Chinese Highways

China now has about 65,000 kilometers of freeway criss-crossing the country. In 1989, the number of kilometers was zero. To get a sense of the magnitude of this achievement, the Interstate Highway system is about 75,000 kilometers long and took about 40 years to complete.

This does not mean the US should go on a freeway building spree (the marginal productivity of length almost surely decreases in length); it is just one measure of explaining how China has developed so rapidly.

There they go again

I enjoy David Brooks. From everything I can tell, he is smart and has a good heart. I would guess he is a terrific dinner companion. So I was disappointed when I read in his column this morning:

What we have is not just a cycle but a condition. We could look back on the period between 1980 and 2006 as the long boom ...

Sorry, David, but 1980 to 2006 was not a long boom. Consult the National Income and Product Accounts tables, and you will find that real GDP over that time grew about 3.1 percent per year. In the "awful" Nixon-Ford-Carter 1970s, growth was 3.2 percent per year; in the 60s 4.2 percent; in the 50s 3.5 percent, and in the 40s 5.6 percent.

It is not that 1980-2006 was bad, just hardly a boom relative to the previous 40 years.

Steve Malpezzi is not happy

He blogs:

When I first heard of HAUP, I was excited, but my excitement quickly turned to disappointment. Among other problems, it requires that unemployed homeowners go through a fairly bureaucratic procedure to apply for what is (more or less) three months forbearance. And that' s merely the application; forbearance may or may not be granted for the 3 months. Remember, at the present time, the AVERAGE duration of unemployment is 9 months and rising.

(The fine print says you can extend beyond 3 months, but it's not clear that will happen, and will certainly not be clear to potential applicants).

The website's FAQs does not even tell people if the differences between the original payments and the reduced payments, are forgiven, or wrapped into the loan. (When I inquired of the experts in Washington, it turns out part of the loan is forborne, adding to the loan amount, but it’s amazing that they ask people to apply without clearly explaining such a key element of the program!)

What if your unemployment lasts more than three months (which is true for most unemployed today?) After two months you are given an application for HAMP, the dog that won't hunt. As far as I can tell, most unemployed will still not qualify for HAMP after they fill out this application.

There are other details that limit the program’s scope, and hence its effectiveness at halting the skid in housing prices. Homeowners can't get relief on the second liens. And if I read it right, HAUP does nothing for the unemployed not receiving unemployment insurance.

My bottom line: Treasury is still spitting on the fire and leaving the hoses coiled up.

David Leonhardt writes that Kindergarten matters

From the encouraging article:

On Tuesday, Mr. Chetty presented the findings — not yet peer-reviewed — at an academic conference in Cambridge, Mass. They’re fairly explosive.

Just as in other studies, the Tennessee experiment found that some teachers were able to help students learn vastly more than other teachers. And just as in other studies, the effect largely disappeared by junior high, based on test scores. Yet when Mr. Chetty and his colleagues took another look at the students in adulthood, they discovered that the legacy of kindergarten had re-emerged.

Students who had learned much more in kindergarten were more likely to go to college than students with otherwise similar backgrounds. Students who learned more were also less likely to become single parents. As adults, they were more likely to be saving for retirement. Perhaps most striking, they were earning more.

All else equal, they were making about an extra $100 a year at age 27 for every percentile they had moved up the test-score distribution over the course of kindergarten. A student who went from average to the 60th percentile — a typical jump for a 5-year-old with a good teacher — could expect to make about $1,000 more a year at age 27 than a student who remained at the average. Over time, the effect seems to grow, too.

The economists don’t pretend to know the exact causes. But it’s not hard to come up with plausible guesses. Good early education can impart skills that last a lifetime — patience, discipline, manners, perseverance. The tests that 5-year-olds take may pick up these skills, even if later multiple-choice tests do not.

Two really important points here: (1) early education does seem to matter; (2) the multiple choice tests we give older students may be deeply flawed. This is particularly problematic if these later tests are the foundation for evaluating our educational system.

The Hidden Leverage of Mortgage Securitization

Ed Glaeser has a nice piece about the debate over whether securitization should get the blame for the subprime mess. But it doesn't address one of the problems created by securitization: hidden leverage.

When banks (commercial and investment) sold off mortgage backed securities, they got them off their balance sheets, and so there was a pretense that they were no longer liabilities. But in order to sell the MBS, the lenders had to offer repurchase agreements, which said that if there was something materially wrong with the loan underwriting, the investor could return the mortgage backed security to the lender at par. Lenders also often kept residual positions of mortgage backed securities, meaning that to reassure investors, the lenders (i.e., the sellers of the securities) would take first loss positions.

Both repurchase agreements and residuals effectively increased the leverage taken on by lenders. Let me illustrate: suppose a lender has an whole asset and capital of ten percent, and the asset loses one percent of its value. The lender takes a ten percent hit against capital, because it is levered at 10 to one. But now suppose it takes a first loss position of ten percent on residuals, and the mortgage underlying the residuals lose one percent of value. The residual loses ten percent of its value, which means it wipes out the capital that is implicitly backing it. The combination of ten percent capital and a ten percent first loss position implies actual leverage of [updated: 100 to 1].

Ironically, the fact that financial institutions ate some of their own cooking--something that should have mitigated moral hazard--made them more vulnerable.

Raphael Bostic on housing tenure policy

From Newsweek:

Another senior HUD official was more direct in an interview with the Washington Post recently: "In previous eras, we haven't seen people question whether homeownership was the right decision. It was just assumed that's where you want to go. You're not going to hear us say that."

That official was Raphael Bostic, a leading scholar on home finance [rg note: and USC professor] and key policy adviser. An NPR report on Thursday morning said senior officials have acknowledged that their HAMP plan was largely a failure, and were leaning toward policy goals that promoted renting rather than buying. As a result, the report said, Fannie and Freddie might be entirely liquidated.

No people with memory loss in my back yard

In the midst of doing research on how NIMBYs fight facility for housing the elderly, I came across this story from last March in the Minneapolis Star Tribune:

When a released sex offender plans to move in next door, or a drug-treatment center is scoping sites for a new halfway house, a neighborhood's red flags invariably follow.

Now, the list of objectionable neighbors is growing.

In the face of overwhelming opposition from residents in an upscale community called Stonemill Farms in eastern Woodbury, plans for a 45-unit assisted-living facility for people with Alzheimer's disease and other forms of dementia have been put on hold.

The Alzheimer's facility is the latest in a growing list of projects across the metro that are meeting resistance from neighbors who perceive a threat to their communities or fear their property values will erode.

A decision on whether to recommend the Woodbury project for approval was to go before the city's Planning Commission on April 5, but the developer on Wednesday asked for more time to address issues, including concerns raised by neighbors, said Eric Searles, associate planner for Woodbury.

The move follows nearly a month of intensive protests and petitions by neighbors who mainly object to locating the facility in a failed retail site near a day care center and across the street from an elementary school. Many have also expressed a sense of betrayal that the original plans for the community never envisioned an assisted-living facility.

The facility would go into a dead retail center: turning vacant space into useful space usually improves neighborhoods. The idea that Alzheimer's patients pose a risk to children is beyond preposterous. I understand having land use controls so that property owners don't have to deal with genuine nuisances, such as oil refineries. But what kind of people seek to deny the infirm a decent place to live? One hopes that once these neighbors are stricken with Alzheimer's, they retain enough of their long term memory to remember how badly they behaved.