National and State Mortgage Risk Indices

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Notwithstanding statements to the contrary by many public officials, credit conditions today are not tight when compared to the early-1990s (today is generally much looser) or early-2000s (some tighter, some not).  As a result, recent announcements by public officials to spur looser lending are cause for great concern.

Below is a slide which chronicles credit conditions from 1990 to the present.

credit conditions

Chart courtesy of AEI. For a larger view click on the chart.

The characteristics of these loans will likely be 30-year GSE or FHA loans with a down payment of 3-4%, a FICO score of 600-660, and a DTI of 38-50%.  These loans have an NMRI score of 30-40%–meaning under a stress scenario like that experienced in 2007, one in three of these loans will fail.  For many more of these buyers, owning a home will fail to build wealth.  Sadly, a large percentage would likely have been better off renting and creating wealth through a 401 k (if available).

First time homebuyers deserve better. We must abandon the high leverage policies that have consistently failed to accomplish the goal of reliable wealth building for low- and middle-income buyers.

Here is the link to the briefing slides for today’s NMRI briefing call–  October 2014 Mortgage Risk Index briefing presentation- Sept. 2014 data

Obama’s War on U.S. Energy

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September 19th was an anniversary you did not read or hear about in the nation’s news media. It marked six years—2008—since the first permit application for the construction of the Keystone XL pipeline was submitted to the federal government. Can you imagine how many jobs its construction would have created during a period of recovery from the 2008 financial crisis? President Obama is universally credited with delaying it.

Thomas Pyle, the president of the American Energy Alliance, pointed out that World War II, the construction of the Hoover Dam, and the Lewis and Clark Expedition all took place in less time. In a September Forbes article, he noted that “Earlier this year a Washington Post/ABC News poll found that 65 percent of Americans support building the pipeline, while only 22 percent oppose it. In Washington three-to-one margins are usually referred to as mandates.”

In contrast, in March 2013 the then-Interior Secretary of the Interior, Ken Salazar, boasted “In just over four years, we have advanced 17 wind, solar, and geothermal projects on our public lands.” It is not these projects that Americans depend upon for energy. The opposite is a stark explanation why coal, oil, natural gas and nuclear energy remain the heart blood of the economy.

AA - Keytone in Perspective

Infographic courtesy of UTA Consultants. For a larger view click on the image.

The Daily Caller reported in July that the “U.S. Bureau of Land Management is currently sitting on a backlog of 3,500 applications that need approval to move forward on drilling for oil and natural gas on federal land,” just part of Obama’s war on U.S. energy.

According to the U.S. Energy Information Administration, fossil fuels met 82% of U.S. energy demand in 2013.

Petroleum, primarily used for transportation, supplied 36% of the energy demand in 2013. Natural gas represented 27%. Coal represented 20% and generated almost 40% of all electricity. In the six years since Obama took office that is a loss of 10%!

The much ballyhooed “renewable sources” of energy, justified by the false claim that carbon dioxide emissions are causing global warming or climate change, are a very small part of the nation’s power providers. Wind power represented 1.6% and solar power represented three-tenths of 1%! Hydropower supplied 2.6% making it the largest source of so-called renewable energy.

Politically, it has been Democrats advocating renewable sources and siding with the President’s delay of the oil pipeline and the Environmental Protection Agency’s assault on coal-fired plants to produce electricity. By contrast, the Republican-controlled House of Representatives has been busy putting forth legislation to fix aspects of our energy problems and needs.

Some of the bills that were introduced included H.R. 2728: The Protecting State’s Rights to Promote American Energy Security Act; H.R. 3: The Northern Route Approval Act (regarding the keystone XL Pipeline; H.R. 1900: The Natural Gas Pipeline Permitting Reform Act; H.R. 2201: The North American Energy Infrastructure Act; and H.R. 6: The Domestic Prosperity and Global Freedom Act, intended to expedite the export of liquefied natural gas to our allies around the world. The global market is growing at a colossal pace.

These bills will likely all die in the U.S. Senate, controlled by the Democratic Party. The Nov 4 midterm elections can change that if enough Republicans are elected to gain control.

It’s not just natural gas that is helping the economy improve. The Financial Times reported in late September that “The U.S. is overtaking Saudi Arabia to become the world’s largest producer of liquid petroleum, in a sign of how its booming oil production has reshaped the energy sector.” Why? “The U.S. industry has been transformed by the shale revolution, with advances in the techniques of hydraulic fracturing and horizontal drilling enabling the exploitation of oilfields, particularly in Texas and North Dakota.”

The only places you won’t find oil drilling are on federally controlled lands. The same holds for coal and natural gas.

This is in keeping with a virtual war on U.S. energy waged from the White House. Consider what we have witnessed:

  • Obama has refused to let the Keystone XL pipeline be built.
  • Billions wasted on loans to renewable energy companies, many of which like Solyndra and Solar Trust of America went bankrupt.
  • Obama made electric cars like the Chevy Volt part of his energy policy, providing subsidies but their high cost and low mileage capacity has resulted in few sales.
  • Obama and the EPA advocated a cap-and-trade tax on greenhouse gas emissions when there has been no global warming for 19 years and carbon dioxide plays no role whatever in the Earth’s climate.
  • The Obama administration terminating the construction of a nuclear waste repository at Yucca Mountain in Nevada despite nearly $15 billion already spent on this necessary repository.

These are just a few examples, but in the meantime, the U.S. still requires that a valuable food commodity, corn, be turned into ethanol, an automotive fuel additive, that (a) reduces the millage in every gallon and (b) increases its cost at the pump. As Seldon B. Graham, Jr., a longtime energy industry consultant and observer, notes that “Ethanol production peaked in 2011 at 6% of total oil demand.” Favoring replacing imported foreign oil with American oil, Graham says “Americans would have saved $64.7 billion on the oil price since 2009.”

Americans are afflicted by a President and his administration that for political and environmental reasons are costing them trillions in needless, senseless energy costs, loans and subsidies, and efforts to impose laws that have no basis whatever in science.

© Alan Caruba, 2014

Hillary: ‘Don’t Let Anybody Tell You’ that ‘Businesses Create Jobs’ [+video]

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There is only one thing that creates a job – profit. If a business, sole proprietor or large corporation, does not make a profit they will not add to their payrolls. The only thing that creates a government job is taxes, paid by businesses and those who work for businesses.

It appears Hillary Clinton does not understand that. Restoring Liberty’s Joe Miller reports:

Appearing at a Boston rally for Democrat gubernatorial candidate Martha Coakley on Friday, Hillary Clinton told the crowd gathered at the Park Plaza Hotel not to listen to anybody who says that “businesses create jobs.”

“Don’t let anybody tell you it’s corporations and businesses create jobs,” Clinton said.

Hillary has not had a private sector job since the days just after she left college. She may be confusing the work she has done for the government as a job but perhaps misunderstands who paid her salary? Perhaps she should have run her remarks by those businesses that contribute to her campaign? Perhaps this is just a new way of saying “You didn’t build that” refurbished for the 2016 presidential race?

Have They Actually Done Something?

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“You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.” – Abraham Lincoln

In 1973, my journey into the world of political activism began when I organized a group of high school friends to work as volunteers in support of partisan candidates and ballot issues. We were young, naïve and full of energy, and were confident our contributions would change the world. More importantly, we blindly believed that all the candidates and elected officials were worthy of our trust.

This was during the time that Watergate exploded and little did we know that the rose-colored glasses we so boldly displayed were about to dull. Instead of taking the time to fully research candidates, their positions and the influencers around them, we just blindly plunged ahead giving them the most precious resource any citizen can give – our time, our energy and when we came of age, our vote.

We even sent a letter of support to the then-entrenched President, and when he wrote us back, we continued down our path of blind support.

Eight months later, the President resigned in disgrace and we learned an extremely painful, yet important lesson; all is not as it seems and many who seek the people’s trust are not deserving, nor worthy. We also learned it is vital that We the People look beyond a candidate’s and politician’s political rhetoric and apply a magnifying lens against what the person does versus what they say.

Our nation is approaching another election in ten days and I am again reminded of how important those early lessons learned are to the FairTax® campaign.

Are the candidates seeking your vote truly worthy of your trust? Are they individuals of impeccable integrity? Where do they spend the majority of their time – with paid lobbyists and consultants or with the people they [will] represent?

Does the candidate wanting your vote support the FairTax legislation?

This is an important question that demands a yes or no answer – not a maybe, sorta or kinda. And if the answer is yes, does the individual support it only in word or on a piece of paper or have they actually done something to try and advance the legislation?

It’s easy to put your name on a piece of paper and say you support something.  It is much more defining when one takes a leadership position to advance a piece of legislation. Washington is full of “go-alongs to get-alongs.” These people are simply fence sitters who take up space – talk a good game and do nothing.

The FairTax legislation demands bold and decisive leaders willing to buck status quo in order to remove the shackles of a tax system that is destroying jobs, the economy and the financial livelihood of the American people who contribute their hard-earned income. 

You have ten days until Election Day. It’s not too late to really get to know the candidates on your ballot. If you candidate is an incumbent Member of Congress, they are working in their district offices. Go visit them. If you can’t visit, call. Ask tough questions.

Bring this comparison chart and ask if they support the FairTax. If they do, ask what they have done to advance it – make them give you specifics. Visit with their staff. Ask them tough questions too. Ask them if they support the IRS.  They will say no and you must then explain to them that the only way to ensure that the IRS goes away is to pass the FairTax collected by the states.  And be sure to let them know that you support candidates who support the FairTax Plan.

Our nation is in the midst of an economic and jobs crisis—things the FairTax will create. We desperately need principled leaders willing to make tough decisions like eliminating the income tax and passing the FairTax. Your vote in support of candidates who support the FairTax is a major step forward to making the FairTax the law of the land.

As former Secretary Bill Simon said, “Bad politicians are sent to Washington by good people who don’t vote.” Whatever you do, please vote. And make sure that any candidate lucky enough to get your vote is worthy of your trust. Finally, as President John Quincy Adams said, “Always vote for principle, though you may vote alone, and you may cherish the sweetest reflection that your vote is never lost.”

Chris Christie: Justice System Becoming an “Industry Unto Itself”

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New Jersey Governor Chris Christie put legal reform on the list of issues governors must tackle.

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At the Legal Reform Summit put on by the U.S. Chamber Institute for Legal Reform, Christie warned that while “everyone wants a fair system” where people are “able to sue for appropriate causes and injuries,” trial lawyers have turned the justice system into “cottage industry unto itself.”

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The New Jersey governor explained that this creates a poor business environment, puts businesses in a defensive posture, and keeps them from creating jobs and investing in their companies, as Andrew Ramonas of Corporate Counsel reports:

“Companies would have a lot more income to be able to pay to their folks in their businesses if they didn’t have to worry about putting away the billions and tens of millions of dollars they have to put away for legal fees and legal settlements in the system that we have today,” he said.

The U.S. legal system shouldn’t help “a narrow group of people in this country who either have not been truly injured” or have injuries that incentivize class actions as a way to generate revenue, not as “a true redress of grievances,” Christie said.

“Everybody in this country wants to have a fair legal system, which gives people the ability to be able to sue for appropriate causes and injuries,” he said. “What we don’t need is for that tort system to become an industry unto itself. And in America, that’s what’s happening.”

EDITORS NOTE: The featured image is of New Jersey Gov. Chris Christie at the Institute for Legal Reform Summit. Photo credit: Ian Wagreich/© U.S. Chamber of Commerce.

Climate Change Insanity

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I went out for a walk today and enjoyed seeing how the autumn leaves are changing color because autumn, simply stated, is one of the four seasons that affects the Earth. It is part of the change that occurs as it has for billions of years.

The notion that humans have anything to do with autumn or the other seasons or that we should be spending billions of dollars to have any effect on the climate of the Earth is utterly insane.

On October 10, The Hill reported that “The U.S. might make a substantial contribution in November to an international fund that helps poor nations fight climate change, according to Peruvian Foreign Minister Gonzalo Gutierrez.” Does anyone actually believe that any amount of money will change the climate? And yet, there is a United Nations Green Climate Fund. The UN is the locus of the climate change, formerly global warming hoax.

“So far, countries have put $2.3 billion into the fund” described as “a crucial negotiating piece for developed nations trying to woo poorer ones to the table for a global climate accord.” Can you imagine how that money could be put to better use to fight the real problems of poorer nations?

“The fund was officially launched in 2013, after industrialized nations first pitched it in 2009 during the Copenhagen meeting, setting a target of $100 billion by 2020 for developing nations.” The U.S. has yet to have contributed, but the U.S. is $18 trillion in debt and can ill afford to throw millions at this absurd scam.

Climate Change LiesUnfortunately, the U.S. is being led by a President who has said that climate change is the greatest challenge facing the Earth. Our Secretary of State repeats this absurdity. There is surely an agenda behind this that I have yet to have determined except to think that this President has done everything in his power to destroy the nation’s economy and the claim is part of that agenda.

The climate change lies Obama keeps repeating are more than just obscene, they pose a threat to national security as he directs our military to address climate change. In a sane world, he would be removed from office.

As a recent October 1st Wall Street Journal noted, “President Obama prophesied at the United Nations last week that climate change is the ‘one issue that will define the contours of this century more dramatically than any other,’ and perhaps this vision of Apocalypse explains why he thinks he can disregard the law to regulate carbon.”

Obama has been using the Environmental Protection Agency as his primary means of foisting the global warming/climate change hoax on the nation via a deluge of regulations to control “greenhouse gas emissions.” Carbon dioxide (CO2) is the bogyman the EPA and environmentalists have been telling us is driving up the Earth temperature. Only the Earth has been in a cooling cycle for eighteen years and, at the same time, the CO2 level in the atmosphere has increased! Without any effect on the temperature!

As the Wall Street Journal opinion noted “The EPA wants to reorganize U.S. electric power generation and drive coal and eventually natural gas out of the energy mix under a rarely used backwater of the Clean Air Act called section 111(d), whose mandates apply state by state.”

Now, however, thanks to an Ohio-based coal company, Murray Energy, along with a dozen states, the EPA is being sued as they seek a writ of mandamus, “a type of injunction the courts only grant when the government has taken an extraordinary action beyond its statutory authority.”

The courts are beginning to reject the EPA’s expansive claims of authority under the Clean Air Act. “The courts seem increasingly alarmed by abuses of executive power.” That is the only line of defense between this outlaw federal agency and the rest of us. The EPA has succeeded thus far in driving coal-fired energy plants out of business, reducing the amount of electricity they have produced affordably and efficiently for the last century and ours.

If the EPA is permitted to continue the U.S. might as well just turn off the lights because we are being systematically deprived of sufficient energy. That is the Obama agenda for America.

© Alan Caruba, October 2014

RELATED ARTICLE: Hey, Defense Department: Focus on ISIS, Not Climate Change

“Outsourcing” Makes Us Richer by Robert P. Murphy

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This short video, put out by the Million Jobs Project, currently has more than 3.7 million views. It claims that US producers have been outsourcing jobs abroad in order to fatten their profits. It urges viewers to increase their purchases of American-made products by 5 percent, since this shift would ultimately create “a minimum” of a million new jobs for Americans. Unfortunately, everything about this video is wrong.

In the first place, the video takes for granted that it is a good thing if an American gets a job at the expense of a foreigner. After all, the whole point of urging viewers to spend more money on American products is that this will cause “insourcing.” Firms will lay off foreign workers and bring those jobs back home to the United States. But other things equal, why should we hold this ethical view? The question is even harder to answer once we consider that the foreign workers who, according to the video producers, will lose their jobs are probably extremely poor compared to the Americans who will get the jobs. Since when is it a noble thing to put a desperately poor person out of work?

This obvious (but unstated) national prejudice of the video provoked the following unintentionally ironic statement in the comments at YouTube: “I am Canadian but I always try to buy north american [sic] made when possible.” I wonder if this Canadian actually means all of North America, including Mexico? Or does he just mean Canada and the United States? If he feels kinship with the members of his continent, what about the entire Western Hemisphere? Should he “buy Western” to keep jobs for his buddies in Brazil, rather than shipping them to those parasites in Thailand? Going the other way, should Americans also try to increase their purchases of items made in state by 5 percent, so that Texans keep jobs in Texas, while Floridians keep jobs in Florida? Of course I’m kidding; I am trying to show the arbitrariness of adjusting one’s spending to “create jobs at home.”

Beyond the fuzziness of the value judgment involved, the fundamental error in the video is the notion that there are a fixed number of jobs in the world. This isn’t so. If an owner closes a factory in the United States and opens a factory in India, he has only “shipped jobs abroad” in the same way that a correspondent can “ship a pen pal abroad” by switching writing partners. Other employers can rush in to offer jobs to the newly laid-off workers, or the workers can start their own businesses and become self-employed.

Indeed, so long as the government (or a union threatening violence with impunity) doesn’t artificially prop up wages and salaries, there is really no problem of unemployment in the market economy. Wages and prices eventually adjust so that everybody who wants a job can get one. Some workers might complain that their income is too low, but that’s a different problem from truly being unable to get hired at all.

To see the relevance of this point, let’s consider exactly how the phenomenon of outsourcing occurs. As the video describes it, US employers realized “about 30 years ago” that they could hire foreign workers to do the same jobs at much lower wages, so they relocated their production facilities abroad. This assertion raises the question: Why didn’t employers just cut US wages down to what the foreigners were asking?

The answer is that US workers won’t take such low-paying jobs because they have better options. For example, suppose Americans are originally employed in a TV factory in Tennessee, making $16 an hour. The owner of the plant realizes he can relocate it to India, where he can hire workers who are half as productive (meaning they only make half as many TVs per hour) but who are willing to work for $4 an hour. He would never bother relocating if the American workers would simply accept a pay cut to $8 an hour. (The American workers make twice as many TVs per hour, remember.) Suppose they won’t do that, because their next-best job option is to work in a warehouse for $10 an hour. In this case, with the numbers I’ve invented, the original factory owner would “ship jobs to India,” not because of some horrible flaw in the labor market, but because American workers had better things to do than make TVs for $8 an hour. It was more efficient for those workers to go into the warehouse sector and for the Indian workers to make the TVs.

Notice also the point about government intervention. If we cut all of the numbers in half from my scenario about TVs, then all of a sudden the outsourcing would seem to cause US unemployment. Specifically, suppose the American workers originally made TVs in Tennessee and were paid $8 an hour. Then the owner of the factory realized the Indian workers were willing to make TVs for $2 an hour. In this case, the Americans (who are still twice as productive) would need to cut their asking wage to $4 an hour to stay competitive, and their other option is to work at a warehouse where they would generate $5 an hour in value for their boss. Alas, in this scenario, the factory owner still “ships jobs to India,” but the laid-off Americans are stuck: It is illegal for them to work at the warehouse for $5 an hour, because that would violate minimum wage laws. Thus, they really have been thrown out of work, but the true culprit was government intervention, not outsourcing per se.

“Outsourcing” is simply a manifestation of the more general phenomenon of trade between countries. As a general rule, giving individuals the freedom to trade with whomever they wish, around the globe, maximizes the “real income” of the groups involved.

Looking at the issue from the other direction, we can say that if the US government imposes a barrier to trade — such as restricting imports from a particular country — then it might make some American workers richer, but only by making the average US consumer poorer. Furthermore, the losses to the consumers outweigh the gains to the “protected” workers, meaning the country as a whole is poorer when the government enacts a trade barrier. There is an entire literature of commentary on the virtues of free trade, demonstrating these truths in various ways. For those who have never read it, I highly recommend Frédéric Bastiat’s famous satirical essay, “Petition of the Candlemakers.” For those readers who can invest more time, I refer them to chapters 8 and 19 of my textbook Lessons for the Young Economist (available online for free here), which explains the standard case for free trade in terms of what economists call “comparative advantage.”

The general logic of the benefits of free trade applies to outsourcing; a particular instance of outsourcing will (obviously) hurt the domestic workers involved, but it will shower on other Americans benefits that more than offset the loss. Immediately, the owners of the outsourcing firm benefit in the form of higher profits (because they’ve cut their wage bill). But the forces of competition will soon cause those cost savings to show up as lower prices for American consumers. Indeed, the video’s producers implicitly admit this when they acknowledge that their recommendation to buy 5 percent more American-made products would be more expensive for consumers.

The logic of free trade is irresistible once a person takes the first step on its path. By effectively paying foreign workers with US dollars when they send us TVs, clothes, and other goods, we give them the purchasing power to buy American exports such as wheat and aircraft components. The opposite holds as well: If American consumers reduce their purchases of foreign-made TVs and other goods, then those foreigners will cut back on their purchases of American wheat and so forth. Ultimately, the video’s suggestion to “buy American” won’t create more American jobs in total, but instead will merely rearrange employment among sectors, making Americans poorer in the process.

To be fair, the video’s narrator does try to defuse the standard economist response to his analysis, starting around the 1:05 point. The narrator says that Americans won’t simply find other, “thinking up” jobs to replace the manufacturing jobs that have been outsourced, because those “thinking up” jobs need to be outsourced as well, in order to stay close to the manufacturing process. Whether or not this is actually true — after all, there are plenty of “thinking up” jobs being created in Silicon Valley and elsewhere in the United States — it misses the more basic point: There is no reason that the United States should manufacture a certain product within its borders for the rest of time.

As foreign governments reduce their own institutional barriers to trade, and as communication and shipping costs fall, it only makes sense that production becomes more globally integrated. To insist that Americans favor products “made in the USA” is as arbitrary and impoverishing as people in Alaska insisting that they only eat oranges grown in Alaska (in greenhouses, presumably). There are serious obstacles to prosperity for the average American worker, but the problem isn’t “outsourcing.” The problem is government mandates and restrictions that hinder the operation of the market economy.

20141014_RobertMurphyABOUT ROBERT P. MURPHY

Robert P. Murphy has a PhD in economics from NYU. He is the author of The Politically Incorrect Guide to Capitalism and The Politically Incorrect Guide to The Great Depression and the New Deal. He is also the Senior Economist with the Institute for Energy Research and a Research Fellow at the Independent Institute.

Ferguson, Missouri is racially and economically integrated — So why are blacks rioting?

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I grew up in Florissant, Missouri and attended McCluer Senior High School in the Ferguson-Florissant Unified School District. Jonathan Rodden, a fellow graduate from McCluer High School and a professor of political science and senior fellow at the Hoover Institution at Stanford University, wrote a column in the Washington Post titled “Is segregation the problem in Ferguson?”

What Professor Rodden found is that Ferguson is racially and economically integrated, more so than the surrounding communities.

Professor Rodden found that the racial divide and “lack of diversity” narrative is “wrong in several crucial respects.” “For starters, while St. Louis is indeed among the most segregated metropolitan regions in the United States, Ferguson and some of its North County neighbors are among the most racially integrated municipalities in Missouri and well beyond,” notes Professor Rodden.

So why are blacks rioting?

To illustrate his points Professor Rodden uses several maps. The first map below uses data from the 2010 Census to place Ferguson in the larger context of the racial segregation of St. Louis. While most of the region is completely segregated, note that Ferguson is part of a patch of integrated inner suburbs in North St. Louis County.

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For a larger view click on the map. Map courtesy of the Washington Post.

The second map zooms in on this region, shows Ferguson in fine detail. In the southeastern appendage of Ferguson, there is a dense, overwhelmingly black apartment complex where Michael Brown was killed. However, the rest of the city is, by the standards of American suburbia, striking in its level of racial integration. Ferguson and the proximate sections of Florissant and Hazelwood are composed of modest single-family houses on streets where blacks and whites live side by side.

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For a larger view click on the map. Map courtesy of the Washington Post.

Professor Rodden found, “While most of St. Louis County’s residents live in municipalities that are either homogeneous or internally segregated or both, Ferguson and its North County neighbors stand out for their relative heterogeneity and internal desegregation. Moreover, the income gap between blacks and whites is smaller in these municipalities than elsewhere… Lost in the tale of woe about Ferguson is that while the entry point was often cheap multi-family housing such as Canfield Green, many blacks came from North St. Louis City for single-family houses, better schools and lower crime. While there are pockets of poverty and Section 8 renters that dominate the media reports, there is also a resilient black middle class, though it has been hit hard by the great recession. While a large number of whites departed for homogeneous St. Charles County over the last 40 years, many have stayed.”

Ferguson rioters have no justification for their actions. Rather they should be embracing Ferguson as an example of racial and economic integration and balance.

Perhaps the rioters have a political bone to pick? Perhaps the rioters are rioting for the sake of drawing attention to themselves? If this is the case, and it appears so, then the media needs to call the demonstrations out for what they are – lawless.

RELATED ARTICLE: Ferguson Activist Lauded by Media is Muslim Convert & Child Molester

The Government vs. the American Spirit

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Over the past 50 years, the purpose of the American government has radically transformed. Whereas its main goal in domestic matters used to be to protect liberty, it is now an entitlements machine, transferring over $2 trillion per year from some people’s pockets to others.

Nicholas Eberstadt of the American Enterprise Institute explains how the explosions in social security, medicare, medicaid, and other welfare programs are changing the American character for the worse–from one that is focused on individual responsibility and giving, to one that is focused on grabbing as much of the pie as possible.

EDITORS NOTE: You may support Prager University by clicking here. Free videos are great, but to continue producing high-quality content, even small contributions are greater.

Raise the Minimum Wage? A Socratic Dialogue by Lawrence W. Reed

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The ancient sage Socrates, a giant in the foundation of Western philosophy, was known for a teaching style by which he aggressively questioned his students. He employed his Socratic method as a way to stimulate logical, analytical thought in place of emotive or superficial pronouncement. Rather than lecture or pontificate, he would essentially interrogate. The result was to force his Greek pupils to see the full implications of their conclusions or to realize that what they had accepted as solid was nothing more than the intellectual equivalent of crumbled feta.

In his January 28 State of the Union speech, President Obama called upon the U.S. Congress to enact a hike in the hourly minimum wage from $7.25 to $10.10. (The dime may have been added because a nice round number without a decimal would sound unscientific.) Economists have long argued that raising thecost of labor, especially for small and start-up businesses, reduces the demand for labor (as with anything else). But Congress may do it anyway—with the usual, oversized measure of self-righteous breast-beating about helping workers. Maybe what members of Congress need is not another lecture on the minimum wage from an economist, but rather an old-fashioned Socratic inquisition. If the old man himself were with us, here’s how I imagine one such dialogue might go:

Socrates: So you want to raise the minimum wage. Why?

Congressman: Because as President Obama says, minimum wage workers haven’t had a raise in five years.

Socrates: Can you name one single worker who was making $7.25 five years ago who is still making $7.25 today? And if you can’t, then please tell me what caused their wage to rise if Congress didn’t do it. Come on, can you name just one?

Congressman: I don’t happen to have a name on me, but they must be out there somewhere.

Socrates: Well, we’ve just been through a deep recession because successive administrations from both parties, plus you lawmakers and your friends at the Fed, created a massive bubble and jawboned banks to extend easy credit. The bust forced many businesses to cut back or close. Now we have the weakest recovery in decades as ever-higher taxes, regulations, and Obamacare stifle growth. No wonder people are hurting! Do you take any responsibility for that, or do you just issue decrees that salve your guilty conscience?

Congressman: That’s water over the dam. I’m looking to the future.

Socrates: But how can you see even six months into a murky future when you refuse to look into the much clearer and more recent past? You guys think the world starts when a problem arises, as if you’re incapable of analyzing the problem’s origin. Maybe that’s why you rarely solve a problem; you just set everybody up to repeat it. If you really look to the future, then why didn’t you see this situation coming?

Congressman: Look, in any event, $7.25 just isn’t enough for anybody to live on. Workers must have more to meet their basic needs.

Socrates: An employer doesn’t have anything to pay an employee except what he first gets from paying customers. I wonder, whose “needs” do you consider when you decide to buy or not to buy: the workers’ or your own? Have you ever offered to pay more than the asking price just to help out the guy who made the product? And if customers like you won’t do that, where do you expect the employer to get the money?

Congressman: That’s not a fair question. My intent here is purely to help.

Socrates: Sounds to me like the answer is “no,” but let’s move on. Why do you assume your intentions mean more to a worker than those of his employer? It’s the employer who’s taking the risk to offer him a job, not you. You’re only making speeches about it. Don’t you see a little hypocrisy here—you, who are personally offering no one a job, self-righteously criticizing others who are actually creating jobs and paying wages even if they’re not all at a wage you like?

Congressman: Employers are interested only in profits.

Socrates: Are you saying employees are not? Are they more interested in working for companies that lose money, and if so, then why don’t they all line up for government jobs?

Congressman: Well, we lose money here in government every year and there are plenty of people who are happy to work for us.

Socrates: You have a printing press. You also have a legal monopoly on force. When you borrow in the capital markets, you shove yourself to the head of the line at everybody else’s expense. Are you saying these are good things and that we’d be better off if the private sector could do these things too? Try to keep up with me here.

Congressman: I repeat, employers are interested only in profits. People before profits, I say! I even have a bumper sticker on my car that says that.

Socrates: So are you saying that employers would be better people if, instead of seeking profits, they tried to break even or run at a loss? How does that add value to the economy or encourage risk-takers to start a business in the first place?

Congressman: You’re trying to belittle me but I went to a state university. All of my sociology, political science and gender studies professors told us that raising the minimum wage is good.

Socrates: Were any of those tenured, insulated, and government-funded pontificators actual job-creating, payroll tax-paying entrepreneurs themselves, ever?

Congressman: That’s beside the point.

Socrates: (Sigh.) Figures.

Congressman: Look, $10.10 isn’t much. I think you must be mean-spirited and greedy if you don’t want people to be paid at least $10.10.

Socrates: Yeah, like you guys in government check your personal ambitions at the door when you take office. I’d like to know how you arrived at that number. Was it some sophisticated equation, divine revelation or toss of the dice? Why didn’t you choose $20.00, which is not only a nice round number but also a lot more generous?

Congressman: Well, $20.00 would be too high, for sure. Too much of a jump at once.

Socrates: It sounds like you think the cost of labor might indeed affect the demand for it. Good! That’s progress. You’re not as oblivious about market forces as I thought. What I want to know is why you apparently don’t think higher labor costs matter when you raise the minimum wage from $7.25 to $10.10. Do you think everyone, regardless of skill level or experience, is automatically worth what Congress decrees? Do you believe in magic, too? How about tooth fairies?

Congressman: Now hold on a minute. I’m for the worker here.

Socrates: Then why on earth would you favor a law that says if a worker can’t find a job that pays at least $10.10 per hour, he’s not allowed to work?

Congressman: I’m not saying he can’t work! I’m saying he can’t be paid less than $10.10!

Socrates: I thought we were making progress, but perhaps not. Can you tell me, if your scheme becomes law, what happens to a worker whose labor is worth only, say, $8.10 because of his low skills, lack of education, scant experience, or a low demand for the work itself? Will employers happily employ him anyway and take a $2.00 loss for every hour he’s on the job?

Congressman: Businesses need workers and $2.00 isn’t much, so common sense and decency would suggest that of course they would.

Socrates: So employers who employ people are too greedy to pay $10.10 unless they’re ordered to, but then when Congress acts, they suddenly become generous enough to hire people at a loss. Who was your logic instructor?

Congressman: Can we hurry this up? I’ve got other plans for other people I have to think about.

Socrates: I give up. You congressmen are incorrigible. You’re the only people on whom my teaching method has no discernible impact.

Congressman: You ask too many questions.

At this point, in utter frustration, Socrates drinks the hemlock. The congressman votes to price many of the nation’s most vulnerable employees out of work and gets reelected.

Whoever warned us to beware of Greeks bearing gifts apparently never met a congressman.

larry reed new thumbABOUT LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

The Minimum Wage Poison Pill

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As we approach the 2014 General Election, with president Barack Obama set to occupy the White House for two more years, the stakes are higher than ever. As usual, Democrats across the country focus on phony issues, such as a Republican “War on Women,” the widening income gap between the rich and the non-rich, and bogus claims of being champions of the middle class.

In terms of domestic policy, they express support for the “middle class,” while doing everything in their power to turn America into a two-class society: the very rich… whose wealth they only wish to plunder… and the very poor, who, in return for an endless array of government handouts, will be expected to do nothing more than to pull the Democrat lever on Election Day.

In foreign affairs, they express outrage over the gruesome crimes of radical Islam… such as the recent beheading of an Oklahoma City woman by a radical Muslim co-worker… yet they oppose any and all effort at what they see as “racial profiling.” They find moral equivalency between the anti-Christian genocide of radical Islam throughout the Middle East, and the bombing of a Birmingham, Alabama abortion clinic in years past.

They express support for high quality public education, but the teachers unions… who own a controlling interest in the Democrat Party… dictate that Democrats oppose any and all voucher proposals, causing the greatest damage to the hopes of minority parents who want to see their children receive a quality education. They ignore the fact that throwing more money at public schools does nothing to increase the quality of a public school education. Instead, at the behest of the teachers unions, they demand that class sizes be reduced, that new school buildings be constructed, and that teacher salaries be increased… all the while regaling their low-information voter base with the cynical lie that Republicans want to “cut benefits to kids.”

They express a desire for the budget discipline of the 1990s… a direct result of Ronald Reagan’s “trickle down” economic policies and the election of a Republican Congress… and they support the notion of cutting the deficit in half, while supporting every new spending scheme hatched by liberal social planners. (In their 2000 platform, they announced that Democrats would entirely eliminate the public debt by the year 2012. Clearly, they had not heard of Barack Obama.)

While expressing a desire to curb the influence of lobbyists, they attempt to convince low-information voters that Republican administrations are dominated by lobbyists for business interests. Yet, no previous administration has been as heavily staffed and influenced by special interests as is the Obama administration. And while they express strong support for an electoral system that is “accessible, auditable, and accurate,” they insist that every attempt to curb vote fraud is nothing more than a Republican scheme to oppress the black vote.

On the healthcare front, they express a desire to provide healthcare insurance for 30-40 million uninsured, to improve the access to and quality of healthcare for all Americans, to substantially reduce the cost of healthcare for everyone, and to do it all without increasing the number of doctors, nurses, and hospitals. Like president Barack Obama, they see no contradictions in any of this. These are obviously people who would promise, with a straight face, that they could stuff 10 lb. of (excrement) into a 5 lb. Bag. All we need to do to make these magical things happen is to elect more Democrats to public office.

Democrats want to use the tax code to discourage the outflow of jobs overseas. Yet they have no problem with the fact that the United States has the highest corporate tax rate of any developed nation. They express a desire to cut taxes for every working family, including those who pay no federal or state income tax, but they exclude tax relief for the “millionaires” who are expected to provide good-paying jobs for the poor and the middle class.

And finally, while fast food workers go on strike demanding a $15.00 per hour minimum wage, a 107 percent increase, Democrats prescribe a poison pill for the U.S. economy with a proposed increase in the federal minimum wage standard from $7.25 cents per hour to $10.10 per hour a 39.3 percent increase. In doing so, they scoff at studies which show that, for each 10 percent increase in the minimum wage, 1-2 percent of jobs in the nation simply go away. For unskilled entry-lever workers, each 10 percent increase in the minimum wage results in a decrease of 4-5 percent in the number of entry-level jobs available… the jobs most often held by teens, the poor, and the unskilled.

According to a recent report by the Bureau of Labor Statistics, a majority of those who worked at minimum wage jobs in 2013 were 24 years old, or younger, while only 0.8 percent, less than one in a hundred, of those 24 years old, or older, work for a minimum wage.

Minimum wage increases are major job-killers. According to a 2014 report by the non-partisan Congressional Budget Office, an increase in the minimum wage from the current $7.25 per hour to $10.10 per hour would reduce the total number of jobs available by approximately 500,000. For the most part, these are the jobs currently held by all those fast food workers who fill the streets, demanding a $15 per hour minimum wage. And if those who clamor for a $15 per hour minimum wage are anxious to learn what happens to a job market with a minimum wage of that magnitude, they won’t have to wait long. In early June 2014, the Seattle city council voted to increase the minimum wage in that city to $15 per hour, the highest in the nation.

A report by the National Restaurant Association (NRA) tells us that, of every dollar of revenue coming into restaurant cash registers, approximately 33 percent goes to salaries and wages. The remainder of that dollar of revenue goes to cover the cost of food and beverages, other costs of doing business, and a small net profit for the owner. According to NRA statistics, the profit margin of restaurants varies, depending on the size of the average check per patron. Those with average checks under $15 per person… e.g., McDonalds, Burger King, Taco Bell, etc… produce average profit margins of 3 percent, while those with checks of $15 to $24.99… e.g., The Olive Garden, Red Lobster, The Cheesecake Factory, etc… produce profit margins of roughly 3.5 percent, the highest in the industry.

According to a recent report by Gingrich Productions, a good measure of the impact of minimum wage laws can be found in the European experience. Among those countries with no minimum wage… Austria, Germany, Sweden, and Switzerland… the median unemployment rate is just 5.2 percent, while the median jobless rate stands at 11.1 percent in countries with minimum wage laws… more than twice that of those without minimum wage laws.

But there is a much larger issue than the question of whether we should have a statutory minimum wage of $10.10 or $15 per hour… an issue that Barack Obama and congressional Democrats are not anxious to talk about. I refer to the question that more and more minimum wage workers are asking themselves, which is, “Why should I work 40 hours a week at $10.10 per hour, when I can earn more by staying at home and living off the public dole?”

A 2013 Cato Institute study tells us that, in 33 states and the District of Columbia, welfare benefits pay more than the current $7.25 per hour, while in 13 states, welfare benefits pay more than $15 per hour. In Hawaii, for example, the pre-tax “salary” of stay-at-home welfare recipients is $60,590 per year, or $29.13 per hour when compared to a 40-hour work week, while in Washington, DC, the hourly rate for just staying at home is $24.43 per hour. At the lower end of the spectrum among states where sloth is more lucrative than honest toil, the hourly rate for stay-at-home welfare recipients in South Carolina is $10.53 per hour… 43 cents more than the $10.10 minimum wage proposed by Democrtats.

So what do we do to fix the problem?

Instead of catering cynically to the poorest of the poor as a political constituency, as Democrats do, we should be asking exactly how an individual in this, the land of opportunity and economic freedom, can still be working at a minimum wage job when he/she is 24 years old, or older. That circumstance can only be explained by pointing out that a great many people simply make very bad choices in their lives.

But Democrats are clearly more interested in purchasing a “nanny state” constituency than they are in doing what is necessary to really help people lift themselves out of poverty. As one writer, Charles M. Blow, has said, “Much of what happens in Washington occurs at the intersection of political advantage and earnest intentions.”

What is clear is that we cannot perpetuate a system in which it is more lucrative to take a welfare check than it is to earn an honest living. In order to throw off the bonds of that insanity our options are only two. First, one might ask, why not raise the minimum wage to $25 or $30 per hour so that those who work can earn more than those who don’t, or won’t? The answer is, a $25 or $30 minimum wage would literally wreck whatever is left of our fragile economy and price us completely out of world markets.

The one remaining option is to do what we did in the mid-90s when a Republican-controlled Congress forced a Democrat president, Bill Clinton, to sign what was called “welfare-to-work” legislation, requiring those on public assistance to also find honest employment. The country experienced real economic growth, balanced budgets, and a pay-down in the national debt.

The choice is ours. What was done in the 1990s can be done again. But in order to do that we must first have a president who understands at least a “smidgen” about the intricacies of the U.S. economy. That means that our first priority must be to rid ourselves of Barack Obama, sending him back to his Kenyan roots where he can actually learn a thing or two about micro-economics.

RELATED ARTICLES:

Wages and the Free Market, Part 1 — Dispelling labor market myths with theory and data

Wages and the Free Market, Part 2 — Innovation Is the Lifeblood of a Healthy Economy

Raise the Minimum Wage? A Socratic Dialogue

Republican U.S. Senate Candidate Terri Lynn Land Remembers when times were good in pre-Obama Michigan

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Ultra-liberal Democrat Congressman Gary Peters who is running for U.S. Senate Michigan is an Obama agenda enforcer.

Whenever someone made their initial lie bigger, my late mom would say they added yeast to it. Not only did Gary Peters parrot Obama’s infamous lie that if you like your doctor and healthcare plan you can keep them, Peters added yeast to Obama’s insidious deception by telling Michigan families that Obamacare would strengthen Medicare and lower costs.

In typical Obama regime cold callous political-agenda-over-human-life fashion, Peters says he would vote for the exact same Obamacare bill. Folks, people are going through hell because of Obamacare — Cancer patients losing trusted doctors who saved their lives and millions have lost healthcare plans that they loved.

Rest assured, a vote for Peters is a vote for Obama’s War on America as founded and continuing the same liberal Democrat policies which have brought down Michigan. I will be polite and not rant about the mess liberal Democrat policies have made of Detroit. Folks, these people, the Democrats, are pathetic.

After six years of Obama’s failed Murphy’s Law presidency, this guy is still out there trying to fire up audiences with his old “Hope and Change” line. The last thing that this unconscionable conman and his minions such as Peters want is real hope and real change. What Obama and company really strives to maintain is their same-old failed destructive Democratic Party policies.

Every time a Republican dares to seriously address the issues that have been destroying Michigan for years and seeks to implement common sense solutions, they are vilified; called racist, sexist and so on. You know the drill. Low-info voters believe the lies and vote again for the same Democrats responsible for creating the mess. It truly is sickening.

Along with everything else that is on the decline in Michigan, black youths are murdering each other in record numbers.

Meanwhile, Obama, the Democrats and Rep. Peters continue to snuggle together riding the huge elephant in Michigan’s living room that is causing all the problems; political correctness.

So, if you wish to support the continuing decline of Michigan, vote for Obama’s homeboy, Gary Peters. His name is spelled P-E-T-E-R-S.

But folks, Republican Terri Lynn Land who is running against Peters for U.S. Senate Michigan remembers.

Terri Lynn Land remembers a time when Michigan was first. First in industry. First in innovation. First in creative ideas which prospered America.

Terri Lynn remembers that Michigan’s strong middle class helped build this country.

A dark cloud of policies out of Washington in recent years have made Michigan’s glory days a distant memory. Irresponsible spending has residents overtaxed. Absurd regulations choke innovation and investment.

Energy restrictions have increased gas and electric costs for Michigan families and businesses.

Michigan’s middle class was hurt by unfair trade deals. Obama’s open border has depressed wages and taken away good-paying jobs.

Michigan families need and deserve a senator who will fight to restore Michigan to its rightful place, first. Terri Lynn promises to do just that.

Terri Lynn Land remembers. 

School Board member Zucker hates voucher program that saves the district money, helps low income, homeless and minority families

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At a recent meeting Sarasota County School Board member Caroline Zucker, District 2, came out against the Florida Tax Credit Scholarships program. Zucker, a Republican, is joining with the teachers unions, NAACP, Democrats and Charlie Crist to stop this tax credit program, which benefits low income and minority students in Florida. Currently 461 Sarasota County students are receiving Tax Credit Scholarships.

According to Step Up For Students, “With the income-based scholarship, families can choose between two options: (1) A scholarship to help cover private school tuition and fees, worth up to $5,272 or (2) A  scholarship to assist with transportation costs to attend a public school in a different county, worth up to $500.” If a child is entering kindergarten through 12th grade and meets one of the following, he/she may qualify for a Florida Tax Credit scholarship:

qualifications

Chart courtesy of Step Up For Students.

To learn more read the Step Up For Students annual reports on the Florida Tax Credit Scholarship Program.

The Friedman Foundation did an audit of 10 school voucher programs. The key Friedman Foundation finding was:

If the average voucher amount is less than the average per-student educational cost, a savings is realized for those students that use a voucher to leave a public school to enroll in a private school. It’s that simple!

According to the Florida Department of Education the purpose of the Tax Credit Scholarship is:

To encourage private, voluntary contributions, to expand educational opportunities for children of families that have limited financial resources and to enable children in this state to achieve a greater level of excellence in their education, the 2001 Florida Legislature created s. 220.187, Florida Statutes, establishing the Florida Tax Credit Scholarship Program. In 2010, the FTC Scholarship Program was expanded and renumbered as Section 1002.395, Florida Statutes.

The law provides for state tax credits for contributions to nonprofit scholarship funding organizations, called SFOs. The SFO’s then award scholarships to eligible children of families that have limited financial resources. The tax credit cap for the current year is $357,812,500. The tax credit cap amount will increase to $447,265,625 for the 2015-2016 state fiscal year.

[Emphasis added]

This tax credit program has primarily attracted the poorest and lowest performing students. The Florida Official Revenue Estimating Conference projected the program saved taxpayers $57.9 million in school year 2012-2013. Scholarship participation has tripled in the past seven years with an expected 67,000 families participating in 2014-2015. Additionally, since 2006 with mandatory standardized testing in Florida, scholarship students have been achieving the same gains in reading and math as students of all income levels nationally.

 So why is board member Zucker adamantly against a program that helps low income and minority students get a better education?

The false notion that school choice and voucher programs take money away from public schools. Hillary Clinton, during the 2000 U.S. Senate debate against Rick Lazo, was asked if she supported school vouchers. Clinton stated, “I do not support vouchers. And the reason I don’t is because I don’t think we can afford to siphon dollars away from our underfunded public schools.” Research has proven Clinton wrong.

Rick Lazo’s reply to the voucher question was, “I believe that it’s immoral to ask a child to go to a school where they can’t learn or where they’re not safe. Eighty percent of African-American and Hispanic parents feel that they need it. Why should we trap poor kids in failing schools simply because the teachers unions won’t agree with it?” Research has proven Lazo right.

We now know on who’s side Zucker stands – Hillary, Crist, the NAACP and teacher unions.

RELATED ARTICLE: They Are Coming for Your Children

Obama’s Climate Legacy DOA?

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We are told that Barack Obama hopes to leave a legacy of stopping global warming/climate change/climate disruption as his major accomplishment in his last term. If so, even Obama must be discouraged by his latest failure, along with the many others that have occupied the media in the last two weeks. The People’s Climate March (September 21st, 2014) was a dismal failure, the Climate Summit at the United Nations (September 23, 2014) was even worse.

The fiasco began with a lengthy article in Saturday’s Wall Street Journal by Dr. Steven Koonin, a former Undersecretary for Science in Obama’s Energy Department, titled “Climate Science is Not Settled.”

In the article Dr. Koonin was refreshingly honest in admitting that decades of computer modeling (and $150 billion) have brought us no further in understanding or predicting the climate. Climate models simply don’t match actual climate data. There has been no global warming – measured by ground thermometers and by satellites and balloons – for 18 years. Antarctic sea ice is at a record high; Arctic sea ice is coming back to normal levels (in spite of official forecasts of an ice-free Arctic in 2013). Major hurricanes hitting the US are at a record low (since 2005’s Wilma); tornadoes are far below average for three years in a row. Increasing CO2 demonstrably doesn’t cause warmer temperatures.

Below is a plot of atmospheric temperature differences from average as a function of CO2 content. Temperature goes up, goes down, and, on the whole, stays the same as CO2 increases. Do you see a correlation here? The correlation (R2) coefficient is 0.002; this is laughably irrelevant. Thursday’s WSJ contains a rebuttal letter from Ben Santer of Lawrence Livermore Labs, insisting that terrible climatic events are obvious. Dr. Santer’s insistence is not a substitute for data.

CO2tempcorr

For a larger view click on the chart.

end-capitalism-2a

The People’s Climate March in New York City. For a larger view click on the image.

On Sunday 100,000 socialists showed up for the People’s Climate March in New York City. The picture on the right demonstrates their understanding of climate science:

“Capitalism is the Disease; Climate Change is the Symptom; Socialism is the Cure.”

Good luck with that one, kids; socialism has never helped the world’s biggest problem – poverty. Ask the Indians, ask the Chinese. I watched the People’s March on television where several of the marchers proudly identified themselves as illegals who came from some third world country to tell you and me how to improve America.

On Tuesday (September 22, 2014) the U.S. Secretary of State John Kerry lectured Foreign Ministers from 120 countries on the importance of stopping Climate Change, which is more dangerous than the Islamic State (ISIS). According to Kerry the Islamic State is only a local problem, but “climate change affects the whole world.”

unsummit_climate

United Nations climate summit.

You may rightly wonder why the diplomats came back on Wednesday to hear Barack, but there’s a good reason – money.

Remember the Climate Conference in 2009 at Copenhagen, that President Obama had to flee hurriedly to get back to the White House ahead of a blizzard? Before he left, he promised to contribute to a Green Climate Fund; wealthy countries (you know who that is, right?) promised $100 Billion. So far, the Green Climate Fund has $2.3 Billion, of which $1.3 Billion was raised last week. Did I mention that the deal is for an annual $100 Billion to help developing countries? Even with global warming, Hell will freeze first. But the UN marches on. The next meeting is in November, in Lima; the goal is to raise $10 Billion for the Climate Fund.

In the meantime, China has stated it has no intention of reducing its CO2 emissions (now 28% of the world’s total). India has made the same declaration. To quote Prime Minister Narendra Modi:

“The world had agreed on a beautiful balance of collective action – common but differentiated responsibilities. That should form the basis of continued action. This also means that the developed countries must fulfill their commitments for funding and technology transfer”.

Mr. Modi is quoting from the Kyoto Protocol, which died because of China and India’s refusal to limit their emissions. But it’s still our obligation to send money and technology. Sure!

In short, I think Mr. Obama’s “Climate Legacy” is dead, especially if the Polar Vortex returns this Winter.

But diminishing America’s technological and commercial leadership – by shutting down our fossil fuel energy advantages – fits well in the Obama ideology of trashing America. He’ll keep trying.

And speaking of the Polar Vortex, New England utility National Grid has announced that household natural gas prices will go up by 37%, about $33 per month over last year. This sounds like a cruel joke; natural gas prices are going down, because of fracking, right? Yes, but because of the low price, everyone wants all the natural gas they can get – i.e., demand is way up. But the region’s two major natural gas pipelines are already practically filled to the brim, constricting supply and sending already-elevated rates ever higher.“We’re a stranded region,” says Gilbert Metcalf, an economics professor at Tufts University. “We have a major bottleneck for getting natural gas into New England.” The EPA’s efforts to shut down coal-fired generators adds to New England’s problem.

Elsewhere, the Bardarbunga volcanic vent in Iceland continues pouring out molten lava, throwing it 130 meters into the air. Yes, that’s the report – 130 meters. For comparison, the Statue of Liberty, from ground to torch, is 93 meters; the Brooklyn Bridge is 84 meters above the water. The smell of sulfur in the air is evident as far away as Paris. How long will this continue? The Laki eruption in 1783-1784 went on for eight months, and caused extremely cold weather around the world. It also caused thousands of deaths.

And, in Japan, a volcano erupted without warning, killing a number of Summer mountain climbers. Suspicion is growing that this increased volcanic activity is caused by, yes, you guessed it, global warming. According to the National Post:

19,000 years ago the glaciers of the most recent Glacial Age (i.e., the Wisconsin Glaciation) began to melt, lifting billions of tons of ice off Earth’s crust and weakening the ability of the crust to resist the flow of magma from below. The magma from the mantle then was able to surge up and out. This is demonstrated by the numerous volcanoes in the British Isles and Scandinavia, which were heavily glaciated in…oh, wait!

However, in spite of the disappointments at the People’s Climate March and the UN Climate Conference, the Administration is bringing out the heavy guns – yes, Vice-President Joe Biden has added his voice to the scientists warning us of the dangers of anthropogenic climate disruption.

The VP recently reminded us of “the 161,000…fathers, mothers, brothers, grandparents….lost” in the tornadoes in Joplin, Missouri in 2011. Not to mention the “thousands of cars tossed around like leaves.” Incidentally, Joplin’s population is about 50,000. That, friends, is the man who’s a heartbeat away from the presidency.

Not to be outdone, the Brits have a rival to Biden. Ebola may be more dramatic, but climate change is a bigger threat to public health. That’s the conclusion of the British Medical Journal (BMJ), a weekly peer-reviewed medical journal, publishing since 1840. This week it ran an editorial calling on the UN’s World Health Organization (WHO) to declare climate change a public health emergency.

“Deaths from Ebola infection, tragic and frightening though they are, will pale into insignificance when compared with the mayhem we can expect for our children and grandchildren if the world does nothing to check its carbon emissions,” said the editorial, written by the magazine’s editor in chief, Fiona Godlee.

I don’t make this stuff up, folks, I just report it. But I figure quoting these people – occasionally – is as good as trying to argue with them.

Creating More Homeowners Without Building a Crisis

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Wealth Building Home Loans are fixed-rate, 15-year loans that build equity much faster than a 30-year mortgage.

By William M. Isaac and Edward Pinto

Sales of existing homes in August were down 5.3% year-over-year. The housing lobby says credit is too tight. The commissioner of the Federal Housing Administration and the director of the Federal Housing Finance Agency (regulator of Fannie Mae and Freddie Mac ) have called for lenders to further loosen lending standards.

While the housing market needs a shot in the arm, the financial crisis in 2008 taught us the extreme danger that loose lending standards—poor underwriting, risky loans and government-backed credit expansion—pose to homeowners and the economy. We think there is another way.

For most of the past 50 years, U.S. housing policy has relied on ever looser underwriting standards in an attempt to lift homeownership and stimulate the economy. The focus has been on attracting more low- and moderate-income home buyers in an attempt to build wealth for these households. Yet the homeownership rate has changed little since 1960, while homes in the past half-century have proved to be highly volatile assets. This is particularly the case for lower-priced homes bought by low-income households with highly leveraged 30-year loans.

A better option is what we call the Wealth Building Home Loan—a 15-year, fully amortizing, fixed-rate loan that will build equity much faster than a 30-year mortgage. The WBHL concept was unveiled in early September by Mr. Pinto and his colleague at the American Enterprise Institute, Stephen Oliner. The market embraced the idea, and WBHL-style loans are already being originated and distributed by the Neighborhood Assistance Corp. of America (NACA), a national nonprofit based in Boston that works primarily with low- to moderate-income borrowers. Citigroup and Bank of America have signed on to fund NACA’s 15-year mortgages.

In the first three years of a WBHL, 77% of monthly mortgage payments pay off principal while in a 30-year loan only 32% goes toward principal. After 15 years the home is owned free and clear, and starting in year 16 the family has cash flow available for life-cycle needs such as their children’s education.

The big question is whether a 15-year mortgage can be affordable. We think it can. First, the rate on a 15-year loan is already below that for a 30-year loan. Further, studies by Fitch Ratings, the Urban Institute and others indicate that 15-year loans have half the risk of similar 30-year loans. Add common-sense underwriting features such as gauging a borrower’s ability to repay by evaluating his entire budget, as opposed to looking at a monthly debt-to-income ratio that ignores such items as income taxes and living expenses. Today only the Department of Veterans Affairs considers a borrower’s total household budget. We estimate these steps will result in a two-thirds reduction in a lender’s foreclosure risk.

Another feature of the WBHL would allow a home buyer to use some or all of his down payment to “buy down” the interest rate on his loan. These differences allow the WBHL to provide more than 90% of the home-buying power of a 30-year fixed-rate FHA loan with a monthly payment almost as low.

Because of the rapid increase in equity and the dramatically lower risk of default, a WBHL can be safely offered with little or no down payment to a wide range of prospective home buyers. Within 10 months, this loan, even with no down payment, has a lower loan-to-value ratio than an FHA loan with 5% down. After the 41st month, the loan-to-value of a WBHL drops 80% while the it is still over 90% for an FHA loan.

A safe, sustainable version of the WBHL designed specifically for low-income borrowers can provide 96% to 100% of the home-buying power available with an FHA mortgage, the most common loan type used by low-income first-time home buyers. A modest subsidy to the home buyer provided by a foundation or the federal government could accomplish this goal.

So what’s standing in the way of offering WBHLs to as many qualified lower-income borrowers as possible? Regulations designed to promote sound lending that end up standing in the way. One is the Consumer Financial Protection Bureau’s “ability to repay” rules that ignore the benefits of evaluating the borrower’s entire budget. The other is the Federal Housing Finance Agency’s mortgage-insurance-company requirements that fail to consider the much lower default risk of a 15-year loan compared with a 30-year loan.

If regulators learn anything from the mortgage meltdown that led to the 2008 financial crisis, it should be that the goal of increasing homeownership—particularly among lower-income Americans—cannot safely be advanced by loosening lending standards. It can be by the Wealth Building Home Loan.

William M. Isaac

William M. Isaac

ABOUT WILLIAM M. ISAAC

Mr. Isaac, a former chairman of the Federal Deposit Insurance Corp., is senior managing director at FTI Consulting and the author of “Senseless Panic: How Washington Failed America” (John Wiley & Sons, 2010). Mr. Pinto, former chief credit officer of Fannie Mae, is co-director and chief risk officer of the International Center on Housing Risk at the American Enterprise Institute.

EDITORS NOTE: This column originally appeared in the Wall Street Journal.