Pathological Altruism on a National Scale

Last week I wrote about the Pathological Altruism that has inflicted the City of Richmond in its efforts to use eminent domain to “save” homeowners with underwater mortgages.  This week I look at the concept on a bigger stage, the country as a whole.

As a refresher Pathological Altruism has been defined by Professor Barbara Oakley in her book “Concepts and implications of altruism bias and pathological altruism,” as:

“…Altruism that attempts to promote the welfare of others, but instead results in unanticipated harm.  A crucial qualification is that while the altruistic actor fails to anticipate the harm, an external observer would conclude that it was reasonably foreseeable.”

The modern welfare state, from European socialistic countries to the U.S. version, reflects the growth of pathological altruism.  In this country everything from Social Security, which discourages people from establishing their own retirement plans and is itself going bankrupt, to a cache of government provided medical programs, including Medicare, Medicaid, SCHIP and now ObamaCare, are a dysfunctional set of third party payment schemes that allows the individual customers of care to avoid the decisions of who and how care is provided and payment is made within the system.

The modern “welfare system”, including TANF, or Temporary Assistance for Needy Families (formerly Aid to Families with Dependent Children) , SNAP (food stamps), WIC, Headstart,  and 122 other Federal programs for low income people (not to mention State programs that compliment these programs) encourages single parent motherhood, near permanent unemployment, and the abandonment of parental responsibilities and other dysfunctional behavior.  For example, when LBJ signed “The Great Society” legislation in the 1960’s 24% of black children were born into single mother households; today the number is 74%.

Or look today at the student loan crises.  Included in the passage of ObamaCare was a provision that allowed the federal government to take over the student loan industry; this year student loans are now greater than $1 Trillion and surpass credit card debt as the largest debt owed in the country.  Yet, only 25-30% of students with loans graduate, with many if those completing degrees in low paying majors such as ethnic studies, woman’s studies, sociology, etc.   Economists are now seeing many young people with $25,000-$35,000 in student debt, living with their parents, unable to purchase a house and/or other large material possessions (cars!)or participate in the society as adults.

The Housing Collapse of 2008

The housing collapse is in many ways, its own special version of Pathological Altruism and was a foreshadowing of the Obama Administration slate of domestic policies.

Many credit the beginning of the housing collapse with the Jimmy Carter’s signing of the Housing and Community Reinvestment Act in 1977.  This act was passed to “encourage” banks and savings and loan associations to meet the credit needs of low and moderate borrowers and to eliminate the “discriminatory lending practices” in low income neighborhoods known as “redlining”.

The Act, however, did not come into prominence until Bill Clinton’s election.  During Mr. Clinton’s first Presidential campaign he encouraged, in his book “Putting People First”,  using private pension funds to invest in affordable housing programs; after his election he tapped Robert Reich to lead the effort to “generate long term social, ancillary, and economic benefits from these private pension plans” by investing in “Economically Target Investments”.  Few pension plans agreed to participate but the Clinton Administration, though HUD Secretary Henry Cisneros was able to recruit Freddie Mae, Fannie Mac and commercial banks into the affordable housing market by exploiting one of the provisions of the Community Investment Act.

HUD and bank regulators then began the process of pressuring banks to make “subprime loans”.  Banks were required in 1993 to make 30% of their loans to low income borrowers.  This was subsequently raised to 40% in 1996, 42/% in 1997, and 50% in 2000 by HUD Secretary Mario Cuomo.  The Bush administration, under its “compassion conservative” efforts, eventually raised the rate to 56%.  During this period and until the collapse of the market in 2008, banks could not open branches or conduct much of their regular business without having a “passing grade”, meeting their sub-prime loan quotas, in the low income lending market.

Fannie and Freddie did their part in the degradation of the housing market by continuously lowering underwriting standards for the loans they purchased from banks and Alan Greenspan and the Federal Reserve did their part by keeping money “cheap”.  Total CRA lending rose from $8 billion in 1991 to $4.5 trillion in 2007.  In 1990 80% of loans were solid prime loans with large down payments; that number fell to 15% in 2007.  In 1990 a minuscule number of sub-prime loans were “securitized” ; by 2007, virtually all of them were.

The American Enterprise Institute calculates that approximately 28 million high risk loans were processed during this period, while thousands of regulators and the banking industry ignored the “safety and soundness” rules that were in-place in federal and state banking laws.  How did this happen?

Pathological Altruism.

Patholoical Altruism in Action: Richmond, California

Pathological Altruism is altruism that attempts to promote the welfare of others, but instead results in unanticipated harm…A crucial qualification is that while the altruistic actor fails to anticipate the harm, an external observer would conclude that it was reasonably foreseeable.”

-----Barbara Oakley, “Concepts and implications of altruism bias and pathological altruism,” Proceedings of the National Academy of Sciences

An old saying my mother would sometimes use when I was, let’s say less than perfect, was, “the road to hell is paved with good intentions”.  In today’s world, that destination is Richmond, California.

We have Barbara Oakley to thank for providing a definition to describe Richmond; I would have thought more in terms of ignorance and the law of unintended consequences.  But the many negative consequences awaiting the city, and others, surrounding its plan to use eminent domain to “save” underwater homeowners are well known to the City; most are spelled out several times in the Wells Fargo lawsuit against the city and its partner Mortgage Resolution Partners.  “Saving” between six hundred and one thousand underwater mortgage holders will hurt:

·         Every homeowner in Richmond:  property values will fall and the entire residential real estate market will decline in the city.  According to City Data, there are 36,151 houses in Richmond (47% rentals).  So the city will help  less than 1% of them and  punish 99+%.   

·         All potential Richmond homeowners; new homeowners will a.) Find it difficult to obtain loans in the city and b.) Be required to pay higher interest on loans they do obtain to cover the higher risk lenders face.

·         Renters; as residential loans become more expensive, landlords will pass these increases on to renters.

·         The City of Richmond; the city will lose property and sales tax revenue as property values decline and fewer dollars are spent in city businesses as its overall economy worsens.

·         The mortgage backed securities market in California and, possibly the country; as risks rise, especially if other cities follow Richmond in this scheme, the market will decline or become more expensive.

·         State and local pension plans, 401(k) plans, college savings plans, insurance companies, mutual funds, university endowment funds, and individual retirees who own the securities involved in the mortgages in Richmond; as the city and Mortgage Resolution Partners execute their scheme, the owners of the securitized bonds will lose hundreds of millions of dollars.

·         Taxpayers; will have to cover losses suffered by Freddie Mac and Fannie Mae, two of the largest investors in the Trusts involved in the city’s scheme.

·         The “saved” homeowners; will each owe tens of thousands of dollars in taxes as the IRS counts their mortgage reduction as income!

In a recent interview with Bloomberg News, Richmond’s mayor, Gayle McLaughlin, indicated that “the economic recovery that has slowly crept across the U.S. has mostly bypassed Richmond”.  Cities like Richmond have a right and an obligation to utilize such a program for the public benefit."

Really?  

She is surprised that demonizing, suing, and penalizing capitalism, businesses, and success in general, leads to the economic recovery bypassing the city?  Or as City Councilman Nathanial Bates said in the same Bloomberg article “The way you treat your largest taxpayer is an indication of how you treat the smallest taxpayer.  It sends a negative message to the business community and potential investors who are interested in coming to your city of how they would be treated just because they are big business."

I’m sure the mayor and city council care for the people of Richmond; or, at least care enough to get re-elected.   And I’m sure that at least people with the targeted underwater mortgages love the mayor and council.  It is just that desperate, anti-capitalistic, progressive, destructive, pathological altruistic result that gets in the way. 

The city has a long and proud history as a “Progressive” city, i.e., dependent and dysfunctional; a city where entrepreneurship is defined by how often you can sue Chevron or run programs where the city government hands out money for some mythical collective purpose.

In 2011 the Mayor participated in an Occupy Wall Street protest.  In an open letter to the Occupy movement she complained that the city had a growing number of poor residents while Chevron was making billions of dollars.  Without recognizing the irony of her statement, the mayor was negatively critiquing her own path, a path she is taking the city and its residents down:  implementing social justice and social advocacy programs that have and will continue making the city’s residents poorer while the city continues punishing profitable companies, retirees, pension and endowment funds and their workers/taxpayers to complete the downward spiral.

Pathological altruism at its finest.

Obama Channels Eugene McCarthy; Democratic Congressman Keith Ellison knows “the bottom line”

The July jobs report last month reported that 195,000 jobs were created in the economy.  The problem was that most were part –time.  Of 953,000 jobs created so far in 2013, 77% or 731,000 are part-time.  Most are in the retail and restaurant industries.  In June part-time jobs exploded, growing by 360,000, while full time jobs dropped by 240,000.

Thanks to my son, Chris (political writer and American History PhD), we may know why this is happening:  Democratic Congressman, Senator and five time Presidential candidate Eugene McCarthy proposed it in 1989.  In his 1989 book, Mr. McCarty proposed that we become a part-time work society as a means to reach full employment, improve income distribution, increase the consumer market, make a better life for the contemporary American family, and jump tall buildings in a single bound (okay, I made the last one up!).   The book, “Nonfinancial Economics” (the title says it all) was not a best seller but is still available on Amazon.com.

Proving that “nonfinancial economics” must be in the Minnesota water supply, one of its Congressman, Keith Ellison, has proposed the “Inclusive Prosperity Act”.  Explaining the Act at the July 25^th Progressive Democrats of America roundtable, Ellison said “the bottom line is we are not broke, there’s plenty of money.  It’s just the government doesn’t have it.”  Ellison continued, “the government has a right, the government and the people of the United States have a right to run the programs of the United States.  Health, welfare, housing—all these things.”  Ellison estimates his “Inclusive Prosperity Act” would raise $300 Billion in tax revenue annually by imposing a tax on the trading of stocks, bonds, and derivatives.

The revenue raised by the “Inclusive Prosperity Act” would, he said, “fund international sustainable prosperity programs such as health care, AID treatments, research and prevention programs, climate change adaption and mitigation efforts by developing nations.

Maybe we need to get Minnesota out of the union…….

I wrote this piece in jest, having received the two reports referenced today.  I took a break to have dinner and then came back to push the “publish” button when it hit me how serious this is.  This is a picture of ignorance: economic, financial, and social ignorance espoused by politicians that have and are being elected and re-elected to office.  So enjoy this short post.  And then get angry and fight back against ignorance.

Antioch USD announces “central goal”: be “all-inclusive”

Be very concerned when a school Superintendent uses words like “all inclusive” to describe the central goal of his district.  It means that at the next parent teacher conference the discussion will probably focus on the quality of the muffins or the type of band-aids used, rather than the results of a reading program.  Feel badly for the children and the parents who actually think this is good.

Contrary to Antioch USD Superintendent Donald Gill’s July 23^rd guest commentary in the Contra Costa Times about his District, schools providing breakfast, “second chance breakfast” (rewarding tardiness won’t create more tardiness?), lunch and dinner, snacks, health care, etc. to school children is not positive, but is yet another deterioration of our culture and society.  It is, ultimately, bad for everyone.  There is nothing endearing about parents abdicating their responsibilities to raise their children by turning them over to a school district for twelve hours a day.  Why not just build orphanages and give parents visiting rights?

Families have held our culture together since its founding; eating a meal together has always been a core event of parenthood.  Whether it’s talking about the events of the day, reinforcing and encouraging good behavior, being good role models, or dispensing discipline, it is an essential event of the day. 

In his book “Cooked” food critic and nutritionist, Michael Pollen reflects on the importance of the family meal to our culture.  “The shared meal is no small thing,” he says.  “It is a foundation of family life, the place where our children learn the art of conversation and acquire the habits of civilization: sharing, listening, taking turns, navigating differences, and arguing without offending.”  In other words, sharing a meal with parents is where our children learn the skills necessary to function successfully in a school environment and grow into capable citizens.

Dr. Gill’s announcement also appears to be an abdication of the district’s purpose, to provide the best possible education to kindergarten through high school age children.  It is squandering the district personnel’s time and is recognition, to paraphrase W.C. Fields, that “if you can’t dazzle them with brilliance, baffle them with bull”. 

The district, like many urban school districts, has racial and discipline issues, lawsuits, morale problems, and a less than stellar educational record.  Struggling to educate children within this chaos, Dr. Gill has adopted the strategy of failing school systems in Detroit, Chicago, Los Angeles, etc.:  distract and placate parents by providing redundant social services, rather than exceptional educational services.  Rather than facing the community straight on, his strategy is nothing more than buying the support of a dependent and sometimes hostile segment of the district, while growing another, larger, generation of dysfunctional entitlement children.

The irony of the District’s decision is that it will make the job of educating their children more difficult.  As the children feel less and less loved and valued at home their behavior will deteriorate.  Ultimately, in the name of political correctness, Dr. Gill and the district is doing themselves and the people of Antioch and East County communities a dis-service.

Barak Obama: Perpetuating and growing Inequality

“A society that puts equality –in the sense of equality of outcome-ahead of freedom will end up with neither equality or freedom.  The use of force to achieve equality will destroy freedom, and the force, introduced for good purposes, will end up in the hands of people who use it to promote their own interest.”

                                                              -Economist Milton Friedman (1912-2006)

How prescient of Dr. Friedman to foresee the Obama Administration.

The President, who has done more to destroy the middle-class than anyone in recent memory, called his speech on Wednesday, July 24 “A Better Bargain for the Middle Class”.  This from a man who has squandered his first five years in office on ineffective policies for reducing inequalities through redistributing wealth rather than creating or growing it.

Tear the veneer from any Obama policy or program and in its basic foundation it is a redistribution plan designed as a health care plan, an energy plan, a tax plan, a stimulus plan.  The President appears to have redefined “middle-class” as a larger food stamp grant, ninety nine weeks of unemployment; government subsidized everything, and lots of “programs”.   Not my idea of “middle-class”.

 The President came to office in 2008 with the economy in recession and a 7.8% unemployment rate.   His policies have failed to ignite what we normally call a recovery.  Since he came into office economic growth has only averaged about 2% or less per year and was still an anemic 1.8% in the first quarter of this year.   

The Wall Street Journal noted after the President’s speech, that stocks and housing prices are rising, but job growth has never arrived as it does in an economy with 3%-4% growth.   Unemployment in California is still high, at 8.5% in June, with African-Americans (17.1%) and Hispanics (11.1%) suffering disproportionately, according to the California Labor Department.

The Journal and Senier Research, using census numbers, put the median annual income level in May of this year at $51,500, 5%, or $2,718 less, than in June 2009, after the recovery was announced.  In other words, median real household income has fallen during both the recession and the recovery.

What job growth that has taken place during the President’s administration is illusionary with part time, temporary and contract employment now the rule, more so now as ObamaCare is incenting businesses to cut employees’ hours below thirty hours per week.

The July fifth jobs report showed the economy created 195,000 jobs the previous month.  However, sixty percent of the job gains were in low paying industries: retail firms added 37,000 jobs, leisure and hospitality companies added 75,000.  The number of people wanting full time work, but working  part time increased by 322,000 to 8.2 million (1.3 million in California).   The underemployment rate (the unemployed, the people working part time who want full time work, and the people who have stopped looking for work) now totals 20 million Americans and rose in June from 13.8% to 14.3%. 

According to the Associated Press, temporary and contract  workers currently number 17 million as companies turn to them in the face of ObamaCare and other uncertainties in the economy.  The number of “temps” in the workforce has increased more than 50% since the recession ended in 2009, to 2.7 million people.

And we have yet to reach the same number of employed that we enjoyed before the recession began.  The Teamsters Union calls this the “Jobs gap” and puts the shortfall at 9.1 million jobs.  This “gap” includes the net 3.4 million jobs lost between December 2007 and December 2012 and the 5.8 million jobs that should have been created during this time to absorb new potential labor market entrants. 

Five national unions, the Teamsters, the United Food and Commercial Workers, Unite Here, the Laborers’ International Union and the International Brotherhood of Electrical workers have all demanded that ObamaCare be repealed or reformed to save union health plans and pay levels.  The union representing the IRS, the agency that will run ObamaCare, has demanded their workers not be included in it.

Ronald Reagan came to office in 1981 with 10.8% unemployment and Jimmy Carter’s recession in full bloom; he cut taxes and regulation, focusing on growing the economy.  The economy grew at 4% through his administration. Fifty-five months after the recession of 1980 started (about where we are now with Barak Obama) the Reagan recovery had created 7.8 million more jobs than when the recession started (there was no “job gap”)and continued creating jobs throughout President Reagan’s administration.  According to the Wall Street Journal, the median family income rose during the Reagan presidency by $3,380 or 7.7%.

I opened this column with a quote from Milton Friedman and will close it with one from Winston Churchill: “socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery”.

Welcome, Winston, to the Obama years.