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Kurt Cagle
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John, I agree that technology plays a big factor in this recession, and will continue to do so for the foreseeable future. I'm also in IT (as an information architect) and have seen (and on occasion written) applications that had as a side effect the disemployment of far more people than it employed. Beyond that, wages have remained stagnant in inflation adjusted terms for the last three decades, while investment based rentier income has skyrocketed. Wages are negotiated when a person changes jobs or employers, which in the modern economy tends to be once every 3 1/2 to 4 years. As jobs require increasing specialization, this provides a fairly classic supply/demand scenario, and it can be argued that by starving the labor market, all that will happen is that people will lose their specializations, which ironically will drive up wages as you have fewer workers with the required skillsets competing for the existing work. Rentier income is derivative. It comes from activities beyond the application of a given worker's labors. It is disproportionate to labor invested, it benefits most those who have the means to invest most into it and it is remarkably portable - there are relatively few mechanisms actively pursued for capturing at least some proportion of this income. On the other hand, wage income will typically be taxed prior to being dispersed.
Toggle Commented Mar 31, 2013 on 'The Price Is Wrong' at Economist's View
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Jeff, Great article! In my experience, with about thirty years behind the keyboard, programming is a talent. It requires both the ability to think logically and the ability to think systemically. There's perhaps five percent of the population that are naturally wired that way, and perhaps another 15-20 percent that can learn enough patterns to to fake it. The good ones also tend to be autodydactic. You can tell the naturals even in grade school - they're the ones who've figured out all the cheats to their favorite games and use those cheats to manipulate the games never intended by the games' creators (I have one daughter like this, the other should never be allowed near a command line). The naturals gravitate to programming because it's what they do - the remainder are in it because of the salaries and other perks that come with it, and most of those eventually end up in technical management. What this means is that programming professions generally follows the trade/mentorship route (there's actually a lot more similarity between being a plumber and being a programmer than most programmers are comfortable with). You can learn "how to program" in school, but most of the good programmers I've worked with over the years tended to have one or more mentors at some point in their career that steered them in certain directions, that helped them smooth their rough edges and that ushered them into a particular programming "school" or community. Apprentice, journeyman, master. Those mentors also periodically put challenges in the way of their apprentices, because programming is, at its core, the application of "magic" in order to solve problems, and if a person cannot work their way through a relatively benign problem, what's going to happen when they reach a real world one that is far from benign. Most politicians are not inherently logical problem solvers - they're salesmen. They attempt to get their agendas passed by selling the idea, by making deals, by trading, none of which can be readily quantified programmatically. They see IT jobs as "green jobs" - low environmental impact, high salary, and in theory trainable (those holds true for most STEM jobs for that matter). In practice, both the intrinsic aptitude requirement and the 10K hour rule still apply, and as you point out, there are a lot of half-assed "programmers" out there who will be able to solve problems through the application of automated problem solvers but who have only a marginally understanding of the fundamentals of computing.
Toggle Commented May 25, 2012 on Please Don't Learn to Code at Coding Horror
David, #1. Moral hazard As I read it, a modification is still an adjudication - there is a live judge that must make the decision about whether a given contract can be modified or nullified. While this brings up its own issues (the legal system is already facing record number of plaintiffs), if a judge has sufficient evidence that a person otherwise has the means to pay, then he or she can grant to deny the modification, and if there is evidence of fraud, then this may constitute perjury, contempt of court or other charges being leveled against the plaintiff. Given that particular gauntlet, you can argue that there is still significant moral hazard in choosing to seek a modification. #2. Efficacy. Modifications (Mods as they are called) don't work. One expert told me 50-60 percent of payment modifications result in re-default. Why? People can't make their payments. Reducing their payments to 31 percent of income may not help them if a-they have lost their job, b-if they have other consumer debt. That still means that 40-50% of payment modifications don't end in re-default. This isn't a perfect solution - I'm not sure there is one at this point - but the goal here is to make it at least possible for people to make a good faith effort. If a program like this can cut the defaults even by 40%, that's still billions of dollars that don't have to be spent on dealing with the problems of foreclosures. Many people who are in foreclosure or are in danger of foreclosure probably shouldn't be in the house in the first place, but this option provides a window of opportunity that gives them the chance to assess whether they are in fact able to live there. Moreover, it is manifestly easier to find a rental if you currently have a place in which you can stay than it is if you don't. #3. Much of this depends upon the lending institution that initiated the loan in the first place, and that presumably is now the bearer of the note. It may very well be advantageous to consider the rental payments as a limited liability lease - the occupants would not be receiving equity in the house with their payments, but based upon a certain triggering condition (a regular payment pattern after two years of occupancy, for instance), the lease may be reinstated as a mortgage arrangement. This gives the owners an incentive to keep the house in good condition. The bank, or its agents, could also perform assessments on the condition of the property, and if the owners are not in fact keeping the property in good condition (or are delinquent in rental payments) then the note bearer or a judge may at that stage evict them as tenants. #4 and #5. As odd as it sounds, one of the things that any housing plan will need to do is to shift many of those owned properties into rentals. The interest rate reduction under Greenspan and Bush's Homeowner Society not only made it possible for people to buy into housing even though they couldn't afford it, but also dried up the rental market (and drove up both rental and housing prices to nearly four times the long term average). So long as housing prices exist beyond the means of people to pay for them, housing prices will fall. What's happening now is that you're beginning to see the sale of distressed and foreclosed houses picking up, but these are largely speculators at the low end of the market; they'll hold onto these properties and turn them into rentals because even as rentals they're bringing in a fairly decent profit. This will also drive down rental prices, and will start creating a market where people will abandon the unsustainably priced houses for those rentals. Eventually, you reach a stage where rental prices start rising again, which will signal the bottom of the housing market - supply is beginning to contract and demand is growing. Those rental units, incidentally, also solve the question of personal credit destruction. Credit checks will eventually become meaningless when applying for rentals, because the market is still too soft. As the rental market firms up, housing prices will likely continue to fall some (not as dramatically), but in time they too should stabilize, and people with better credit ratings are then able, with a downpayment, to get into a house. Concerning the zombie owners - this is just another way of asking the first question. If a judge determines that a mortgage adjudication will not be sufficient, then this means that the owners in question will likely lose their houses and should be given the option of becoming renters. This was an investment, and like any other investment, it is not guaranteed to always go up. Housing prices are falling because they were artificially inflated. As long as there is indeterminacy in the credit markets, those prices will continue to fall. If someone bought a two bedroom bungaloo for half a million dollars, they will lose money, because there is no demand for that house at that price. We probably still have another 20% drop in prices from here as the market overcorrects, as a guess mid-to-late 2011, and then it will likely bounce back up a bit until it finds an equilibrium point. Obama's plan is a stop-gap measure, and I am sure that he and his economic advisors are well aware of that. The goal is to keep at least a portion (I'd say 30-40%) of the marginal home-owners from dumping their properties altogether until such time as prices stabilize. It won't help everyone, and in fact, its probably better if it doesn't - there are a large number of people who own houses that they are in no position to own, and should be renting. You do this, you keep 30-40% of houses that might be sitting vacant and deteriorating (which is the biggest danger of foreclosure) from doing so, and you do it for long enough that there's pressure at the low end to support prices. One final note - this is a NECESSARY correction. Housing will continue to fall in price until it reaches a sufficient supply/demand equilibrium, and that equilibrium is not at early 2007 values. Housing will eventually be "cheap" again in absolute terms (not artificially low teaser rate with adjustable rate mortgages ballooning over time). People will need to reach a stage where they can put down as much as 20% on a house, and that in turn will require that there is income growth in the middle class again, something that won't happen so long as we're shedding half a million jobs a month. All that this package does is to soften an otherwise deadly landing so that it is just extraordinarily painful for most people ... and that's probably all that any such plan can do. You need job creation to put money back into people's hands without the moral hazard argument coming to the fore, even if it is job creation from make work jobs, and you'll need to see interest rates go back up to 10% or more so that the necessary savings capital can be rebuilt, making it possible for those people to purchase those homes a few years from now. Kurt Cagle Editor, O'Reilly Media
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