Mobility, or, the Marijuana Tax Credit

The Economist has a story which mentions, in passing, that America’s high rates of home ownership (inflated by federal subsidies) hurt the unemployment more than taxes or regulations:

A decade ago Andrew Oswald of the University of Warwick in Britain argued that excessive home-ownership kills jobs. He observed that, in Europe, nations with high rates of home-ownership, such as Spain, had much higher unemployment rates than those where more people rented, such as Switzerland. He found this effect was stronger than tax rates or employment law.

If there are few homes to rent, he argued, jobless youngsters living with their parents find it harder to move out and get work. Immobile workers become stuck in jobs for which they are ill-suited, which is inefficient: it raises prices, reduces incomes and makes some jobs uneconomic. Areas with high home-ownership often have a strong “not-in-my-backyard” ethos, with residents objecting to new development. Homeowners commute farther than renters, which causes congestion and makes getting to work more time-consuming and costly for everyone. Mr Oswald urged governments to stop subsidising home-ownership. Few listened.

America subsidises more than most. Owner-occupiers typically pay no tax on capital gains and can deduct mortgage interest from their income-tax bills. Fannie Mae and Freddie Mac, two government-backed mortgage firms, have squandered a fortune promoting home-ownership among the uncreditworthy.

The other threat to mobility is health insurance. A company can buy health insurance for its employees with pre-tax dollars; an individual can buy it only with after-tax dollars. So although soaring premiums are prompting many firms to drop or restrict coverage, most Americans still get their health insurance from their jobs.

This makes it hard for anyone with a sick child to quit and start a new firm. It also makes it harder to switch jobs, despite a law helping employees to stay in company plans for 18 months after they leave. Scott Adams of the University of Wisconsin-Milwaukee found that married men with no alternative source of insurance were 22% less likely to switch jobs than those who, for example, could get covered by their wife’s employer.

President Bush deserves blame for much of this. He though the poor, the working class, and politically correct minorities would acquire middle class values if they own a mortgage. This Conservative Social Engineering backfired, when his efforts resulted in a wave of foreclosures and angry cries (from his beneficiaries) that they should not have been trusted after all.

Bush’s failure to make personal health care spending tax deductible is simply inexplicable.

I have hope for a better future under President Obama. I expect Obama to see the greatest collapse in home ownership in American history, easily wiping out the gains that blacks and the working class (among others) made under President Bush. Likewise, I expect Obama to socialize health care much more than it is now.

Presuming that Obama stops making fun of cancer patients, we may even see a day under the Obama administration when purchase of medical marijuana is tax deductible, like spending on other drugs are already indirectly deductible to employers.

11 thoughts on “Mobility, or, the Marijuana Tax Credit”

  1. Living and growing up in suburbs reminds me of the movie ‘American Beauty’, which exposes the poverty of ‘middle-class values’.

    Mr. Oswald is exactly right. Much to my mother’s chagrin, I could never move back to Long Island because there are few places to rent and prices have always been quite high. Not exactly grad student friendly.

    She was also a real estate agent until last year.

  2. Dan,

    Thx. Highly interesting indeed. However, I think there are a number of reasons why Spain and Switzerland are so far apart in their econ data, so the causal link seems weak.

    The arguments quoted are quite good, though. Can one get the whole thing somewhere on the net ?

    Tallies with my own experience btw. As a reasonably well remunerated mid-level exec w 2 kids I have never bought real estate – reduces mobility too much. In a cpl of months I ll move again. Far better job a few hundred miles away. Glad that i do not have to bother w selling a house w a mortgage on it in the present economic climate.

    In acting as I did I have lost incredible tax advantages in a vy high tax environment i.e. Germany. Well, never let the govt tax-incentivise you into st you do not want to do.

  3. Stephen,

    Living and growing up in suburbs reminds me of the movie ‘American Beauty’, which exposes the poverty of ‘middle-class values’.

    Could you say more on this?

    (Hopefully with reference to a movie of some quality, this time! 😉 )

    F.M.C.,

    Professor Oswald’s research history is available online [1]. I would guess the research should be there somewhere! 🙂

    Thanks for sharing your personal experience with renting, ownership, and taxes in Germany!

    [1] http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/oswald/

  4. In short, the government needs to stop subsidizing home ownership and start subsidizing health care. Works for me!

  5. “Living and growing up in suburbs reminds me of the movie ‘American Beauty’, which exposes the poverty of ‘middle-class values’.” (SP)

    My suburban up-bringing was nothing like how life was portrayed in “American Beauty.” In fact, I consider American suburbia to be the highest level of civilization seen on earth thus far. Every kid should grow up with a big backyard and safe, tree lined streets in the front. I have fond memories of pool parties, street hockey, playing “manhunt” past dark, and riding my bike with my other suburban friends around our subdivision (friends I still have). Never once was there a shooting in my neighborhood, or crack dealers near by, or mentally ill homeless people walking around.

    Now, as an adult gardening and lawn-care takes up much of my time in the suburban summer. I still ride my bike to school (university) and enjoy July 4th cookouts with family. The cornerstone of suburbia is family. People choose to live in suburbia becuase suburbia maximizes the family experience. In the summer the suburban backyard becomes a botanical garden of leisure and in winter we retreat to fixed basements. Walking down a suburban street and looking at the homes is like looking at an art gallery. Each home is manicured and styled in a way which expresses the soul of the homeowner[s].

    “American Beauty” is just part of the anti-Western Zeitgeist that exists in the West today. Featured in this Zeitgeist is the belief that we should feel intense “shame” and “guilt” for precived “injustices” that occurred in Western history. Of course, everything is “relative” within the Zeitgeist except for the West itself, which is “oppressive,” “imperlistic,” “racist,” and lacking in legitimacy.

    Hate for suburbia is hate for the West itself.

  6. Stephen’s post on “middle class values” appears to be a simple collection of rhetorical questions and broad assertions masquerading as an argument. As it presents no specific claim or useful prediction, it is not worth further discussing.

    On the other hand, someone interested in the origin and nature of middle class values might want to read ‘A Farewell to Alms’ by Greg Clark. [1,2]

    Seerov,

    Cities can be quite livable, when the police are able and willing to defend the public against hooligans. In his Beijing diary [3], George H.W. Bush recounts the story of a Chinese thug who mugged a westerner. They billed to his family. The problem did not reemerge for some while.

    These days, the police are much less willing to go after criminals. [4] Many people even criticize police when they make technical mistakes in subduing thugs. [5]

    Michael

    Interesting. Perhaps if real estate ceases being seen as a reliable speculative venture, people will invest their excess wealth into stocks and bonds, instead of consumption on their places of residence.

    [1] http://www.tdaxp.com/archive/2008/01/20/review-of-a-farewell-to-alms-by-gregory-clark.html
    [2] http://www.amazon.com/Farewell-Alms-Economic-History-Princeton/dp/0691121354
    [3] http://www.amazon.com/China-Diary-George-Bush-President/dp/069113006X
    [4] http://www.tdaxp.com/archive/2009/04/10/the-american-real-estate-market.html
    [5] http://www.tdaxp.com/archive/2009/01/10/the-oscar-grant-shooting.html

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