Who is John Galt?

Disclaimer: I have never read "Atlas Shrugged" by Ayn Rand. I have read the Wikipedia article, and several summaries over the past few days. The book's standing on Amazon has apparently shot up recently. Who knows, I might even read it someday.

I read the summaries in response to seeing the suggestion that some top income earners are planning on "going John Galt," i.e., withdrawing their productivity from the economy, in response to Obama's plan to tax their income at a higher rate. At first glance, this sounds ridiculous. It's not like they're planning on taking 30 percent more of your earnings above $250,000, they're just planning on taking a few percent more. If you are earning close to the limit, the extra tax won't apply to very much money. If you earn further away from the limit, then you would have to work really hard to get your earnings down below 250,000, and although you might pay a lot more money, you have more to give.

Actually, at second glance "Going John Galt" still looks silly to me. I can't imagine anyone making over 250,000 who is working only for money. There are so many other reasons to do a good job (not being able to live with yourself if you do a shoddy job being one of the highest) that I can't imagine the money making enough difference that a person would decide to retire rather than work.

Then I realized that I have actually been doing this for years, in two ways. First, when I was a grad student, I thought about increasing the number of hours I tutored. But if I did that, then I might have earned enough to have to pay taxes, including self employment taxes, and I knew from experience as a consultant that it would take about 50% of the money I earned, maybe more. Tutoring recalcitrant students for $20 an hour was pretty good. Tutoring for less than $10 an hour was not so attractive, so I didn't increase my working. So government taxes have actually kept me from working more.

The second way I have gone "John Galt" actually has to do with the free market. The market doesn't value my skills as a teacher or tutor enough to pay for child care for 3 kids. So I don't add my productivity to society in that way. I do feel like I am being productive, but it is not worth it right now for me to go out and add to GDP, so I don't.*

Does this mean that I am only interested in working for money? Not really (I hope) but it does mean being rewarded definitely influences how I feel about how hard I'm willing to work. It's interesting to think about in light of the idea of going Galt.

*This may change when they are all in school, or old enough to take care of themselves after school.

Housing bailout

I see very well that many people need help staying in their homes. And I see the upside for me if someone gets help paying their mortgage, or a lowered principal. But I don't see the obviousness of this help. Diane Reams is especially bad: she seems to lose patience with anyone who suggests that they don't want to see their neighbors bailed out. But here is one scenario for why bailing out one's neighbors might be seen as bad.

When we bought our first house, we looked at our budget and figured out what payment we could afford. Then we went online and used a mortgage calculator to figure out what houses we could afford. Then we went to our realtor and asked her to show us houses in that range. She showed us a few houses that were more, but not many, and she stopped when we asked her to. She sent us to the mortgage broker in her business (I think we eventually went with a special "first time buyer mortgage" from a different bank) and he looked at our income and told us we could afford much bigger payments and could get a bigger house. We said "no thank you." Then he said, if we got one of these "ARMS" we could have a lower monthly payment, and the rate wouldn't be adjusted for 5 years and we would likely move by then anyway, and we said "no thank you." We got our 30 year mortgage with the slightly higher rate for what we could afford and moved into our little house.

Suppose we had neighbors who bought in to the snake oil the broker was trying to sell. They got the bigger house (which we would have liked, but we decided we couldn't afford). They got the lower payments so they could afford the nicer TV, the vacation, going out more, etc., while we had our less risky but less profitable mortgage. And now, they can't make their payments because their ARM went up. I understand that they were probably taken advantage of to some extent, but in the end, they were greedy instead of sensible. They had the upside of taking the risks. Now the government wants to make the lender lower the principal on their house so their payments go back down to something they can afford. What downside (other than sleepless nights) do they face?

Note: some truly horrible things went on in tempting people who truly should not have bought a house to get one, or in manipulating innocent uneducated buyers without giving them full information. Dishonest brokers should face the consequences of their actions (is roasting over a spit done anymore?), and the homeowners who were taken in by them should be let down as easily as possible, either by staying in their house or getting out as painlessly as they can. My problem with the bailout is with people who should have known better, but who decided to take risks in return for money. Even if they didn't understand the full extent of the risk (i.e., they didn't realize they could lose their house, or they didn't believe it would happen to them) they should see some downside from their behavior.

It may be that there is some downside, I just haven't seen it in the description of the programs.

Despite my discomfort with some of the homeowner bailout propositions, I think that the policy of allowing people who are "underwater" on their mortgages to refinance with a lower interest rate is a great one. I think it is true that most people want to keep their house, whether they are underwater temporarily or not. These people are less likely to walk away from a house if they can afford the payments than if they cannot, so it seems to me there is no increased risk. Of all the possible ways to bail out homeowners, this makes most sense to me, which is probably why it is not liked by the pundits out there...

And the bailout/stimulus package should come with mandatory personal finance education classes for every citizen of the US unless you can pass a test showing minimal competence.

Prediction

The recession will help us finally kill the old health care system and replace it with something new. When so many people are out of work and thus out of health insurance, something will need to change. The optimist in me hopes that it will change for the better, but probably not...

It would be nice if the recession would also change the crazy way college educations are valued and funded...but I doubt it. Especially since the stimulus bill kept funding for more college loans instead of hinting to people that 1) maybe a college education is not the most valuable thing for you in particular, and 2) college and university presidents need to get off the treadmill of constantly increasing budgets and tuition. There has got to be a better way.

To my father-in-law

My husband's father called last night, and after talking about the kids for a long time, he started talking about one of his new favorite topics, the economy and how bad it was. I became a bit snarky (for me, he may not have noticed) and started playing devil's advocate for a while. I should not have done that, it was not helpful for either of us I think. I'm sorry. But I have been getting more and more annoyed about the discussion on the radio of the economy, and I've tried to figure out why.

Here's what I've come up with:

• Everyone seems so surprised that there is likely to be a recession. I personally have been predicting this recession since I was in seventh grade and the stock market crashed. Occasionally it looked like one of the past recessions was going to be The One, but they never ended up as terrible as I thought they would. If a seventh grader can look forward and say, "sometime in my lifetime the country will go through horrible economic trouble," why do all the radio experts seem surprised?
  
• Many people seem to think that this is going to be the worst downturn ever. It is possible that this is true: however, I don't think we are in nearly as dire straits as we were in the Great Depression. On the other hand, it is not likely that the worst economic problems our country has had are behind us, just statistically speaking (of course, this depends on whether you think the world is coming to an end imminently or at some time in the long distant future). Every serious downturn is the worst for some reason. That said, the downturn that affects you personally is the worst ever.
  
• When people disagree about the causes or solutions for the economic problems, they imply that the other side is immoral, stupid, greedy, and has no understanding of what the real problem is. Here's some news: intelligent people can take the same inputs, mix it with some of their own analysis of the past, and come to different conclusions without any moral implications. Everyone has their own presuppositions (like, "Government is the only actor big enough to solve this problem" or "Government is historically very bad at solving huge economic problems") but most analysts are not trying to help out their friends in big oil, for example, they are trying to figure out what is the best course for the country. You might disagree with their conclusions, but at least give them the benefit of the doubt that they came to them honestly.
  
• When people talk about solutions for the problem, they assume that their solutions will work. My father-in-law pointed out that one of the reasons we may have gotten into this mess is the loosening of trade restrictions. On the one hand, the global boat rose and we in the US have access to cheaper clothes, electronics, and useless junk. On the other hand, sectors of the US economy are completely broken, and it is unclear how to fix it. The economy is complicated, and what seems like a simple solution will almost definitely fail or cause some other unintended consequences. On the other hand, we can never know what would have happened if we hadn't pursued that policy...
• The media is calling this a crisis. What word will they use when unemployment gets to 10 percent and the economy has been shrinking for 2 years? My grandma once told me that the stock market always seems to be falling. This was when the market was hitting record highs! But she only saw (and the media only reported on) market drops. I am very frustrated with the apparent glee with which the media is over reporting on every slight problem, while ignoring bright spots (like the foreclosure rate falling in NC...) My husband would tell me not to be surprised, why should I expect anything different. I suppose he has a point, but it is still frustrating.
  

I come out of this discussion confused and a bit hopeless. Here are my conclusions, for what they are worth:

• In general, recessions are caused by sin (or greed or other moral failings, if you don't believe in sin) committed by everyone (including me) and are not avoidable, although it may be possible to mitigate the ending.
  
• My major responsibility for this recession is to look after my neighbor (i.e., individual people (who I know personally or through organizations) who need my help) and not to try to solve the global problem.
  
• I have a responsibility to live frugally, which I am not living up to at all right now (but I'm working on it!)
  
• That said, I do have a responsibility to look at what the global leaders are doing and point out things that will make things worse, when they are obvious.
• We need to teach more personal finance in schools. Anyone who gets an adjustable rate mortgage when interest rates are historically low is not thinking clearly (ok, almost anyone---I can see that there are some situations where it might be necessary.) Right now I'm trying to teach my 5-year old that you can't spend money twice. Many college students (and older people ) haven't learned this lesson.

So the other problem with my posts is that I feel the need to add the kitchen sink. I think I'll stop here, even though I'm sure there is more I could have said. I'm also not editing it closely, since I need to shower before my 1 year old wakes up. Take it for what it's worth.