Monday, November 20, 2017

Accounting Facilitates Media Attacks On Capitalism And Profits: My WSJ Comment

My published comment in the Wall Street Journal, Opinion, "Quit Modifying Capitalism: Profits should be pure, generated from price signals between buyers and sellers." by Andy Kessler:
The accounting profession gives cover to attack capitalistic profit-making companies by overstating profits and ignoring economic sustainability. For example, investors expect a risk-adjusted total return of dividends and price appreciation as compensation. Yet, investors are treated as if their taking on the risk of loss of their money is done without expectation of anything in return from companies. Likewise, interest expense on debt reduces profit but principal payment does not. As if, a household's wages only have to pay the interest portions of mortgage and credit card debt and not the repayment of the money owed. Most media focuses on profits solely, but without a repayment of debt and a risk-adjusted return of capital, very few companies would exist and most entrepreneurial activity would cease. When governments regulate companies and industries and distort market prices, governments negatively affect the economic sustainability and survivability of firms, lowering GDP growth.

Tuesday, November 7, 2017

Mortgage Interest Deduction: Reprint Of My 2011 Published Comment

Reprint of my June 15, 2011 published comment on the mortgage interest tax deduction in The New York Times and on this blog, "Comment On Mortgage Interest Deduction In NY Times Economix Blog:"
Wednesday, June 15, 2011

Comment On Mortgage Interest Deduction In NY Times Economix Blog

Posted By Milton Recht

My comment to Economix in The New York Times, "The Misunderstood Mortgage Interest Deduction" by Casey B. Mulligan:

Actually, the consumer mortgage interest deduction is irrelevant because mortgage interest rates will adjust (rise) to account for the government tax deduction subsidy. The subsidy will increase the demand for mortgages, but not necessarily increase the overall demand for homes. A homebuyer has a fixed monthly cash flow to divide among taxes, home-related payments (including mortgage interest), other spending and savings. Lowering tax payments through a mortgage deduction will free up cash for home-related payments, which will increase the demand for larger mortgages. The availability of cash for a higher mortgage amount will allow consumers to increase their mortgage to home value ratio or to purchase a more expensive home. Either way, mortgage interest rates will rise due to increased demand for purchase mortgage funds for a larger principal amount and due to the increased risk of homeowner default due to the higher amount of debt and leverage, absent a government guarantee against homeowner default.

The mortgage interest rate will rise until taxes and mortgage payments are in equilibrium again, such that the combined money on taxes and house payments remains the same with or without a mortgage deduction. The government mortgage guarantee (direct and implicit), GNMA, FNMA, etc., prevents more debt and more leverage, i.e. a higher mortgage amount for the same house price, from coming into play. The government guarantee prevents the mortgage interest rate from risk adjusting for the increased risk of homeowner default from the higher mortgage to home value ratio and for the increased amount of household debt. Interest rates will increase solely due to increased demand for mortgage funds due to the tax subsidy created by the interest deduction. Mortgage interest rates will not rise due to increase homeowner default risk, until payment from the government mortgage guarantee agencies, (GSEs), is itself in doubt.

The interest deduction increases demand for mortgage funds, acts as a subsidy, which raises interest rates. A new equilibrium point will be set to meet the demand for more funds, which should be the same as without the interest deduction because the increase in mortgage interest rates will lower demand for mortgage funds until the total of tax payments and house payments are where they were without the mortgage interest deduction. The interest deduction should have no effect on overall demand for housing. Demand for housing is generally affected by other economic factors, such as a region's economic growth, employment opportunities, availability of homes, population mobility, etc. Additionally, the GSEs guarantees will allow homeowners to take on higher mortgage amounts in excess of their risk levels.

Friday, November 3, 2017

Job Growth By Sector: Chart 2016 Vs 2017

From MarketWatch, "Opinion: Factory jobs are in; retail jobs are out" by Rx Nutting:

Job Growth By Sector Chart
Source: MarketWatch

The Gender Pay Gap Would Narrow From 78 Percent to 90 Percent If Just 10 Percent More Women Entered Male-Dominated High Paying Fields

From The New York Times, "Six Myths About Choosing a College Major" by Jeffrey J Selingo:
Women are now the clear majority on college campuses, making up 56 percent of students enrolled this fall. They are also more likely than men to graduate.

But when it comes to selecting a major, what women choose tends to segregate them into lower paying fields, such as education and social services, according to a report that Georgetown University’s Center on Education and the Workforce will publish later this year. Just look at some of the highest paying fields and the proportion of women who major in them: business economics (31 percent), chemical engineering (28 percent), computer science (20 percent), electrical engineering (10 percent), mechanical engineering (8 percent).
Dr. [Anthony P.] Carnevale [director of the Georgetown center] wouldn’t speculate as to why women make their choices. But he notes that if the proportion of women in fields where men dominate increased by just 10 percent, the gender pay gap would narrow considerably from 78 cents paid to women for every dollar men receive to 90 cents for every dollar men receive. [Emphasis added.]