Chart of the Day: The Surprisingly Close Relationship Between Housing Sales and Housing Starts

| Thu Sep. 24, 2015 11:13 PM EDT

The Economist notes a "bizarre" relationship today:

For the last forty years the number of new houses built privately has been almost exactly one-tenth the total number of houses bought and sold in a given year. So, for example, if 1m houses are bought or sold in Britain next year (as seems likely) then you can expect about 100,000 houses to be built by private housebuilders.

This doesn't actually seem all that strange to me. I'd guess that when the economy is good, there are both more houses built and more houses sold. It's true, though, that the 10:1 relationship is surprisingly precise, which makes it intriguing. So that got me wondering: is the same thing true in the United States?

Sort of. If you're not a housing expert—and I'm not—it's a little tricky knowing exactly which data to use. I used Census Bureau data for houses sold and housing starts, and got the chart on the right. It shows a very close relationship except for the period 1997-2007, which corresponds to the great housing bubble. That makes sense: if there are a lot of transactions but just the usual amount of new construction, you'd expect prices to spike. And that's what happened.

The other interesting thing is that the relationship in the US is about 2.5:1. The Economist claims that economists don't know why this relationship exists, and then goes on to propose a fairly outré theory: Home builders in Britain tend to target the price of newly built houses at the upper 10 percent of local prices. Thus the 10:1 relationship.

I don't get this, and the Economist writer doesn't seem to get it either. If it's true, though, it would mean that American home builders target the price of newly built houses at the upper 40 percent of local prices. Why the difference?

It's a mystery. In fact, I'm not even sure why I wrote this post. Perhaps so that someone smarter than me (and the Economist) can explain what's going on.

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Some Notes Toward a Comprehensive Plan for Screwing Martin Shkreli

| Thu Sep. 24, 2015 6:51 PM EDT

As we all know, Rosa Parks was not the first black woman in Montgomery to be arrested for refusing to move to the back of the bus. There were two before her, but local black leaders declined to make test cases out of them. They waited until they found someone who was sure to gain white sympathy, and Parks fit the bill.

Martin Shkreli is sort of the anti-Rosa Parks. Lots of companies have jacked up the price of drugs before, and they got only blips of attention. Then Shkreli came along and jacked up the price of Daraprim from $13 to $750—and instantly became the poster child for evil scum. That's because he was perfect for the role. He's a Wall Street hedge fund guy. He was fired by a firm he founded when the board accused him of using the company as a "personal piggy bank to pay back angry investors in his hedge fund." He looks like a callous young punk. And instead of hiding behind a PR flack, he happily gave interviews where he all but told the world to fuck off and pay his price if they wanted Daraprim.

That makes this whole story too good to check. Why interfere with the public lynching of a guy who seems to richly deserve it? And yet, you still wonder how he got away with this. Daraprim is just pyrimethamine, a drug invented decades ago and no longer under patent. Why doesn't someone else make it?

The usual answer is that it's not worth anyone's time. In the United States it's primarily used to treat toxoplasmosis and accounts for only about 10,000 prescriptions a year. If you've already done the chemistry and the marketing and the manufacturing setup, you might as well keep making the stuff. But starting up from scratch involves high fixed costs, and it's not worth it. So Shkreli is safe. He can charge sky-high prices in the certain knowledge that no one will enter the market to compete with him.

But Alex Tabarrok says that's not quite the case. Lots of companies make pyrimethamine overseas, and for them startup costs aren't an issue. The problem is that none of them have gotten FDA approval to sell in America, and that's expensive and time consuming. Basically, Shkreli is engaging in regulatory arbitrage, with the high fixed cost of FDA approval keeping him just as safe from new competitors entering the market as the fixed cost of starting up a manufacturing line.

This got me curious. Tabarrok concedes that Indian or Chinese generic drug makers are a little dodgy, and the FDA might be right to insist on keeping their products out of the country without rigorous testing. But what about European drug makers? Why not give them reciprocity? If a generic drug is approved in Europe, go ahead and provide streamlined approval in the US. Why not trust European drug regulators?

Actually, it turns out to be even weirder than that. Take the case of Fansidar. It's a combination of pyrimethamine and sulphadoxine made by Roche. It was approved by the FDA in 1981 and went on the market in 1982, primarily as an anti-malarial drug.1 Roche has sold bazillions of tablets since then, and the cost seems to vary from a dollar or two in small quantities to a few cents in large quantities. It has even been tested for toxoplasmosis and found to be pretty effective.

So, Roche already manufactures pyrimethamine. They already have FDA approval for a drug that contains it. They already have a well-respected manufacturing capability. And they already have distribution in the United States. All they'd have to do is make the same tablet but without the sulphadoxine and put it on the market. If the FDA were willing to streamline the approval, the startup costs would be very low.

Now, for a company the size of Roche, it might still not be worth it. But there are plenty of other companies that make pyrimethamine/sulphadoxine combinations. If the FDA offered quick approval for a pyrimethamine-only tablet, I wonder if someone would take them up on it? Legally, the FDA is not supposed to consider cost in its approval process, but surely it would be worth making an exception just to see Shkreli take a bath on his cute little scheme.

1I gather that it's no longer a state-of-the-art treatment for malaria, but that doesn't matter for our story.

The Shutdown Could Cause 46 Million Americans to Go Hungry

| Thu Sep. 24, 2015 5:09 PM EDT
Pastora Spraus organizes her pocketbook after paying for groceries with an EBT card in West New York, New Jersey.

On October 1, if Congress fails to pass a budget to keep the government running, some 46 million low-income Americans will lose out on billions of dollars in federal food assistance benefits.

The ongoing fight over a budget provision to block Planned Parenthood funding for one year has cast doubt on future short-term funding for the Supplemental Nutrition Assistance Program (SNAP), once known as food stamps. (On Thursday, the Senate halted Republican efforts to defund Planned Parenthood, and it appears a vote on a clean budget bill is approaching.) Sen. Pat Roberts (R-Kan.), who chairs the Senate Agriculture Committee, told the Huffington Post this week that Democrats concerned about food stamp funding should support the GOP's resolution to keep the government running and gut Planned Parenthood.

The US Department of Agriculture, which oversees the program, warned state agencies in a letter on September 18 to hold off distributing funds to Electronic Benefit Transfer cards for October "until further notice," potentially delaying grocery money for millions of Americans.

Two years ago, when the government shut down for 16 days, the USDA kept benefits flowing to families thanks to contingency reserves from the 2009 stimulus bill. But those funds have since been depleted. Rep. Rosa DeLauro (D-Conn.) told Politico that, after a conversation with Agriculture Secretary Tom Vilsack, it was clear that "there is not enough money in the SNAP contingency fund to prevent millions of Americans from going hungry should the government shutdown on Oct. 1."

But just how would the loss of food stamp benefits affect SNAP beneficiaries? Well, last year, the federal government invested $76 billion on the food stamp program. More than 90 percent of it went toward providing benefits to families below the poverty line. To put that in perspective, of the 22.7 million households participating in the program in the fiscal year 2014-2015, the average household received almost $256 dollars each month in benefits, or $126 per person.

What's more, the SNAP program acted as a financial catalyst for low-income Americans and boosted the economy. The latest Census Bureau report found that the SNAP program kept 4.7 million people out of poverty in 2014. And for every five dollars spent using food stamps, about $9 went toward boosting the economy, according to the Center on Budget and Policy Priorities, a left-leaning think tank. Research has shown that low-income families spending SNAP benefits on groceries under a credit incentive program purchased more produce.

Graphic by Jaeah Lee

California, Florida, New York, Illinois, and Texas, which together dish out 38 percent of the country's total SNAP benefits, would likely be most affected by the stoppage. Here's a breakdown of benefits for each state.

Let's Experiment With Universal Preschool

| Thu Sep. 24, 2015 2:43 PM EDT

I'm a considerable fan of early childhood education. Megan McArdle says she's tentatively in favor too, but "I am opposed to blind boosterism of such programs, the kind that confidently predicts marvelous results from thin empirical evidence, and briskly proceeds to demand huge sums be spent accordingly." I'm tempted to say this is a straw-man argument, but maybe not. There are a lot of cheerleaders out there. In any case, she offers a useful corrective for anyone who thinks the evidence in favor of universal preschool is open and shut. So what should we do?

I would like to see us experiment more with these programs. But the key word here is “experiment.” Which is to say we should: Try more programs....Take the programs that seem to work and scale them up to a larger group....Rinse and repeat [until we figure out what, if anything, works.] That would be the sane, sensible way to go about constructing policy in an important area.

But politically, how insane! Voters don’t want to hear about a decade or two of carefully planned research to help shape solid policy choices; they want to hear promises of immediate solutions to an immediate problem. That’s not a great way to make policy. But it’s a pretty good way to get elected.

I don't think these are mutually exclusive options. The 1988 Family Support Act might be a useful model here. Following a series of welfare reform experiments in the early 80s, it authorized additional research on a larger scale. Why not do the same thing with preschool? Offer substantial funding to states willing to participate in rigorous testing of preschool programs, with the goal of producing useful results in six or seven years.

This could be a substantial program, not just a few small-scale tests, which would certainly count toward any campaign promises made about universal pre-K. And the money would go to the states most eager to participate, which would be politically savvy. At the same time, it wouldn't cost as much as a nationwide program, which would make it easier to get through Congress. And finally, the promise of larger-scale testing would satisfy the demands of social scientists, who rightly point out that small-scale experiments don't always scale successfully into bigger programs.

I'm tempted to say that if Democrats and Republicans could agree on this approach for testing welfare reform in 1988, they should be able to agree on doing the same thing for preschool in 2017. That's not necessarily true, of course. Still, it seems like this kind of program would, at a minimum, be more likely to pass a divided Congress than full-blown universal pre-K legislation. Why not give it a try?

Why Is No One Talking About the Menace of the Pacific Ocean?

| Thu Sep. 24, 2015 1:36 PM EDT

Look, if we're going to have a wall on the Southern border and the Northern border, then I want a wall along the Western border too. I won't feel safe until we build one.

Shame about the view, but national security comes first.

Volkswagen's Emissions Conspiracy May Have Killed at Least 4,000 People Worldwide

| Thu Sep. 24, 2015 1:25 PM EDT

How many people did VW's NOx defeat device kill? Over the weekend I did a rough estimate and figured that over the past six years VW's excess NOx emissions probably killed about a dozen people in Southern California. Since then I've slightly revised my spreadsheet to account for an error, which increases my estimate to about 17 people killed. My figuring was based on:

  • 50,000 cars sold in Southern California between 2009-2014
  • 3,800 excess tons of NOx over six years
  • 0.0044 deaths per ton of NOx

VW sold 500,000 altered cars in the US and 11 million cars worldwide, so this extrapolates to about 170 deaths in the United States and about 3,700 deaths worldwide.

The number of cars sold is a solid figure, and as near as I can tell the estimate of 0.0044 deaths per ton of NOx is reasonable (this paper estimates a range of .0019 to .0095). But others have come up with higher mortality estimates than mine based on a much higher estimate of excess NOx emissions. So here are my calculations:

  • The ICCT, which discovered the violation, says VW cars "exceeded the US-EPA Tier2-Bin5 (at full useful life) standard" by 10-35 times depending on model.
  • The Tier2-Bin5 standard is 0.07 grams per mile.
  • If VW cars averaged 30x the standard, that's 2.1 grams per mile.
  • Based on (a) increasing sales year over year and (b) the fact that older cars have driven more miles, I figure that the affected cars have been driven about 1.6 billion total miles over six years.
  • That comes to 3.5 billion grams of NOx, or about 3,800 tons.

This extrapolates to 38,000 tons for the United States. That's over six years. But using the same excess emission rate of 30x that I did, the Guardian figures about 31,000 tons per year. That's five times my estimate.

My full spreadsheet is here. I invite comments.

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Quote of the Day: "Carly Cut His Balls Off"

| Thu Sep. 24, 2015 11:41 AM EDT

It's been obvious to me for a while that the best way to get under Donald Trump's skin is to attack him where it really hurts. Don't call him a clown or an entertainer. That's water off a duck. But he genuinely cares about his reputation as a dealmaker. Hit that. Or his reputation for being tough. Hit that. National Review's Rich Lowry finally took this approach last night, and it worked:

"Let's be honest: Carly cut his balls off with the precision of a surgeon — and he knows it," Lowry said on "The Kelly File." Host Megyn Kelly was shocked. "You can't say that!" she said, before covering her eyes with a hand. "You can't say that."

....Trump quickly exploded on Twitter and wrote in a tweet: "Incompetent @RichLowry lost it tonight on @FoxNews. He should not be allowed on TV and the FCC should fine him!"

...."I love how Mr. Anti-PC now wants the FCC to fine me," Lowry tweeted, adding a hashtag: #pathetic....Lowry finally threw up a white flag and offered this tweeted compromise: "A deal for you, Donald: if you apologize to Carly for your boorish insult, I might stop noting how she cut your b**** off."

See? Easy peasy. Now I want someone to take on his dealmaking acumen. It shouldn't be too hard. That should really get him hot under the collar.

The Pope Wants America to Learn From Its Horrific Treatment of Native Americans

| Thu Sep. 24, 2015 11:33 AM EDT

As expected, Pope Francis implored Congress to protect refugees and other migrants in an address at the Capitol on Thursday. But before he did, he took a step to acknowledge the nation's (and the church's) often horrific treatment of American Indians. America, he argued, should demonstrate a sense of compassion it so rarely showed during the colonization of the continent:

In recent centuries, millions of people came to this land to pursue their dream of building a future in freedom. We, the people of this continent, are not fearful of foreigners, because most of us were once foreigners. I say this to you as the son of immigrants, knowing that so many of you are also descended from immigrants. Tragically, the rights of those who were here long before us were not always respected. For those peoples and their nations, from the heart of American democracy, I wish to reaffirm my highest esteem and appreciation. Those first contacts were often turbulent and violent, but it is difficult to judge the past by the criteria of the present. Nonetheless, when the stranger in our midst appeals to us, we must not repeat the sins and the errors of the past. We must resolve now to live as nobly and as justly as possible, as we educate new generations not to turn their back on our "neighbors" and everything around us. Building a nation calls us to recognize that we must constantly relate to others, rejecting a mindset of hostility in order to adopt one of reciprocal subsidiarity, in a constant effort to do our best. I am confident that we can do this.

This language is particularly significant because of what the Pope was up to yesterday—at a service at Catholic University, he formally canonized Junipero Serra, an 18th-century Spanish missionary who played an important role in the conversion of American Indians to Catholicism in California. Serra wasn't by any stretch the worst European to visit the New World (the bar is very high), but the missions of California were deadly places for American Indians, cursed with high mortality rates (from disease and abuse) and forced labor. The core purpose of Serra's work was to purge the region of its native culture and install the church in its place. For this reason, some American Indian activists were fiercely opposed to the canonization; Francis didn't meet with any of them until yesterday afternoon—after he'd made it official. Consider Thursday's allusion to past transgressions something of an olive branch.

Did Pope Francis Soften His Climate Message for Congress?

| Thu Sep. 24, 2015 10:42 AM EDT

In the run-up to Pope Francis' address to Congress today, there was a lot of speculation about how his climate change message would play in a chamber where action on climate often goes to die. Most of the pontiff's positions on global warming are not popular with Republican members of Congress—especially the fact that it exists, and that humans are causing it.

We got a bit of a preview during the pope's speech yesterday at the White House, where he laid out his typically forceful message on the need to fight global warming. He even favorably mentioned President Barack Obama's new restrictions on power plant emissions:

Mr. President, I find it encouraging that you are proposing an initiative for reducing air pollution. (Applause.) Accepting the urgency, it seems clear to me also that climate change is a problem which can no longer be left to our future generation. (Applause.) When it comes to the care of our common home, we are living at a critical moment of history. We still have time to make the change needed to bring about a sustainable and integral development, for we know that things can change. (Applause.)

But a draft of the pope's speech to Congress this morning lays out a considerably softer message on climate. He cites his landmark encyclical on climate, Laudato Si, but he doesn't use the phrase "climate change" at all:

It goes without saying that part of this great effort is the creation and distribution of wealth. The right use of natural resources, the proper application of technology and the harnessing of the spirit of enterprise are essential elements of an economy which seeks to be modern, inclusive and sustainable. "Business is a noble vocation, directed to producing wealth and improving the world. It can be a fruitful source of prosperity for the area in which it operates, especially if it sees the creation of jobs as an essential part of its service to the common good" (Laudato Si’, 129). This common good also includes the earth, a central theme of the encyclical which I recently wrote in order to "enter into dialogue with all people about our common home" (ibid., 3). "We need a conversation which includes everyone, since the environmental challenge we are undergoing, and its human roots, concern and affect us all" (ibid., 14).

In Laudato Si’, I call for a courageous and responsible effort to "redirect our steps" (ibid., 61), and to avert the most serious effects of the environmental deterioration caused by human activity. I am convinced that we can make a difference and I have no doubt that the United States – and this Congress – have an important role to play. Now is the time for courageous actions and strategies, aimed at implementing a "culture of care" (ibid., 231) and "an integrated approach to combating poverty, restoring dignity to the excluded, and at the same time protecting nature" (ibid., 139). "We have the freedom needed to limit and direct technology" (ibid., 112); "to devise intelligent ways of... developing and limiting our power" (ibid., 78); and to put technology "at the service of another type of progress, one which is healthier, more human, more social, more integral" (ibid., 112). In this regard, I am confident that America's outstanding academic and research institutions can make a vital contribution in the years ahead.

The message today is much softer, much less direct. Perhaps Pope Francis didn't want to tread too heavily on the message in a room that wouldn't be receptive to it.

Pope Challenges Joint Congress to Work for the "Common Good"

| Thu Sep. 24, 2015 10:37 AM EDT

On Thursday, Pope Francis delivered his much anticipated speech before a joint Congress. In his remarks, which marks the first time the leader of the Catholic Church has spoken before a U.S. Congress, Francis urged lawmakers to focus on the "common good" of human society, specifically to protect vulnerable members of society and the environment.

"You are called to defend and preserve the dignity of your fellow citizens in the tireless and demanding pursuit of the common good, for this is the chief aim of all politics," Francis said. "A political society endures when it seeks, as a vocation, to satisfy common needs by stimulating the growth of all its members, especially those in situations of greater vulnerability or risk."

Francis also directly addressed the struggles of immigrants crossing the border and the current refugees crisis in Europe.

"We must not be taken aback by their numbers, but rather view them as persons, seeing their faces and listening to their stories, trying to respond as best we can to their situation," he said.

"Let us remember the Golden Rule: 'Do unto others as you would have them do unto you.'"

The Golden Rule was a theme he continued to invoke in order to underscore his positions on income inequality, abortion, and capitol punishment.

For weeks leading up to the historic speech, Francis' address has been a point of contention for some Republicans who view his outspoken messages on combating climate change and income inequality to conflict with the party's stance on these issues. Last week, one Catholic congressman even announced he would be boycotting the speech altogether.

Read his speech in full here.