Wednesday, January 9, 2008

NYC Death Rate Lowest Ever

When I wrote The Livable Cities Almanac (HarperCollins, 1992), I was looking for a single overall indicator to measure the extent to which a city is good for your health. I decided the best measure was life expectancy, although cities can be considered only partly responsible for personal behavior that damages someone's health. One of the City's healthy features is that density is high, so that one can get around downtown by walking and New Yorkers therefore walk a lot. New York Magazine in August last year wondered whether that might be a key to the increasing longevity of City residents.

A new report from Mayor Bloomberg shows that the good news continued in 2006, with the mortality rate in New York City falling to an all-time low. Full details of mortality rates are in the NYC's 2006 Summary of Vital Statistics. I think this is a significant achievement. The number of deaths fell to 55,391 from 57,068 in 2005 and from 60,218 in 2001 (which included most of the 3,000 deaths from the attacks on the World Trade Center).

What accounts for the improvement, besides the NY Magazine argument that walking is the fountain of youth? Some quick observations (since life is, in the end, short):
- The Mayor’s Nanny Government policies, previously reported on, to reduce smoking are working. About 1,000 fewer people were killed by smoking in 2006 than 2002. Lung cancer fatalities are down 8 percent.
- Women are living longer - life expectancy for women rose to 81.3 years, well ahead of life expectancy for men (unchanged at 75.7 years). This might reflect the higher percentage of women who have been receiving an advanced education in the past 60 years, since better-educated people live longer.
- Mortality declined for eight categories of illness, including diabetes, HIV (down 15 percent), chronic lung disease and kidney failure.
- Alcohol-related deaths declined but non-alcohol substance abuse increased 8 percent.

Friday, January 4, 2008

Time for Reform of Financial Regulation

After the meltdown of the savings and loan industry in the 1980s, the Federal Home Loan Bank Board was ended and the Office of Thrift Supervision was put in its place in 1989 to end mortgage chicanery once and for all. With Meltdown II originating in the subprime loan business, it is clear that the 1989 reform was inadequate. Risks were mispriced, mortgage lenders were out of control and the effects are being felt with foreclosures and financial losses in every community in America.
A December 27 Wall Street Journal article, Wall Street Wizardry, showed how subprime mortgage loans were repackaged and resold at prices that did not reflect their risk, using the example of Norma to show a "hairball of risk".
It's no surprise that Wall Street was able to engage in such practices because the financial regulatory system is a hairball of its own. The Comptroller of the Currency, Federal Reserve, the Federal Deposit Insurance Corporation and 50 state bank regulators share with the Office of Thrift Supervision and the SEC the responsibility for overseeing financial institutions and their innovations. Bankers prefer multiple regulators because they can then shop among them for the one they like best. The idea of a super-regulator "sends chills down the spine" of bankers, says a 2003 memo prepared for the FDIC, which observes that calls for consolidation of bank regulation are "nothing new" and argues for competition among regulators.
However, the outcome of the existing system has been the subprime meltdown, which has also sent chills down the spine of bankers, with more chills and spines to come.
One problem is that bank supervision is not a priority for the top management of the Federal Reserve System, which clusters around the FOMC and the federal funds rate like moths around a flame. An article by Gretchen Morgenson of the NY Times describes Fed Chairman Alan Greenspan's meeting with two representatives of the 15-year-old Greenlining Institute, who expressed concern about the lack of oversight over subprime mortgage lending practices. Greenspan is reported as not being interested because he did not wish to interfere with financial innovation.
To be fair to Mr. Greenspan, he and his colleagues have had other things to worry about besides bank supervision. The Fed was originally created in 1913 to maintain orderly financial markets and maintain the value of the dollar. In 1946 it was given the additional task of ensuring full employment. These multiple tasks conflict. How does one tackle a threatened debt-induced recession in 2008 when oil hits $100 a barrel and commodity prices generally are rising along with global growth? If orderly markets require continued infusion of liquidity, how does one battle inflation? What is the long-run impact on the Fed's ability to control inflation of perennial budget deficits?
The problem with the lack of oversight over the Wall Street wizards is that when their innovations blow up, the taxpayer histroically picks up the pieces, and the breakdown in financial markets poses problems for monetary policy.
When President Bush addressed the hairball of multiple agencies involved in homeland security, he consolidated the agencies under one leadership. We have a problem now with financial security. The subprime crisis is worse than the savings and loan mess. As subprime losses are revealed in other countries, it can't be good for the future of Wall Street as a global competitor.
The agency best equipped to assess and charge for financial risk is the FDIC. Washington legislators should hold hearings about possibilities for consolidating financial regulatory functions under the FDIC, which can price risk and assess insured institutions a deposit insurance premium based on this risk. This would encourage market-based incentives to disclose and control risks.

Thursday, January 3, 2008

KENYA | Irony of Obama's Win While Kenya Is in Turmoil

On the same day that Sen. Barack Obama (D-Ill.) in his victory speech after the Iowa Democratic Caucus describes himself as having a "father from Kenya and a mother from Kansas" and seeks to use his campaign to unify the United States, the news is full of widespread unrest in Kenya. Photos of burning vehicles and buildings are tied to a rushed declaration by the incumbent president, Mwai Kibaki, a Kikuyu tribesman, that he had been reelected over Luo challenger Raila Odinga, despite signs of election irregularities.

The resentment that flared up over the election dates back to expectations at the time of Kenya's independence in 1963.  Kikuyu tribesman and Mau Mau independence movement leader Jomo Kenyatta, respected as the father of independent Kenya, was named head of the Kenya African National Union with the support of Oginga Odinga (father of Raila Odinga), a leader of the mostly Christian Luo tribe, one of the three largest in Kenya. It was widely anticipated that respected Luo trade union leader Tom Mboya would succeed Kenyatta. Unfortunately, Mboya was assassinated in 1969.

This week’s Kenya election was a contest between Kibaki and Odinga, who–in an echo of the role of his father in supporting Kenyatta–again played a part in Kenya's 2002 presidential election, by throwing the support of his Liberal Democratic Party behind Kibaki.

Wednesday, January 2, 2008

TAX | Deductible Interest Valuable to NYC

Jan. 2, 2008–City Limits Magazine includes a proposal (#7) to end the deductibility of interest paid on mortgages. The idea is the deduction encourages people to live outside of cities. (More people rent in the cities.)

But simply eliminating deductibility of mortgage interest without substituting a tax credit would exacerbate weakness in housing prices. It would especially affect New York City area homeowners:
1. NYC area homes cost more than the national average, so average mortgages are higher.
2. NYC area average incomes are higher than in the nation as a whole, so average tax rates are higher and more taxpayers are itemizing interest deductions.
3. Most NYC area taxpayers are subject to state and local income taxes, so the value of interest deductibility is higher than elsewhere.

President Bush's tax reform panel proposed ending the mortgage-interest deduction for homeowners that has been in the income tax code since it was created in 1913. The deduction benefits about 125 million U.S. homes but is under attack because Washington needs revenue and many economists believe there are better ways to structure tax incentives. The panel favors replacing the deduction with a 15 percent tax credit for mortgage interest up to a regional home-price limit. This would be a big change.

One feature of the panel's proposal that would be a minor change and would benefit New Yorkers is the panel's proposal for regional variation in the cap on tax-favored mortgage debt. The existing cap limits interest deductibility to a flat $1 million in mortgage debt. The cap does not allow for regional variation in housing prices and was instituted in 1987. Inflation has been steadily reducing the value of the deduction and the loss to the U.S. Treasury (and to NY State and NY City revenues).