CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Wednesday, December 23, 2009
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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26 Comments:
This is a picture of Detroit in 1917.
Contrast that picture with Detroit 2009 and you will start to understand the cancer that is modern liberalism.
Considering how ridiculously low these prices are, I assume their must be some serious costs associated with the ownership of these homes. I'm not familiar at all with Detroit area, so any observations would be appreciated. If there were no significant costs attached to owning these homes, why wouldn't I simply buy dozens of them and hold them until conditions get better?
"Contrast that picture with Detroit 2009 and you will start to understand the cancer that is modern liberalism."
By modern liberalism, are you referring to the import tariffs Japan established against American autos, their government's subsidization of health and pension benefits, or their auto industry's unionized workforce - which happens to be the highest paid in the world? By modern liberalism, are you referring to the millions of industrial jobs lost in this country as a result of Reagan gutting much of our tariff system, or Clinton's pursuit of trade agreements?
Thirty years ago, America was the world's largest exporter of manufactured goods in the world, the planet's largest creditor; and for decades, we had a stringent trade policy, and a much higher tax rate on the wealthy. We've had nothing but thirty years of pro-free market, laissez faire trade policy - we've gutted our trade barriers, our union laws, our progressive tax policy: Milton Friedman's ideas have won out. What part of "modern liberalism" are you implying?
The last house pictured looks like it has had a fire, and likley all of the houses have no plumbing or wiring left, the are just shells. Others may well have had fires, but it just may not show.
Actually Detroit is undergoing what the copper country went thru 60 years ago. Recall that in 1900 Calument MI(copper country) had 60k people, it now has roughly 6k people. (Or look at western ghosts towns) The old northwest peaked in the early part of the 20th century as the richest part of the country and has been declining relatively ever since.
Or look at MA in the 1950s once textiles moved out it was about down for the count and then got tech.
Yes, you could spend $ 1,000 and buy a dozen or so houses, but a better investment would be to go down to the nearest casino and put it all on red. At least you'd have some chance of it paying off. First, these house's are shells, second, they are in Detroit, which ain't coming back, and third, what would you do with them? Rent them to yuppies?
... are you referring to the millions of industrial jobs lost in this country as a result of Reagan gutting much of our tariff system, or Clinton's pursuit of trade agreements?
Ah yes, it's all Ronald Reagan's fault. How dare he destroy everything that your hero - Uncle Joe - worked to build. Those damned tariffs, and that lousy free trade policy. If only they would keep the other team off the field you and your fellow lefties would be able to score. I'm sure of it.
We've had nothing but thirty years of pro-free market, laissez faire trade policy - we've gutted our trade barriers, our union laws, our progressive tax policy
Union laws? Do you mean the ones that are continually landing corrupt union officials in jail? Gutted our progressive tax policy? That will come as a shock to the top 1 percent whose tax burden exceeds the bottom 95 percent. But if you say so, who can argue? I mean look how right you were about "global warming". The "science" is settled.
I know that living through the last 30 years of unprecedented prosperity, ushered in by Reagan, has been hard on you lefties. You have worked tirelessly to screw things up, and it looks like you may have succeeded, at least for the short term.
Further thinking one does not know the environmental hazards of these houses, they may very well have asbestos insulation around pipes (ring the register), maybe buried oil tanks (ring it again), may have been meth labs (ditto). The third house looks like about the last one left on the block to boot. Likley you are buying a chance to pay to tear down the building due to code violations.
The city does not have the money to do that, and would be glad to have you pay to do it. Now if you could get the vacant lots around the third house, you might be able to put together a big lot, and build a latin american style house. (Big Wall 10 foot wall around the house gate etc. )
What they have, are huge, unpaid tax liabilities.
Scott Grannis: Can you please contact me by email at mjperry@umich.edu so we can be in contact directly?
Thanks,
Mark
P.S. Love your blog!
Even I could afford to by all the houses on a block. There goes the neighborhood.
What they have are huge unpaid tax liabilities.
Probably not. Most houses of this type are owned by the city via tax foreclosure.
Even if you buy one to fix up, it's a pain in the butt to defend against vandalism, and it's not as if you'll have people beating down your door to live in that kind of neighborhood.
"By modern liberalism, are you referring to the millions of industrial jobs lost in this country as a result of Reagan gutting much of our tariff system, or Clinton's pursuit of trade agreements?"...
Well anon I'm sure you have something credible to link this to and I don't mean wikipedia...
Meanwhile maybe you forgot about President Carter (now there's a liberal for you!) and his creature Robert Pastor who established the maquila program...
Google on lad, google on...
The picture of the fourth house is interesting. Note the house in the picture and the house in the picture to the immediate right still have TV Antennas on the chimneys.
Anon 6:15PM said,
"Ah yes, it's all Ronald Reagan's fault. How dare he destroy everything that your hero - Uncle Joe - worked to build. Those damned tariffs, and that lousy free trade policy. If only they would keep the other team off the field you and your fellow lefties would be able to score. I'm sure of it."
I also said it was Clinton's fault, too - equally if not more. Do you feel proud America isn't the largest manufacturer of goods in the world. Sure, it might seem like a good idea now to let the Chinese make various consumer goods on the cheap - microwaves, washers, clothes, etc.) - but what happens when oil becomes more scare and expensive? That's a big ocean for various necessities to cross.
"That will come as a shock to the top 1 percent whose tax burden exceeds the bottom 95 percent."
INCOME TAX - there's various taxes: payroll, sales and property taxes. Who do you think pays a higher percentage in sales tax during a car purchase: a six-fig. banker who buys a $50,000 BMW, or a teacher who buys a $24,000 Accord?
Besides that, smart man, no CEO has been able to claim the $1 million prize from Warren Buffet: the one where a CEO can prove he/she pays a higher percentage of his/her earnings to taxes then their secretary.
"I know that living through the last 30 years of unprecedented prosperity, ushered in by Reagan, has been hard on you lefties. You have worked tirelessly to screw things up, and it looks like you may have succeeded, at least for the short term."
Are you referring to the increase in poverty, the increase in household debt (thank the Chinese for their patience), the deterioration of infrastructure, the ever-escalating health care costs, or the soon-to-come loss in loss in scientific personnel because of age?
juandos said,
"Meanwhile maybe you forgot about President Carter (now there's a liberal for you!) and his creature Robert Pastor who established the maquila program..."
Yes, Juandos, I am very well aware that Carter was the first to drink the Kool-Aid. I also mentioned Clinton played a heavy part - an effort that equaled Reagan's efforts, and perhaps surpassed them. Reagan merely shifted everything into high gear after Carter, and Clinton continued the "scorch earth" policy.
Sadly, I don't find the spineless Obama to be of any use. For those expecting change, I told them many times they would be disappointed. I think the last truly great president this country had was Ike.
Do you feel proud America isn't the largest manufacturer of goods in the world.
Actually, America is the largest manufacturer of goods in the world, smart man.
Are you referring to the increase in poverty, the increase in household debt (thank the Chinese for their patience), the deterioration of infrastructure, the ever-escalating health care costs ...
"Poverty" is a moving target for liberals. I have no "household debt". Money that used to be allocated for infrastructure is now spent on welfare programs and heath care, like energy, is expensive because of policies and regulations imposed by liberals.
So, I stick with my first assessment, modern liberalism is a cancer.
anybody know what the annual property tax bill would be on these properties? is it a percent of sales price like in california?
anon 12:45 AM said,
"Actually, America is the largest manufacturer of goods in the world, smart man."
First, don't confuse final assembly with actual manufacturing: for instance, while CAT may assemble much of the equipment they sell in this country, most of the components are made elsewhere. Secondly, while it's nice to see America do well with high-end goods, it barely manufactures any consumer goods or necessities - clothing, kitchen appliances, etc. This might seem fine and dandy now, when oil is still somewhat abundant, but when oil becomes more scarce in the future and more expensive, Americans may have second thoughts about having needed items produced elsewhere.
"I have no "household debt."
Great, you're one person. This is a societal problem. How long will the Chinese maintain their patience to continue buying our debt?
"Money that used to be allocated for infrastructure is now spent on welfare programs and heath care, like energy, is expensive because of policies and regulations imposed by liberals."
What welfare programs? Reagan gutted much of that in the '80s, Clinton reformed welfare in the '90s. Are you referring to "ObamaCare?" Please - that's a huge tax-payer giveaway to the health insurance industry that does little to actually reform health care. By welfare programs, maybe you refer to the huge Wallstreet bailouts pulled by Bush and Obama, the S&L bailout. Speaking of bank bailouts… before FDR reformed the bank laws, this country used to experience a major banking crisis every 20-30 years. After WWII, America didn’t experience any major problems banking programs until Reagan deregulated S&Ls (he wanted to go further but was prevented). Clinton went a big step further with the financial deregulations. Interesting to see the problems we’re in.
Anyway, Europe - which contains far more welfare programs you detest - actually devotes a higher percentage of its budget to infrastructure than the US. Our expenditures as a % of GDP has declined for years; China spends money like mad on roads; Ike initiated the Interstate Highway System at a time when the tax rate on the wealthiest citizens was over 90% (a rate even I think is ridiculous).
If one wants to complain about government programs, maybe one should look at the military: other than a quick ass-kicking during "Gulf War I," the military really hasn't been very successful since WWII. Sounds like a wasteful, inefficient government program to me.
Moving onto energy, the reason why oil is pricey is the same reason why America is no longer the "Saudi Arabia of oil," the world's swing oil producer: it's a limited substance. Just wait to see what happens in a few years. According to the IEA, the world will need to develop the equivalent of 4 Saudi Arabias by 2030 just to maintain flat production. Do you see why I'm a little hesitant to have far-away nations make our clothes, ovens, computers, furniture, etc.? I'm sure it'll be good for China in the long term, but I'm not sure about us.
"So, I stick with my first assessment, modern liberalism is a cancer.
And I totally agree. Detroit is a shining example of liberism gone amok. With the dems in control of the Congress and the White House I expect the entire country to begin to resemble Detroit before Obama is removed from office.
Detroit style housing management is the one thing that Obama actually has experience of. Remember the housing project in his district he got the congress to fund? Shortly after being built he handed the maintenance for the project over to his confidente Valery Jarrett. 5 years later you couldn't get a rat to live there and the building is condemned.... The Chicago way is so cool
Someone blamed laisse fair capitalism for our current problems. WE'VE NEVER HAD LAISSEZ FAIRE CAPITALISM IN THIS COUNTRY, to imply it, is a cannard.
"And I totally agree. Detroit is a shining example of liberism gone amok. With the dems in control of the Congress and the White House I expect the entire country to begin to resemble Detroit before Obama is removed from office."
Detroit has been declining for decades and, like major industrial cities in the US, took a major hit in the '80s thanks to the lifting of tariff barriers. Implantation of free trade policies have largely led to the deterioration of industrial cities. Japan's auto industry is unionized, enjoys tariff protection, enjoys subsidized health and pension benefits, and earns higher wages than their Detroit counterparts; S Korea has a very stringent tariff force field against American autos.
"Someone blamed laisse fair capitalism for our current problems. WE'VE NEVER HAD LAISSEZ FAIRE CAPITALISM IN THIS COUNTRY, to imply it, is a cannard."
What world do you live in? This country has walked to Milton Freidman's tune for the past 30 years: much lower taxes on the wealthy, massive deregulation of business and finace, abolished tarrif barriers, disolved public services, lowered government expenditures towards needed projects (i.e., infanstructure). These have been implanted under Democrat and Republican presidents, under Democrat and Republican Congresses.
Where are you expecting to find "pure" laissez faire capitalism? 19th century America? Try working a turn shift in one of Carnegie's steel mills - you'd love it. China? China's government is massively involved in operating its economy, and has a labyrinth of trade tariffs. The "South America experiments" conducted during the '70s and 80s? Yeah, the rampant poverty, despotic governments, huge unemployment and massive imprisonment torture were all wonderful side-effects of Milton Friedman's imagination: proof that man was nothing more than Karl Marx's long lost fraternal twin.
As much as Friedman detested government intervention in the economy, his ideas, ironically, would have never gotten off the ground (especially in S America) without it.
What welfare programs? Reagan gutted much of that in the '80s, Clinton reformed welfare in the '90s.
Rebutting every one of your misinformed assertions would take more time than it's worth. I'll just leave you with this:
Total means-tested welfare spending in FY 2008 amounted to around $16,800 for each poor person in the U.S.;
however, some welfare spending goes to individuals who have low incomes but are not below the official poverty
line (about $22,200 per year for a family of four). Typically, welfare benefits are received not just by the poor, but
also by persons who have incomes below 200 percent of the federal poverty level ($44,400 per year for a family of
four). Around one-third of the U.S. population falls within this lower income range. On average, welfare spending
amounts to around $7,000 per year for each individual who is poor or who has an income below 200 percent of the
poverty level. This comes to $28,000 per year for each lower-income family of four.
Welfare spending has grown enormously since President Lyndon B. Johnson launched the War on Poverty. Welfare
spending was 13 times greater in FY 2008, after adjusting for inflation, than it was when the War on Poverty
started in 1964. Means-tested welfare spending was 1.2 percent of the gross domestic product (GDP) when President
Johnson began the War on Poverty. In 2008, it reached 5 percent of GDP.
Annual means-tested welfare spending is more than sufficient to eliminate poverty in the United States. The U.S.
Census Bureau, which is in charge of measuring poverty and inequality in the nation, defines a family as poor if its
annual income falls below official poverty income thresholds. If total means-tested welfare spending were simply
converted into cash benefits, the sum would be nearly four times the amount needed to raise the income of all poor
families above the official poverty line.
One may reasonably ask how government can spend so much on welfare and still have great inequality and so
many people living in apparent poverty.
Heritage
Wake up.
Lots of the cheap houses have huge utility liens against the properties. Hundreds, and in some cases, thousands of dollars. For some weird reason, in Detroit the water bill, like the tax bill, sticks with the house, and not with the homeowner, landlord, or tenant signed up with the utility company to use the water. Often the water liens are the biggest liens on the property, bigger even than back taxes.
Also, the purchases are conditional for many of the vacant properties. It's not like you walk away from the transaction with a deed after paying your $10 for the house. To buy a house the city deems abandoned, you have to pay ($$$) for a special permit from the city which includes your detailed plan for bringing the property up to code and timeline for the work. Detroit requires you to renovate the house and bring it up to occupancy code--and there is a time limit of a few months after purchase for doing so. If you miss the deadline, you may not get clean title, and you forfeit your filing fees or any utility/tax liens you might have paid. If you abandon the property out of frustration, the process can start all over again with the next buyer. If you go through a non-crooked real estate agent, they won't even take your earnest money unless you have already proven you've filed for the permit and paid nonrefundable fees--including theirs, which start around $300.
People overseas and in other states have bought properties sight unseen on eBay, without knowing about all the liens and permits. They intended to hold on to properties, paying annual taxes until values returned, like in 5 or 10 years after Detroit "reinvents" itself. But Detroit officials caught on to that, and have tried to discourage it because it would mean that houses would remain abandoned, eyesores, dangerous (debris, etc.), and criminal magnets. So over the summer the city started levying fines for broken windows, broken or missing doors, and other signs of negligence and deterioration. So if you do acquire quit claim title to the property from an owner, and plan to let it sit for five years, chances are you will owe so much in fees, fines, and taxes that it's not worth it. (To say nothing of the condition the house will deteriorate to when left abandoned--the house may be set fire or even razed by the frustrated neighbors.) Lots of those properties, bought sight unseen, have already been abandoned by buyers who learn the truth, then resold many times over on eBay to unsuspecting buyers.
So that's why the properties are auctioned starting at $10. You can pay $10 for one of these houses, but before you even check to see if you still have pipes or wiring conduits, you may already have $10,000 due--in water liens, back taxes, mandatory renovation plans/permits, and fines. You may wind up doing what others have done: Tear down the $10 house and dig up the lot to grow crops.
I don't know about Detroit, but in most cities liens are negotiable. Both the city and the water company understand that liens on properties like this are worthless. You can usually negotiate city liens to zero, so long as have a renovation plan. That's what the city really wants, not cash from fines. The water company tends to get stupid and play hardball at first, but there's usually somebody up the management chain that will make a deal, eventually. You should have all this lined up before you buy, of course. Amateurs will get burned.
Go Anon!
"Detroit homes sell for $1 amid mortgage and car industry crisis: One in five houses left empty as foreclosures mount and property prices drop by 80%"
Check out this article from The Guardian newspaper in the UK.
Interesting details about what's happening now in Detroit. More and more land going for crops, and neighborhood groups are tearing down vacant houses in some areas without permits or permission. So don't buy a house thinking you can board it up and leave it for a few years. You may return to find that a group of activists and artists have ripped the house down by hand, board by board, and are now growing peas and potatoes on your lot.
Sorry, the url was left out of the message above. Here's where to find the article:
"Detroit homes sell for $1 amid mortgage and car industry crisis: One in five houses left empty as foreclosures mount and property prices drop by 80%"
by Chris McGreal, guardian.co.uk, Tuesday 2 March 2010 19.45 GMT
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