Reinventing Michigan

Last night I spoke to a group of students at Alma College, a small liberal arts college in the very center of Michigan, about the economic crisis and the election. This state, of course, has been one of the canaries in the coal mine of the US economy, and the students were eager to discuss possibilities for change. One young woman, an economics major, said she'd seen foreclosed homes for sale on eBay, one of which, in Saginaw about an hour from the college, apparently went to a Chicago woman for $1.75. We talked about whether they, as new graduates, would be receptive to an opportunity such as Baltimore's 'urban homesteading' program of the 1970s, which sold abandoned houses at nominal prices combined with low-interest construction loans to help people restablize and rehabilitate moribund neighborhoods. (These days, of course, you'd want to put some of the financing towards an energy retrofit). But rather than stay and make a go of it in Michigan, many of them said they were majoring in foreign relations and looking to opportunities in countries like South Africa and South Korea.

The students I sat with at dinner were equally concerned with the environment as well as the economy, which is why it's little surprise most of them opposed the bailout bid of Michigan's largest company, General Motors. "If they can't make efficient cars that people want to buy, then what's the point of propping them up with subsidies?" another econ major pointed out. Based on the experience of a classmate, he suggested the company's Asian subsidiaries might be better at adapting to market realities, including the potential new reality of a price on carbon. I didn't get to ask the opinion of the college's brand-new chef, Chef Dan, who served our salmon and tiramisu. Apparently he had been an engineer at GM for 20 years before taking an early buyout and going to culinary school.

How to Beat "Card Bind"; Try Credit Unions

I'm quoted in a Wall Street Journal article.

"Applying and getting denied for too many cards can actually hurt your credit score. "Don't do what I did," Ms. Kamenetz says. "Don't start applying for cards without a strategy. You aren't going to get the cards you want right away."

The Filene Research Institute, which has had me as a guest speaker, is spotlighted in a Time story saying community banking institutions like credit unions are looking pretty spiffy in light of the financial crisis.

Tax & Spend, Work & Rest

A commenter writes:
"don't highly progressive taxes discourage work? why work harder if its going to be taxed at ~45%? (fed,state, muni, soc. sec.) this is at the root of why so many upper-middle class folks feel so poor, they are paid better, and many of them work much harder to earn this higher wage, but come april 15th much of this is taken away. after you consider all the extra time/effort they spent earning the money, they may have been better off not working to earn that extra marginal dollar."

The recent performance of European economies shows that with a robust social safety net, people will pay higher taxes and be productive too.

And actually, I'm in favor of upper middle class and richer Americans working fewer hours, buying less stupid crap, and emitting fewer carbon emissions. We need a new paradigm of productivity that involves the concept of ENOUGH.

Joe the Plumber--Or Is $250,000 Enough to Feel Successful?

The "Joe the Plumber" who became famous for 15 minutes during last night's final presidential debate may have been a Republican plant. He's not a licensed plumber and his name ain't Joe.

But I think the debate over him actually showcased a genuine philosophical difference between Republicans and Democrats about taxation and individual wealth.

Joe has made a lot of money and he wants to expand his business and employ more people. He doesn't want to be punished for his success with tax increases. Obama replied, "It's not that I want to punish your success. I just want to make sure that everybody who is behind you - that they've got a chance at success, too," and he ended with an exhortation to "spread the wealth." This is a statement that was mocked by McCain as being "redistribution of wealth."

No matter how much Obama keeps saying he's going to cut taxes on 95% of Americans (which is definitely a bit of a pander, I have to say), that particular part of his proposal doesn't seem to resonate with a lot of people. On the one hand, the struggling, working class lady profiled in The New Yorker last week just didn't believe that Obama could raise enough money to right the disastrous budget by increasing taxes ONLY on the top 2%, even though that 2% currently earns one-eighth of the national income.

"“How many people do you know who make two hundred and fifty thousand dollars?" ...
The circumstances of Snodgrass’s life made it impossible for her to imagine that there could possibly be enough taxable money in Obama’s upper-income category—which meant that he was being dishonest, and that she would eventually be the one to pay."

On the other hand, a law student who came up to me at Hofstra the other day had the opposite problem supporting Obama's plan. He happens to know quite a few people who make $250K. In fact, he aspires to make that much himself in a few years. "Who's looking out for the young professionals?" he asked me. Well dude... young white men with law degrees are not first in line for anyone's sympathy in hard times. Even when they have $150K in student loan debt and may never be able to buy a house.

One significant obstacle we face in this country is that the poor people feel poor, and the rich people feel even poorer. In fact, here in New York City, people who make more than $200,000 a year are the MOST likely to say that they feel that they're falling behind economically. It seems crazy, but that's because inequality and income distribution has gotten so skewed over the past 25 years that the richer you got the more people just above you were making, and their income was growing faster than yours was. It's all relative.

The way out of the madness is, precisely, the redistribution of wealth--aggressive, progressive taxes on income and especially on investments and wealth, to bring these two ends of the spectrum closer together, and to create a social safety net and more economic security for everyone. I intend to vote that way and to support that even when (if) I nudge into the bracket where it becomes against my own narrow economic self-interest to do so. In fact, I don't think it is even against my self-interest. I don't ever want to live in a country, or live a life, where $250,000 a year doesn't feel like enough.

Brian Lehrer Show Broadcasting Live from Hofstra U

Listen in tomorrow morning starting at 11 am EST for a student's-eye view of the election at the site of the last presidential debate, with live commentary from me, Michael Dannenberg of the New America Foundation's Education Policy Program, and Hofstra's provost.

Reality Check for Some Teens

I truly don't believe that they're all this way, but the Times says the times are tough for kids who expect a designer bag in return for math grades.


“The sooner we have these conversations in the family and as a society,” said Dr. Manning, the economist [author of Credit Card Nation], “the sooner we can focus on core values, and have a more realistic dialogue about the meaning of happiness and money.”

The Clock is Ticking

"Key policy players have largely wasted the past four weeks. Now they’ve reached a moment of truth: They’d better do something soon — in fact, they’d better announce a coordinated rescue plan this weekend — or the world economy may well experience its worst slump since the Great Depression."

The Bear Was Right

Nouriel Roubini, the economist who predicted everything that's happening now back in February, had this to say yesterday:

"The U.S. and advanced economies’ financial systems are now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof."

"The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity... excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression."

... At this point severe damage is done and one cannot rule out a systemic collapse and a global depression."

Twenty-Somethings On Top for Once

I talked about this in a Yahoo! Finance column back in February: The recession is going to be harsh for everyone. Yet younger people are relatively well positioned to weather the downturn.
From Newsweek:

If you ' re in your 20s, congratulations! It's not nice to rejoice in the misery of others, but if you're just starting out on your financial path, you are in a position to cash in on the crisis. "If you're 25, this is a great opportunity, you'll be buying in at a low in the market," says Steven Thalheimer, a Silver Spring, Maryland, financial planner. In addition to your workplace 401(k), plow as much as you can afford (up to $5,000 this year) into a Roth IRA. That money will accumulate tax-free until you need it for retirement. Save as much as possible for a home down payment, too. Under the new tighter lending practices, you'll need one to get into a house, and it's a good time to start house hunting. You'll be able to get into many real-estate markets at 2002 prices. Resist debt, and use as little of your money as you can for everyday life, so you can plow as much as you can into your retirement accounts, investments like diversified stock market funds and a home.

"They All Feel Poor."

NYT:
"...in recent weeks, as the financial crisis reverberated from Wall Street to Washington, consumers appear to have cut back sharply...When the final tally is in, consumer spending for the quarter just ended will almost certainly shrink, the first quarterly decline in nearly two decades. Many economists, who began the third quarter expecting modest growth, now believe the cutbacks are so severe that the overall economy did not expand either, and they warn that a consumer-led recession could be more severe than the relatively mild one earlier this decade."

A consumer-led recession?! Let's pin this one right on the backs of the American people, why don't we? Whether it's the mom trading down from sugary brand-name cereal to generic 'Os, or me taking the subway instead of a cab--it's our fault we're in this situation. Whiners!

Or maybe people "feel poor" because they've been living outside their means for a decade and a half. And the funny thing about an unsustainable level of debt-financed spending is that at some point it has to end.

Tuesday Night: Debate Watch Party New York

Register Here: Debate Watch Party 2008 New York

"According to the generation, so goes the leader." (Talmud Bavli, Arakhin 7a)

On October 7th, 2008 millions of viewers will tune into the second U.S. Presidential Debate. Where will you be? Join us at Galapagos Art Space in DUMBO, Brooklyn for one of six Presidential Election Debate Watch Parties across the country. We'll be coming together 200 strong from the NY area - and over 1000 strong across the nation - to hear Democracy roar on the big screen.

Entrance to the event is FREE.

Michelle Collins, writer and comedian for VH1's Best Week Ever, will emcee the event, which will include:

* Pre-debate issues discussion with journalists including Anya Kamenetz (author of Generation Debt), and Jonathan Tepperman (Assistant Managing Editor, Newsweek International) with others...
* Election trivia
* Information about local social justice opportunities
* Voter registration tables
* Free snacks
* Specially mixed Rosh Hashanah cocktail and more!

October 7, 2008
7:00p.m. to 11:00p.m.
Galapagos Art Space DUMBO
16 Main Street
Brooklyn, NY

Hear me on NPR's Planet Money Podcast

Answering a student loan question..

The Beast that Swallows its Young

Here's A Crazy Idea: Bail Out People, Not Banks

I am loving the Washington Post's coverage of this crisis so far.
I think other people have proposed this solution too: The underlying problem with the banking system is all these bad securities based on mortgages that people can't pay off. So...instead of giving all this money to the bankers, why not have the federal government pay off the bad mortgages?

In the 1930s, the Home Owners Loan Corp. reissued mortgages to one-quarter of American homeowners.

A new HOLC could pay off these distressed mortgages and give people 30-year, fixed-rate, low-interest loans instead. So it's not like they're walking away from their obligations.

"Like the administration's proposal, this plan would result in the government owning assets. But these assets would be real estate, not complex derivatives whose true value would take weeks to discern. Homeowners would become partners with the government in resolving the crisis."