California Dreamin': How the State Can Beat Its Budget Woes

[oddlots]

Re: California Dreamin': How the State Can Beat Its Budget Woes

You are wrong about this. As Michael Hudson has explained time and again, higher property taxes lead to lower house prices.

It's really not hard to understand: a market of potential buyers can afford to pay $1000 per month on a house. If the taxes are $500, they will bid the house up to where the mortgage payments are $500. If the taxes are $100, they will bid the price of the house up to where the mortgage payments are $900. Each way they are paying $1000. The question is who gets the money - the banks or the state.

Professor Hudson discusses this concept with EJ.

See also http://www.itulip.com/forums/showthread.php?t=966

Prop 13 has been documented as distorting the market by offering perverse incentives.

http://www.nber.org/digest/apr05/w11108.html

Prop 13 also creates capricious taxation rates.

http://online.wsj.com/article/0,,SB1...265400,00.html

With an artificially low tax burden, prices increase and the tax burden shifts from the "free lunch" of land price increases onto labor. That the tax burden merely shifted to labor is empirically documented:

http://ntj.tax.org/wwtax%5Cntjrec.nsf/80A9A9639CDB749585256AFC007F1910/$FILE/v52n1099.pdf
http://www.ppic.org/content/pubs/op/OP_998JCOP.pdf

This is the whole point - thanks Munger! I'm really fascinated by this thread as it seems to bring to a head some of the basic tenets of the (thankfully) non-existent itulipism:

With apologies to the canon... its axiomatic for itulipers that...

1) real-estate investment beyond what's justified by cash-flow analysis (represented by cap rates for instance) is a) a bubble by definition since b) real-estate is a non-productive asset in the macro-picture that c) is a perfect object for the oligarch's (government and its backers) bubble blowing requirements d) since it can be highly levered by convention (try buying 100k in stock with a promise to pay 120% 3 or 4 years later) e) especially since these wonderfully inflated things - house prices - could be foisted on foreigners (and domestic pension funds) as if they were... well... gold f) maximum pump and dump... hence the bearish dollar position. (It's the other leg of the trade.)

If you were facing the last deflationary collapse circa 2000 as a power-holder / vested interest could you have resisted that final south sea bubble: real estate? What other investment could credibly claim "it has never gone down." In a world of wildly low returns how could it not spontaneously inflate? It was the best one yet. At least in our lifetime. (The "usefulness" of the bubble to the fire economy varies inversely to the "usefulness" of the investment; the more subjective (i.e., unreal) the allowable valuation the more traction finance can gain.) And the toxins get washed out to sea (read the rest of the world) via the dollar standard. So you're doing the nation's work at the same time (if you're in power.)

The flotsam that is the middle class rises too far in one instance (pleasure craft anyone?) only to fall too far in the next when the credit wave breaks (jobless recovery anyone?) while the wealth extraction and concentration remains a constant or, in fact, accelerates.

Pump and dump writ large: across class and countries.

I don't know the specifics of prop 13 but I strongly suspect they're beside the point here: the US advantage is the dollar and if it doesn't strategically rise and fall depending on the pump and dump logic above then it's not worth having. Or having had?

[Mango]

Re: California Dreamin': How the State Can Beat Its Budget Woes

They don't call it "the Reagan Revolution" for nothing, and it was fostered long before he became president. Reagan is the best figurehead conservative to blame for such innovations as Prop 13 even though he may not have personally been responsible. No doubt he at least cheered from the sidelines, although I bet he had more to do with it than being an observer. Parsing it down to the fact that he had left office before Prop 13 ignores his huge role in the anti-tax revolution, which was being cooked up on the sidelines by Reagan and others long before they put it into national practice.

The poster who blamed Reagan might have done a better job of assessing blame rather than just pointing to Reagan the person. Reagan the Idea, the conservative figurehead, is to blame.

So much for technical errors and attributional misunderstandings. When I got to the line "House prices go up, when they do, because of demand versus supply (same as everything else)", however, it was apparent that the flaming B.S. was a case of projection.

[Master Shake]

Re: California Dreamin': How the State Can Beat Its Budget Woes

When I was a child of about 4 or 5 years-of-age, I would watch television in Duluth along with my grandmother and grandfather. I remember, to this day, how my grandmother cried with joy when she saw the films of Stalin's Red Army liberating Eastern Europe.

I remember to this day, and I am almost 61 now, how my grandmother cried when she saw the people dancing in the streets of Europe's cities when the Nazis were crushed on May 1st, 1945.

One of our family's relatives was liberated by Stalin's Red Army, and she somehow made her way to Isreal after the war. I don't know what her name was, but every other relative of our's was murdered by the nazis in WWII.

FDR, Winston Churchill, Charles DeGaule, and Joseph Stalin were heros in our family. And they still are heros to this day.

Our family came from Pischatch (sp?) and Warsaw, Poland. My grandparents knew plenty about the nazis and what they did in Eastern Europe, and in fact, nearly everywhere in Europe.

I worked as a planner in Winnipeg for a few years, many years ago, and I got to know many of the people of that city, many Ukranian, and many Russian. I did not find very many of the old people there, whatever their religion was, who really hated Stalin. He was a hero to those who lived through WWII, and for good reason.

As far as mass murderers go, Hitler was a piker compared to Uncle Joe.

If you couldn't find any Ukranians who hated Stalin, it's because he killed them all.

[Master Shake]

Re: California Dreamin': How the State Can Beat Its Budget Woes

Personal insults aimed at other posters do not strengthen one's arguments. Quite the contrary.

You obviously didn't read Nivelle's post. He took apart Steve's factually lacking screed about the Reagan/Prop 13 boogeyman.

[ricket]

Re: California Dreamin': How the State Can Beat Its Budget Woes

I don't think this is the language we usually use around here.

I still giggled nonetheless.

I agree that most everyone here does contribute meaningfully (we all do, that's what a "community" is all about). But Nivelles has humorously reproduced some of my exact thoughts that I have had sometimes while reading some posts on here.

[goadam1]

Re: California Dreamin': How the State Can Beat Its Budget Woes

I prefer civility and Metalman's snark.

I don't know what anyone is or isn't smoking to say that prop 13 and other ballot initiatives aren't partially to blame for a bankrupt Cali.

Having lived through the slow collapse of the California public school system, I'll still put some of the blame on Prop 13 and a bunch of piggish boomers who were followed by their piggy gen x offspring in shirking the responsibility of a decent public education system.

I'll throw in blame on unions, tenure and gay marriage for the conservatives.

I'm a registered "pragmatist."