Our Ailing Economy Needs System Redesign

"Opinion"

08/27/2010

Paul Munnis


With so much employment formerly tied to the Housing industry the collapse of that industry has caused much grief, pain, and worry, to workers and family members as they experience the effects of unemployment. The Bush Administration had earlier launched an ill conceived idea called: “The Ownership Society,” wherein every American was to have a home financed by banks and which accumulated debt for Americans and then when recession came the bubble popped and foreclosure became a frequent occurrence.

At that point in time Americans were alone in the world with a really good deal for housing. A small down-payment, often no down-payment, a somewhat decent credit score, and a job, were the only credentials needed to acquire a home, debt, and status as a homeowner within a community.

The 14% annual inflation rate in house prices assured homeowners of a retirement income and provided a savings account in the form of home equity. Government subsidized the borrowing of money against home equity and thus a bubble of national debt grew and burst at the first signs of deep recession caused by unemployment and leading to many home foreclosures.

In the go-go years people were buying and fixing up dwellings then flipping them into a market full of heated up demand for housing. The result was instant wealth. Also, if the cost of living in America were factored over a lifetime we could see that Americans were living for free as they recouped all of their expenses by the time of their retirement.

When the bubble burst, many were left with heavy levels of personal debt. They looked at their fallen equity, the resale market, and the prospects of housing recovering to the former level only to find that they were custodians of properties whose debt they could not service. Thus they advised the banks that they would no longer be able to make house payments. The banks foreclosed on the properties and now a fire sale on foreclosed properties is continuing into its third year with no demand sufficient to sop up the surplus housing.

For a while the Obama Administration had a first time home buyers program that assured young families in need of a home access to a property. That has now petered out as too expensive a subsidy to continue. Banks found themselves with bad balance sheets, threatened to default, and were rescued by taxpayers in a huge bank bailout.

Meantime the housing industry collapsed as demand for homes evaporated, people in need of selling found a moribund market, and the demand for materials for construction has collapsed. Obama has propped the economy up since with a series of artificial infusions of money into the economy. The result is a national unemployment rate of an official 9.5% bordering on a real rate more like 16%. Many eligible for Social Security pensions are forced to take their retirement option and that is a problem for them for their income is too low to sustain their debt levels, pension funds have been wiped out by a collapsed stock market and they are forced to forsake their home.

We have reached a point where we must ask: “is there a way for America to continue without benefit of a government sponsored Ponzi scheme that creates artificial wealth for our citizens?”

Further we ask: “What of the housing surplus? How do these matters impact us for the future? Answers and fixes are imperative.

The first and most critical need is to find a way to employ those formerly in the housing industry and now unemployed. If the unemployed worker can be retrained and reemployed then our economy will recover without concern for the many empty dwellings. Efforts at such re-employment have been so far not forthcoming. We can see that every American requires a roof over their head and a place to stay that is shelter against the weather; a place for families to raise children; a place for growth and sustenance. Thus people must live someplace. We can also see that 80% of the housing market appears solid and maintained by those still working in other sectors of the economy and driven by demand.

We can see that the unemployment rate is fostered by high rates of technical productivity gain in industry leading to surplus workers and that is adding fuel to the fire as people are laid off, unable to find work, and thus they fall behind on their home payments and foreclosures happen in what seems like a loop in bad need of a method of circuit breaking. In other words we have created an unemployment machine and it is destroying our American society.

First we need to recognize that people will live someplace either legally or illegally. Second we need to recognize that we have a surplus of properties that are largely worthless except for their book value. If we could match up demand and supply with some sort of home ownership program then we would recover from this housing crisis.

Second we can see the impact of employment on America and we can see the corporation benefiting with high earnings at the expense of the workforce. We can also see that corporations are largely off the tax rolls and paying little or nothing towards our national tax system. We must therefore transfer much of our tax burden from citizens to corporations. Ideally the cost of government should be shared by corporations, individual taxpayers, and by the sale of government services to the community in the form of utilities and infrastructure use taxes. The ideal equation would be 1/3 of the tax burden for each entity to provide input for.

Thus it may be necessary to employ some system of job sharing that creates employment and income for the unemployed else the economy will collapse. The alternative seems to be to permanently subsidize unemployment and institutionalize it. Beyond job sharing a complete redesign of the tax system appears to be needed. We have good models of this from German and we need to adapt them to the American experience.

Adding to the confusion is yet another factor – the Baby-Boom retirees, a large bubble of people headed for an entitlement society. They will need a means to supplement their income.

Here in the mid-west we can see a huge and successful agricultural society and we need to find way to expand jobs within that sector.

Social engineers have not as yet been able to deal with the impact of their pending retirement upon the economy. They represent another bubble of large costly homes to maintain and retain and they would like to downsize but in a restricted housing market they lack buyers. A fix for their plight is also needed. They also create a drain on Social Security and Medical resources as they age out.

For those unemployed in the housing industry, a fix seems apparent. If we could get many of them working at implementing a national energy savings program then it could turn into an industry and it could generate much needed jobs. The goal of making every building in America energy self-sufficient would generate a lot of jobs in financing and performing the work not to mention in fabricating the materials and distributing them. The Clinton estimate is for 17 million jobs resulting from the harnessing of alternative energy.

The Internet would seem to provide an income solution for retiring Baby-Boomers, many of who possess good office skills. If government paper work could be moved from City Hall and other halls of massive record keeping to the Internet then it could be performed as piece-work by retirees. Thus government processing needs to be redesigned to accommodate Internet piece-work.

For housing, if the surplus market could be rebalanced with supply and demand then that would allow sales to proceed. The answer seems to be to either burn down the surplus properties or better yet, convert them to rental units with option to buy in an innovative program wherein banks become renters and rent with their rent accumulating towards home purchase and a promise of private ownership ahead. When a person needs housing they go to a bank to shop, the bank offers a deal on one of their inventory properties as a result. The buyer either accepts the offer or moves on to the next bank. Note that this is a redesign of the real-estate marketplace.

When a home is mortgaged, if a homeowner is unemployed then they need to be able to pay rent during the period of unemployment and resume their payments once the unemployment is resolved. In other words the bank is the owner of last resort and will manage the property for profit.

Manufacturing in America needs to be resuscitated. The morality for a global economy is laudable but it isn’t working. We need to examine the stuff that we are importing from China, India, Pakistan, Germany, and elsewhere, and we need to make it ourselves. This is easily done by placing import taxes called tariffs on goods imported to the USA.

Pumping stimulus money into an ailing economy is unsustainable and so innovation in housing and employment is a need. Redesigning our social system to accommodate the change appears a necessity. We either do that now or else we will do it under even worse circumstances but it must be done. If not the redesign offered here then what redesign would you propose?

What is needed now is political leadership, advocacy of a new paradigm, massive system redesign and implementation, and conversion to the new society. We are at a turning point in the American experience.