legal enforcement is too strict, social stigma can be useful. And for that reason, I think it might actually be fair to call them gentrifiers.