June 11, 2011 The Uncertainty Tax By THOMAS L. FRIEDMAN If you want to understand why the unemployment rate has been stubbornly lodged around 9 percent, a good place to start is with the eye-popping mortgage statistics released last week by the economic analysis firm CoreLogic: 38 percent of homeowners with second mortgages are underwater. They borrowed against the value of their homes, and they now owe more than their houses are worth. The total number of underwater homeowners in America, with first and second mortgages, is a stunning 22.7 percent. In Nevada alone, 63 percent of all mortgaged properties are worth less than the owners paid; in Arizona 50 percent, Florida 46 percent, Michigan 36 percent and California 31 percent. When people are so underwater, they find it hard to move to take new jobs, they find it hard to borrow or raise cash for education or start-ups, and banks become even more cautious about lending. Until we as a country figure out how to divvy up these losses on housing and let these markets clear and move on, they will be a serious drag on employment. Indeed, this mortgage mess just feeds the three other big problems undermining U.S. job growth today: weak aggregate demand, structural impediments and an epidemic of uncertainty about what the future holds for everything from health care to the rate of taxation to Social Security and Medicare spending to the availability of credit to the general direction of the economy — the sum of which has people holding back and thus undermining the government’s stimulus. We need to be working on all three at once, and urgently. How? Others have focused on the aggregate demand problem, so I’d like to address some of the structural impediments and uncertainty. On Friday, the McKinsey Global Institute released a long study of the structural issues ailing the U.S. job market, entitled: “An Economy That Works: Job Creation and America’s Future.” It begins: “Only in the most optimistic scenario will the United States return to full employment before 2020. Achieving this outcome will require sustained demand growth, rising U.S. competitiveness in the global economy and better matching of U.S. workers to jobs.” Over the last 20 years, McKinsey notes, with each recession more employers have used the downturn to replace workers with machines and software, so it takes much longer for full employment to come back. I’ve been working on a book that required talking to a lot of entrepreneurs and have been struck by how many told me some version of: “I used the recession to downsize and get really efficient. None of those jobs are coming back. I am doing a little hiring now, but for people with more skills.” At the same time, you talk to U.S. companies doing advanced manufacturing and many will tell you they struggle even now to find workers with the blue-collar skills they need to replace their retiring employees. Thanks to a credit bubble over the last decade, we created a lot of jobs for people — in construction and retail — who did not have globally competitive skills or post-high school degrees. Those workers will need retooling. McKinsey says its research found that “too few Americans who attend college and vocational schools choose fields of study that will give them specific skills that employers are seeking. Our interviews point to potential shortages in many occupations, such as nutritionists, welders, and nurse’s aides — in addition to the often-predicted shortfall in computer specialists and engineers.” The report concludes, “Progress on four dimensions is needed: Ensuring that the work force acquires skills needed for the jobs that will be in demand, finding ways for U.S. workers to win ‘share’ in the global economy” — by encouraging more foreign investment in the U.S. and by getting companies who have off-shored jobs to take advantage of falling telecom prices to on-shore them to low-cost American cities and towns instead — “encouraging innovation, new company creation, and scaling up of industries in the United States, and removing unnecessary impediments that slow business investment and job creation.” Today, everything from patent delays to overlapping or conflicting land use regulations inhibit start-ups and factory creation. According to the World Economic Forum, America now ranks 27th on the ease of getting a construction permit, behind Saudi Arabia. But do not underestimate uncertainty as a silent jobs killer. Congress and the White House seem paralyzed in deciding the future of taxes and spending. Where are we going in these areas? Investors and companies who have to make hiring decisions have no clue. “The economy is paying a high uncertainty premium right now,” says Mohamed El-Erian, the C.E.O. of the world’s largest bond fund, Pimco. “With such uncertainty, people delay as many decisions as possible.” Any good news? Yes, U.S. corporations are getting so productive and sitting on so much cash, just a few big, smart, bipartisan decisions by Congress on taxes and spending (and mortgages) and I think this whole economy starts to improve again. Workers with skills will be the first to be hired. Source: New York Times
good article...i just received the assessment on my house...the value has decreased by 90,000 from 2008 to 2011...the banks are going to have to offer some type of incentive for home owners to actually want to stay in their home at the point...the way i see it is a home owner can file for bankruptcy and walk away from their home at any time...and they have every right to do it...it was the banks and mortgage companies that took us all for a ride...perhaps it's time for a home owner bail out
Walk away , eh? The banks and the mortgage companies took you for a ride, you say? What happens to your equity, and the years of toil? You walk away from that and start again, age willing? Is it that easy to cut your losses? One person here is just artificial person, and the other is a human person. Who suffers more collateral damage?
i'm talking about the overall upside down homeowners market...they have no equity if they owe more than their house is worth...my house is worth 90,000 less than it was just 3 years ago...i owe more on it than it's worth...what's my incentive to stay and since the banks got a bail out why didn't the consumer...what is my moral obligation at this point...i personally think that the home owners should file bankruptcy...stop paying their mortgages...wait for the bank to foreclose on the house...walk away... lots of people lose everything and start over...it is not the end of the world...
I understand what you mean, lippy. A business that files for bankruptcy is different from an individual that files for bankruptcy. It explains why Trump in-spite of bankruptcies is still in business. He moves on from one bankruptcy to start a new speculation. What bothers me is money and youth wasted by those who end up losing homes and their credit worthiness also because of those bankruptcies. How easily would they recover? How would they be able to acquire back they retirement income they probably "rented" and ended up with bad credit to boot, nothing like building equity in a home as an investment? Maybe the idea of home ownership might really be overrated, just maybe.
Here's the thing its still better to own than to rent because even if sell your house at a loss you still get SOMETHING. When you rent and have to leave you get NOTHING
so here is the harsh reality right now in the housing market...the people that owe more than what the house is worth are screwed...they have basically been renting from the mortgage company because they are leaving with nothing...the banks that loaned money on overpriced houses got a bailout...the homeowner gets screwed...unless like our parents that have paid off their homes or those that have quite a bit of equity...selling is grim right now... now if you plan on staying in a house forever and eventually owning it outright then absolutely it makes sense to ride out the storm...i like FG am making improvements to the home right now while labor is cheaper in hopes that the house shows better when the market recovers...
No because then there would have bigger problems. The only thing I don't like is tax payer money being used for bailouts yet the tax payer have absolutely nothing to show for it.
Sorry, I deleted this: In response to your : Now my response to yours : is what bigger problems, is there someway you can put a definition to that problem?
Yeah sorry. If banks would have failed it would cause panic influencing people to rush to banks to withdraw whatever they thought they had in there only to find nothing which would have caused compounded panic
I guess it was good to forestall a panic to create an illusion of well being, eh? This is because what is unfolding (unemployment and all) suggests it did not really help per se. maybe, it bought time, but at what price? Maybe America lost an opportunity to fundamentally restructure itself by going through the pains of the reality it took years to create. Could it be that those that argued for more stimulus were right? Could it be that the Republicans were right?
