People engage in war to seek glory, power and wealth. I believe this shows that achieving happiness is complicated. And people often act in erroneous ways.

Acquiring a certain amount of money does not guarantee satisfaction in life. The same problem comes with living standards. Compare a person in the US with one in Asia. The person in the US probably has much more money and a higher standard of living. Who is happier? It depends.

No man is qualified to declare what would make another man happier or less discontented.

As Ludwig von Mises wrote in Human Action, we cannot know what other people value. One person may exchange income or living standards for more time at home with a larger number of children. Another may seek material wealth and abandon the pursuit of family. It is not our place to decide which path is more valuable — except in as much as it directs our own personal choices.

I believe war comes after a failure of understanding. One must understand the things that make himself happy. Otherwise his actions will be random; he is unlikely to find success in achieving happiness.

Man may think money and power are the only things that make him happy. He values other things solely in their capacity to increase his money and power. This man understands himself from a very limited framework.

So might such a man act in ways harmful to others? Of course. One acquires money and wealth from stealing. One obtains a great deal of power before murdering another. Mises explains further:

the concept of action does not imply that the action is guided by a correct theory and a technology promising success and that it attains the end aimed at. It only implies that the performer of the action believes that the means applied will produce the desired effect.

So is this murderer likely to find happiness? The psychological state of men returning from war suggests this is unlikely. Thieves are no different. Stroll the halls of any penitentiary. I suspect one will find stories of neglect, regret, anger and pain. One would hear few stories of joy. I suspect the same holds true of Stalin, Hitler and Tojo. Bush too.

People enjoy helping others. We are a social species. This lies at the heart of cooperation. So I believe that a person will do something to increase his satisfaction with life, even if it increases someone else’s
satisfaction more.

David Beckworth outlines the case for benign deflation:

an increase in the growth rate of productivity or the labor supply should raise the natural rate of interest and create deflationary pressures. If, however, monetary authorities attempt to offset the deflationary pressures by lowering the policy interest rate, they may force the real interest rate below the natural rate and create an unsustainable credit boom. The resulting macroeconomic disequilibrium will be manifested in unwarranted capital accumulation, excessive leverage, speculative investments,and inordinate asset prices

Every year we make more cars than we destroy. We make more homes than we destroy. This increases the supply of goods. Increased supply lowers prices. So the price of these goods should fall.

The Federal Reserve is afraid of deflation. They are not limited to changing interest rates. The Fed might print money. Who gets the money first? Bankers.

Bankers spend this new money, increasing demand. Increased demand raises prices. This lowers the value of our income and savings. So the gap between rich and poor increases.

The Federal Reserve and inflation help some, but hurt many more. Celebrate falling prices. End the Federal Reserve.

Eric Knight argues for a deflationary default of HSBC’s sub-prime debt:

Knight Vinke, the activist investor, told The Times last night that HSBC should refuse to pay the bondholders that fund Household’s business, which it estimated would save the bank an estimated $35 billion. (£23.6 billion).

Eric Knight, Knight Vinke’s chief executive, said: “Why should HSBC’s shareholders take all the pain when these [Household] bondholders are unsecured?” To do this, HSBC would have to threaten to allow Household to take Chapter 11 bankruptcy protection.

So far shareholders have taken almost all of the losses. Why spare bondholders? Defaulting on debt is deflationary.

Will consumers use debt correctly? Steve Waldman thinks they will make mistakes. The same mistakes Wall Street makes with leverage:

Consumers, like Wall Street quants, may inadequately extrapolate the distribution of their future income from recent observations. They have no access to the true distribution. The interest rates consumers pay for unsecured credit (think credit card rates) are often several times what they receive on money they save. In the world as it is, consumers ought to borrow only to counter severe downward shocks to income, pay off borrowings quickly, and build buffers of precautionary savings, since the cost of dissaving is much less then the cost of borrowing. (You lose 4% interest on your CD, rather than paying 12% interest on your credit card.)

Is debt a social security net? This is Waldman’s argument. A credit card gives you security. You can buy things when you lose your job. Pay the debt back when you get a job.

People don’t repay their debts. People do not use debt as a safety mechanism. Larger incomes cause larger debts. People use debt to optimize.

People use debt to live and invest beyond their means. Say homes appreciate at 10% per year. A person with a $100,000 home can make $10,000 a year. This same person may be able to borrow money for a larger home. He might borrow $500,000 at 5% interest. He buys a $500,000 home that gains $50,000; he pays $25,000 interest. He makes an extra $15,000. This person used debt to optimize his gains.

Optimization is not always good. Optimization comes with risk. The person is optimized for home appreciation; he is vulnerable to depreciation. Instead of losing $20,000, a 20% loss will cost him 100% of his capital: $100,000.

Millions are learning this today. It is a hard lesson.

Lower your debts. Lower your spending. Save.

Will bailing out Ford, GM and Chrysler help increase your income? Eugene Fama finds this unlikely:

Bailouts of auto firms will be financed with government debt. The government deficit gets larger; that is, government savings, GS, become more negative. If private and other corporate savers do not save more in response to additional government debt, the auto bailout displaces productive investments elsewhere. If private and other corporate savers do save more in response to additional government debt, private consumption must go down by the same amount. This lost consumption and investment, and the incomes they would create, are the big costs of a bailout.

Other stimulus programs are no different:

Like the auto bailout, government infrastructure investments must be financed — more government debt. The new government debt absorbs private and corporate savings, which means private investment goes down by the same amount.

The government can allocate resources to auto-workers. These resources are unavailable to electric-car manufacturers. The same thing is true for teachers.

Is allocating resources away from electric-car manufacturers a good idea? Is it better to allocate them to teachers or Ford? These are hard problems.

Government tends to screw things up. Misallocated resources reduces your standard of living.

Will Obama’s deficit spending plan keep unemployment below 8% in 2009? Gary Becker does not think so:

with unemployment at 7% to 8% of the labor force, it is impossible to target effective spending programs that primarily utilize unemployed workers, or underemployed capital. Spending on infrastructure, and especially on health, energy, and education, will mainly attract employed persons from other activities to the activities stimulated by the government spending. The net job creation from these and related spending is likely to be rather small. In addition, if the private activities crowded out are more valuable than the activities hastily stimulated by this plan, the value of the increase in employment and GDP could be very small, even negative.

Maybe the government decides to borrow more money. Maybe the money is spent building a bridge. Were the bridge-builders unemployed? Keynesian economists assume they are. Good engineers may already have a job. Hiring them does not help employment. Other people are still out of a job. They might be poor engineers.

What if no one wants the bridge? Bridges to nowhere do not help the economy. Building a bridge creates debt. Repaying debt prevents other activity.

Job creation does not fix things unless the jobs are productive. Ron Paul:

The goal of a healthy economy is productivity. Jobs are a positive outcome of that. A “job” could be to dig a hole one day, and fill it back up the next, or perhaps the equivalent at a desk. This does no one any good. But the value in that paycheck ultimately has to come from taxing someone productive.

Imagine someone wants a well. Digging a hole for the well has value. Imagine another person dug a hole in someone’s driveway. The effort it the same. The hole is less valuable. It may have negative value. The effort was not productive.

Effort is orthogonal to value and productivity.

Microsoft reversed its decision to lease property in South Lake Union:

Microsoft confirmed Wednesday that the software behemoth will not lease Vulcan’s 2201 Westlake building in Seattle’s South Lake Union neighborhood, as many local real estate brokers assumed.
[...]
At 302,000 square feet, 2201 Westlake accounts for less than 1 percent of the 40 million-square-foot Seattle office market

The commercial real estate industry plans to add another 2.5% of space on top of this in 2009:

[...] Vulcan’s project will be competing for tenants against Schnitzer West’s 660,000-square-foot 1918 Eighth building and Touchstone Corp.’s 500,000-square-foot West 8th building.

All this extra capacity will place downward pressure on lease rates. This will make things difficult for over-leveraged commercial real estate speculators. On the other hand businesses need affordable leases:

Businesses need lower prices to stay solvent and avoid laying people off. Lower lease and purchase prices for commercial real estate will make it much easier for someone to grow a current or start a new business and employ people looking for a job.

мебели

Seattle residents have found their homes becoming unaffordable faster than anywhere else in the nation. Puget Sound Business Journal:

Seattle leads the nation, according to Radar Logic, in the category of five-year annualized percentage change with an increase of 6.5 percent, besting New York at 4.9 percent and Philadelphia at 4.6 percent.

The good news from my perspective is that San Francisco and New York are becoming affordable very quickly. SF’s prices improved the fastest in the nation, becoming 34.4% cheaper in October than the year prior.

Not according to the Seattle Times. They like unaffordable housing:

The silver lining? Median sales prices for single family homes in King County crept back above $400,000 for the first time since September

The Puget Sound Business Journal said the same thing yesterday. Neither must read Naked Capitalism:

the Federal budget deficit will come in just shy of $1.2 trillion, and that before any stimulus related deficits are added in, which are now expected to be $775 billion.
[...]
The market-watching crowd that corresponds with me expects unemployment to peak at 10-12% even with a stimulus program

Do you agree with the Seattle Times reporter that higher prices help the many people in Seattle who are about to lose their job and fall deeper into debt?

The Puget Sound Business Journal notes that homes are becoming more expensive again:

The good news in King County is that the average home sale price increased to $484,494 in December from November’s average sale of $440,062

How is this good news? When unemployment is rising, wages are frozen or falling and the state is running a mutli-billion dollar deficit this means a person must slave away more hours at work in order to repay his home.

I am reading a (fictional) book set during the middle ages. A home was built on 10 days labor. Wouldn’t that be great? Now homes are so unaffordable many lack means to repay, even when given 30 years! I fail to find the present situation desirable.