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Jewish World Review
April 13, 2008
8 Nissan 5768
Horrors of a Crisis
During presidential elections, when candidates postulate this or that "crisis" for which each is the indispensable and sufficient cure, economic hypochondria is encouraged, so a sense of suffering is rampant. Recently the Wall Street Journal, like Joseph Conrad contemplating the Congo, surveyed today's economic jungle and cried, "The horror! The horror!"
Declines in housing values and the stock market are causing some Americans to delay retirement. A Kansas City man had been eager to retire to Arizona but now, the Journal says, "figures he'll stay put for another couple of years." He is 59.
So, this is a facet of today's hydra-headed "crisis" the man must linger in the labor force until, say, 62. That is the earliest age at which a person can, and most recipients do, begin collecting Social Security.
The proportion of people aged 55 to 64 who are working rose 1.5 percentage points from April 2007 to February 2008, during which the percentage of working Americans older than 65 rose two-tenths of one percentage point. The Journal grimly reported, "The prospect of millions of grandparents toiling away in their golden years doesn't square with the American dream."
Oh? The idea that protracted golden years of idleness are a universal right is a delusion of recent vintage. Deranged by the entitlement mentality fostered by a metastasizing welfare state, Americans now have such low pain thresholds that suffering is defined as a slight delay in beginning a subsidized retirement often lasting one-third of the retiree's adult lifetime.
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In 1935, when Congress enacted Social Security, protracted retirement was a luxury enjoyed by a tiny sliver of the population. Back then, Congress did its arithmetic ruthlessly: When it set the retirement age at 65, the life expectancy of an adult American male was 65. If in 1935 Congress had indexed the retirement age to life expectancy, today's retirement age would be 75.
The standard definition of a recession two consecutive quarters of contraction means we still are probably several months short of being in one. The 9.9 percent first-quarter decline of the Standard & Poor 500 barely ranks among the 40 worst quarterly losses in the index's history. Leave aside the 39.4 percent decline in the second quarter of 1932. The economy experienced no long-term trauma because of the declines of 10.3 percent, 14.5 percent and 23.2 percent in the third quarter of 1998, the third quarter of 1990 and the fourth quarter of 1987, respectively.
Yes, in January single-family homes in major metropolitan areas lost 10.7 percent of their value from last January. To find such a large decline in a year you must peer back into the mists of prehistory, all the way back to . . . the 1990s. Furthermore, the vast majority of homeowners will remain well ahead, even after the market corrects for housing inflation.
By one measure, between the beginning of 2000 and the middle of 2006, as the consumer price index was rising 21 percent, average housing prices rose 93 percent and much more in some markets (Miami, 180 percent; Los Angeles, 175 percent; Washington, D.C., 150 percent).
Not long ago there was broad agreement that too much of Americans' wealth was tied up in the nation's housing stock and that the principal impediment to homeownership was not a scarcity of cheap mortgages but the prevalence of high housing prices. Hence deflation of housing prices would be desirable.
So far during this "crisis," the homeownership rate has declined just three-tenths of 1 percent since it peaked in 2004. At 67.8 percent, it remains higher than it was when President Bill Clinton left office.
Subprime mortgages are a small minority of mortgages, and only a minority of subprime borrowers are not making their payments. Casting this minority of a minority as victims of "predatory" lending fits the liberal narrative that most Americans are victims of this or that sinister elite or impersonal force and are not competent to cope with life's complexities without government supervision.
The politics of this may, however, be more complex than the compassion chorus supposes. The 96 percent of mortgage borrowers who are fulfilling their commitments, often by scrimping, may be grumpy bystanders if many of the other 4 percent those who found the phrase "variable rate" impenetrably mysterious are eligible for ameliorations of their obligations.
What next? Adults still burdened with student loans have not yet announced their entitlement to relief, but as they watch this subprime drama, they might.
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