Houston's Clear Thinkers

You’ve got to be kidding me

2010-09-09T05:01:00Z

No, really. Get a load of this:

The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee - July housing sales sank 26 percent from July 2009 - there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.

As regular readers of this blog know, the notion that housing markets need to allocate risk of loss before those markets can stabilize and recover is not rocket science.

In fact, the government's dithering over the past two years in propping up these inflated housing markets has actually made the situation worse because it has postponed the transfer of misallocated resources in the housing markets to other markets.

Another day, another failed bailout. So it goes.

Retiring thoughts

2010-09-08T05:01:00Z

Clear Thinkers favorite Arnold Kling has had some insightful thoughts lately (see also here) about the economics of retirement lately:

[Megan McArdle's] main point is that if you live about 90 years and spend the last 30 of them not working, it is hard to maintain your standard of living no matter who pays for it. There is a lot of optimism about stock market returns built into state pension funds, individual retirement plans, and--I would say--even Social Security and Medicare. My argument is that without strong stock market returns, general tax revenues are not going to be robust, and Social Security and Medicare will go broke really soon without robust general tax revenues. [. . .]

For any given level of output, more consumption by one group (say, people over 65) is going to reduce what can be consumed by everyone else. As the ratio of people over 65 to everyone else goes up, this increases the ratio of state-confiscated income to total income required to keep Social Security and Medicare going. [To some] this higher confiscation rate represents a kinder and gentler society. But it may not feel kind and gentle to those who earn incomes and have them confiscated.

Kling's thoughts resonate when reading this WSJ article on teacher's pensions:

When it comes to shaking up the status quo, however, the most potent education reform may be the one that's too often considered a side issue: pension reform.

That's right, pension reform. Over the past 25 years, the private sector has moved from having four of five workers in a defined-benefit pension to having just one of five workers in such a plan. Mostly this means a shift to 401(k)s and the like, where payouts are related to what employees pay in.

Like most government employees, teachers have not made this shift. Their unions fight bitterly to retain the defined benefit plans underwritten by taxpayers. While these plans allow some lucky folks to retire in their 50s with a generous payout, they also feature perverse incentives that punish the young (more on this below) and encourage people to hang on for dear life even when they'd much rather leave. [. . .]

"A retired teacher paid $62,000 towards her pension and nothing, yes nothing, for full family medical, dental and vision coverage over her entire career," said [Governor Chris Christie]. "What will we pay her? $1.4 million in pension benefits and another $215,000 in health-care benefit premiums over her lifetime. Is it 'fair' for all of us and our children to have to pay for this excess?"

The article goes on to point out that the unintended consequence of these subsidized pensions is that - similar to the dynamic of employer-based health care policies - employees lose the incentive to pursue different and potentially more fulfilling careers because of fear that they will lose their non-portable benefits if they change jobs.

Does it really make sense to reward employees who simply wait out the system for the pot at the end of the rainbow that the rest of us cannot afford to provide?

Preparing for Life

2010-09-07T05:01:00Z

I've never been a fan of John Grisham's novels, although I concede that a couple of them have been made into entertaining movies.

But after reading this Grisham/NY Times op-ed, I'm a big fan of John Grisham:

I WASN'T always a lawyer or a novelist, and I've had my share of hard, dead-end jobs. I earned my first steady paycheck watering rose bushes at a nursery for a dollar an hour. I was in my early teens, but the man who owned the nursery saw potential, and he promoted me to his fence crew. For $1.50 an hour, I labored like a grown man as we laid mile after mile of chain-link fence. There was no future in this, and I shall never mention it again in writing.

Then, during the summer of my 16th year, I found a job with a plumbing contractor. I crawled under houses, into the cramped darkness, with a shovel, to somehow find the buried pipes, to dig until I found the problem, then crawl back out and report what I had found. I vowed to get a desk job. I've never drawn inspiration from that miserable work, and I shall never mention it again in writing, either.

But a desk wasn't in my immediate future. My father worked with heavy construction equipment, and through a friend of a friend of his, I got a job the next summer on a highway asphalt crew. This was July, when Mississippi is like a sauna. Add another 100 degrees for the fresh asphalt. I got a break when the operator of a Caterpillar bulldozer was fired; shown the finer points of handling this rather large machine, I contemplated a future in the cab, tons of growling machinery at my command, with the power to plow over anything. Then the operator was back, sober, repentant. I returned to the asphalt crew.

I was 17 years old that summer, and I learned a lot, most of which cannot be repeated in polite company. One Friday night I accompanied my new friends on the asphalt crew to a honky-tonk to celebrate the end of a hard week. When a fight broke out and I heard gunfire, I ran to the restroom, locked the door and crawled out a window. I stayed in the woods for an hour while the police hauled away rednecks. As I hitchhiked home, I realized I was not cut out for construction and got serious about college.

Many of us had similar experiences to Grisham's before finding our life's work. In talking with young folks these days about their uncertain futures, I find myself often advising them that uncertainty is, for most of us, an unavoidable part of life. Although often difficult at the time, those experiences help define our character and spirit.

I decided to go to law school while working on a loading dock on Produce Row in Houston. I'm eternally grateful for that loading dock. What was your loading dock?

Voice Recognition Elevator

2010-09-06T05:01:00Z

John Cleese on Creativity

2010-09-05T05:01:00Z

Find a way to avoid the distractions, at least for a little while (H/T Presentation Zen).

A Film Unfinished

2010-09-04T05:01:00Z

The film's website is here.

Answering the Obesity Paradox

2010-09-03T05:01:00Z

On one hand, drinking even diet soft drinks causes higher risk of heart disease?:

A new US study has found that drinking more than one soft drink a day, whether regular or diet, may be linked to an increased risk of developing heart disease, via an increase in metabolic syndrome, a group of characteristics like excess girth, high blood pressure, and other factors that increase the chances of getting diabetes and cardiovascular problems.

But on the other hand, even though overweight people are at higher risk of heart attacks, patients with heart failure have lower mortality rates if they are obese:

[T]he "obesity paradox" among patients with heart failure. The paradox refers to the repeated finding that while overweight people are more prone to heart failure, patients with heart failure have lower mortality rates if they are obese. The reason for this paradox is far from clear, though Dr. Lavie suggested that one explanation could be that once people become ill, having more bodily "reserve" could be to their advantage.

My sense is that the obesity paradox is more the result of overweight people having more muscle mass. It's not the excess fat that helps them recover from heart failure. It's the muscle mass and strength.

As Art DeVany has been saying for years: "Muscle is medicine. Strength carries us effortlessly through life." As we age, our workout routines should be tailored toward maintaining or increasing strength.

Swing Thoughts

2010-09-02T05:01:00Z

A couple of interesting articles on very good golfers at different stages of their careers came across my desk yesterday.

Jaime Diaz - consistently one of Golf Digest's best writers - wrote this Golf Digest article on his conversation with Jack Nicklaus in connection with the Golden Bear's 70 birthday (H/T Geoff Shackelford). Although Nicklaus still holds the record for major championship victories at 18, he tells Diaz that he now thinks he could have accomplished substantially more if he had really applied himself (he believes he left about one third of his effort on the table). Nicklaus goes on to note that his failure to learn proper pitching technique until relatively late in his career cost him several major victories.

The other insightful article is this Sean Martin/GolfWeek piece on the hottest golfer on the PGA Tour this year - the relatively unheralded Matt Kuchar, who lost his Tour card earlier in the decade and appeared to fall off the golf map after a stellar amateur and collegiate career.

Martin does a good job of explaining the swing change that saved Kuchar's career. And as with many things in golf, there is a Houston connection to Kuchar's conversion.

When his golf game was bottoming out five years ago, Kuchar came to Houston to see Jim Hardy, who sort of specializes in golf swing reclamation projects.

Kuchar initially worked with Hardy, who then introduced him to his acolyte, Chris O'Connell. From there, as Martin explains in the article, O'Connell helped Kuchar change his swing to one that rotates much more around his body rather than up and down along the target line. As Jeff Ritter pointed out here awhile back, the swing changes that Tiger Woods is now making with his new swing coach (Sean Foley) are quite similar to the ones that Kuchar made.

It took a couple of years, but Kuchar has now fully embraced the swing change and the results have been amazing. With his win last weekend at the Barclay's, Kuchar is now first in money earned this season on the Tour, has now finished in the top 20 in 11 of his last 13 tournaments and has the most top 10 finishes this season on the Tour. Not surprisingly, Kuchar will be one of the members of the U.S. Ryder Cup team next month.

Good thing he came to Houston, don't you think?

Are you ready for some football?

2010-09-01T05:01:00Z

The draft of Year XXIII of the Fantasy Football League of Houston (yes, that's year 23 - our league was one of the first) was held last night and a good time was had by all. And thankfully, Norman Tugwater did not show up.

Health care finance myths die hard

2010-08-31T05:01:00Z

In the face of undeniable proof that the concierge medical practice model, particularly when combined with the use of Health Saving Accounts, is an innovative market force that is addressing finance problems for a substantial portion of the health care market, this New York Times grudgingly acknowledges that concierge medicine may be a viable way to control health care costs at least for a substantial portion of health care consumers.

But on the other hand, the Times doesn't want you to forget that HSA's don't work for everybody:

Critics have been less enthusiastic about H.S.A.'s, worrying that high-deductible plans work only for young, relatively healthy people who do not spend a lot on health care anyway. When sick people are faced with paying high out-of-pocket costs for medical bills, they simply go without the care they need, experts note.

As Arnold Kling has observed, why does the Times think that that we cannot possibly afford health care if we have to pay for it individually, but we can afford it if we pay for it collectively?

McMurtry's Hollywood

2010-08-30T05:01:00Z

One of the wonderful things about owning a Kindle is that it is easy to download and read a book that you might have put off for awhile until the stack of books on the nightstand receded a bit.

One such book is Larry McMurtry's latest, Hollywood: A Third Memoir (Simon & Schuster 2010). McMurtry has been writing screenplays for Hollywood now for the better part of 50 years, so he has a wealth of anecdotes to pass along about the movie industry.

And somewhat surprisingly, McMurtry passes along keen insight into the business of how movies are conceived, made and sometimes not made.

For example, after the success of the 1971 film Last Picture Show, which was based on McMurtry's novel of the same name, McMurtry observed the following about the Academy Award-winning stars of that movie, Cloris Leachman and Ben Johnson:

Ironically, but not surprisingly, when Ben Johnson and Cloris Leachman won Oscars for their performances, they decided that, by God, they were stars, and acted like stars from then on.

The first thing they did, as stars in their own heads, was price themselves out of the market, which, Oscars or not, assessed them rather more modestly than they assessed themselves.

Refreshingly, despite his obvious affection for Tinseltown, McMurtry candidly admits that he was drawn to it by the money. As he observes:

Money trumped talent, and, in the movie business, that is usually the case.

He even learned how to be a cost-effective screenwriter:

[T]he fact that I came from a generation of cattlemen gave me a slight edge - I learned not to have scenes in my Westerns that would be prohibitively expensive.

One way to achieve that was to reduce the number of animals to the lowest possible figure. Animals are well protected on movie sets, and are very expensive to use. I think they used three sets of the famous pigs in Lonesome Dove, pigs who in the narrative walk all the way from Texas to Montana only to get eaten.

Finally, on the age-old issue of whether a movie is art or a profit center:

[B]ut any thinking based on the conviction that one movie is art and another not is purely speculative. Only time will answer that question.

If you enjoy good writing, insightful observations and Hollywood, then pick up Hollywood: A Third Memoir. You will not be disappointed.

The Commerce Clause -- A conduit for state power

2010-08-29T05:01:00Z

Why do the feds even care?

2010-08-28T05:01:00Z

Following on this post from last week on the misdirected nature of the criminal prosecution of Roger Clemens, Allen Barra wrote this W$J op-ed mirroring my skepticism over the case:

Never mind that there was no criminal penalty attached to anything Mr. Clemens is accused of using-if there were, Jose Canseco, who has written two books bragging about his use of steroids, would be serving time. Never mind, too, that when Mr. Clemens is said by his accusers to have used such substances, they weren't even banned from Major League Baseball: the Basic Agreement between the Players Association and owners forbidding the use of PEDs didn't take effect until 2004.

And let's disregard as irrelevant the judgment of baseball analysts such as David Ezra (author of "Asterisk: Home Runs, Steroids, and the Rush to Judgment") and J.C. Bradbury (author of "The Baseball Economist: The Real Game Exposed"), who have studied PEDs and Mr. Clemens's performance and found no statistical evidence that, even if he took PEDs, he gained any advantage from them. [. . .]

All that matters to the government is that, in February 2008, Mr. Clemens may have lied to a House committee on a matter the committee had no business poking its nose into in the first place. If there was no criminal penalty for using the drugs and if MLB and the union have agreed now to police their own house, why do the feds even care?

That's a good question, and one we all deserve an answer to before the government goes to the expense of putting Mr. Clemens on trial.

As I noted earlier, Clemens has not defended himself well. But the government's handling of the investigation into his conduct is far more egregious. Here's hoping that Clemens' jury sees it the same way.

The pro sports bubble

2010-08-27T05:00:08Z

So, to the surprise of absolutely no one who follows such things, Moody's Investors Service lowered the ratings of the already junk bond debt of about a billion dollars that the Harris County-Houston Sports Authority issued to finance construction of Reliant Stadium, MinuteMaid Park and Toyota Center:

Moody's believes the liquidity reserves are sufficient to cover the November 2010 payment, but their depletion may result in a payment default from pledged revenues as early as March of 2011, the report said.
If hotel occupancy tax and motor vehicle rental tax revenue continues to decline through 2010, the ratings could face further pressure, Moody's said. Revenue from those taxes to the Sports Authority dipped by 11.7 percent in 2009 and are continuing that trend in 2010.

Of course, the romantics among us think it would be peachy to borrow even more money and resurrect the Astrodome into another kind of white elephant. This despite the fact that the markets has been telling us for over a decade now that there is no profitable purpose for it.

Meanwhile, most professional sports franchises are not doing all that well these days even with local governments providing these huge public subsidies

So, highly-leveraged debt, a high-priced product, increasingly unprofitable operations, and intense competition from a myriad of different (and substantially cheaper) forms of entertainment.

Does anyone else think that this pro sports bubble is about to burst?

Inside Job

2010-08-26T05:00:46Z