Moody's Investors Service kept its ratings of The New York Times Co.'s senior unsecured and Prime-2 commercial paper at investment grade Monday -- but changed its rating outlook to "negative" from "stable."

"The negative rating outlook results from increased pressure on the company's retail and classified advertising from cross media competition and the downturn in the housing market," Moody's said...

Moody's rated Times Co. debt at Baa1, which is two notches above junk territory.

The brief note in customers' bills hardly does justice to the momentousness of the decision. "Service withdrawal," it blandly declares. "Effective September 2007, Time of Day information service will be discontinued."...

In Northern California, the prefix for calling time is 767, or P-O-P on a telephone keypad. For decades, locals up there have dialed POPCORN any time they have had to reset their watches or reprogram electronic gadgets after a power failure.

Verizon still offers free "Time of Day information service," at least here in Virginia (703-844-xxxx). Maybe the AT&T spokesman quoted by the LA Times was referring only to his own company's service plans.

I remember in my first childhood (I'm now on my third) commercials touting forecasts-by-phone. The spots said all you had to do was "Dial Weather-6-1212" (which everyone at the time understood as a two letter exchange: WE-6-1212). I just tried and got someone's personal voicemail.

Much of modern economics is entirely theoretical, and even most empirical work in economics involves just looking at very high level correlations between variables such as income per person and education, or democracy, or the openness of trade.

When I set out in my PhD thesis to try and explain differences in income internationally in 1910 I found that asking simple questions like "Why could Indian textile mills not make much profit even though they were in a free trade association with England which had wages five times as high?" led to completely unexpected conclusions. You could show that the standard institutional explanation made no sense when you assembled detailed evidence from trade journals, factory reports, and the accounts of observers. Instead it was the puzzling behavior of the workers inside the factories that was the key...

If, as is possible, the pre-industrial era changed people genetically to be better adapted to market economies, then a systematic comparison of the DNA of societies should find correlations between gene frequencies and the histories of these societies. If genetic change was also occurring in historical time, as opposed to the pre-historic era, then we would expect these changes to be incomplete even in societies with a long history of settled agriculture. In that case we would actually predict class differences genetically! The rich in these societies would differ genetically from the poor in certain systematic ways! All this should be testable at some point.

If the change was purely cultural, then we still might be able to discover systematic behavioral differences between poor and rich in modern capitalist society, such as over time preference rates, that correlate with differences between rich and poor societies...The book challenges the modern orthodoxy of economics - that people are essentially the same everywhere, and with the right set of institutions, growth is inevitable...

I live in the suburbs of Denver, Colorado. Colorado had the highest foreclosure rate of any state during 2006. Our foreclosure rate is about 30% higher in 2007 than it was in 2006. So our economy here must SUCK, right?? NOT!!!

Colorado's economy had a splendid 2006. Job growth was the strongest in years. Unemployment fell from 5.1% in 2005 to 4.3% in 2006. Unemployment continues to fall during 2007. In the Denver Metro area, unemployment has dropped dramatically, from 4.1% in January 2007 to about 3.4% currently (the latest data I have on Denver is from April 2007, so pardon me if I'm off by a tick or two, but you get the idea).

Foreclosures actually help the economy in several ways. First, housing is more affordable to those who have actually SAVED money to buy a home. Second, investors come in and scoop up the foreclosured homes and rent them out. Third, the rental market here is very strong (strongest in years, according to my realtor).

The real losers in this whole foreclosure phenom are the lenders (or investors who bought the packaged mortgage products backed by the imprudently-created loans). Well, that's capitalism. That's just what they deserve. But it doesn't seem to have much negative effect on the real economy, as far as I can tell, in my microcosm of the world here in Denver, Colorado.

Three other follow-up comments. First, housing starts (as measured by housing permits) were down 40% in 2006 in the Denver metro area, much worse than the national average. So, despite the worst-than-average recession in housing here, there are just a ton of jobs being created in other sectors of the economy.

Second, there is one more way that foreclosures HELP the economy. The homeowner typically fails to make 2-3 months of mortgage payments before the Sheriff shows up to boot 'em out. Living mortgage-free (and rent-free) might actually HELP consumer spending!

Finally, and quite interestingly, foreclosures create a two-tiered resale market for homes. Foreclosures are selling for about 20% less than the original selling price. But we have NOT seen other [non-stressed] homes forced down to that level. How is that possible??

1. The buyers of foreclosures are typically local, and are typically investors (or realtors). They have no "contingencies" (i.e., they don't have to sell their existing home to buy the foreclosed property) and they have the patience to wait a few months to go through the longer-than-average process of buying a foreclosure.

2. Other buyers simply can't wait. For example, a home next to mine just sold to a family from Iowa. The home sold at full-market price in a neighborhood with scores of foreclosures on the market selling for 10-15% less. If you have a contingency (e.g., the purchase is contingent upon selling your current home), then you can't buy a foreclosure--at least not here. I think most people have contingencies in their purchase agreement.

Of course, it does take longer to sell your home than it used to. And the drop-off in the "flow" of homes means that people will be living in their homes longer. That's bad news for "transactors" like realtors and mortgage brokers. But, hell, they've been making too much money over the past several years anyway!

If people who are looking to sell aren’t in fact selling their homes, aren’t they more likely to invest in their own home, via additions, landscaping, rebuilding, windows, roofing, cement work, etc.? It’s not like people who would like to move and have the means to move just sit on their cash if they can’t sell their house.

As Bastiat would remind us (q.v. the "Broken window fallacy" laid out in What Is Seen and What Is Not Seen), if a borrower decides to default and spend the money on anything but the mortgage, the money is merely shifted. It is true that the borrower will now have more money to spend, but the money is now lost to the lender, who would have spent it himself. So it doesn't matter if it's a homeowner no longer paying his mortgage, or a shop owner who must replace a broken window, or government increasing taxes: in the end, it's perfectly offset by another party who loses money, so the economy is not increased. I like to call this "Bastiat's Law of the Conservation of Money."

After all, if mortgage defaulting provided a boost to the economy, why not have everybody default so they can spend the money on other things? The concept is quite Keynesian, really, and perfectly Keynesian in the end. In the end, lenders won't want to lend anything, just like people won't want to produce much economic output because they know their taxes will go to pay people to dig holes and fill them back up.

Gordon begins by quoting the Bible, the famous line from Proverbs about how we should emulate the industriousness of ants: "Go to the ant, you sluggard; consider its ways and be wise!" But she reveals the entire context of this famous line -- it's not the ant's industry alone that is admirable, but just as much his independence and self-determination:

Go to the ant, you sluggard; consider its ways and be wise!

It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest.

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Sunday, August 26, 2007

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