Home Size and Global Warming

Robert Samuelson's basic argument here -- that since the best measures to stop global warming are politically unpopular, it's obvious that environmentalists are all frauds and we shouldn't do anything to stop global warming -- is totally absurd, but he makes an interesting subsidiary point I hadn't previously considered, namely that one thing that would help on the climate change from would be this:

[E]liminate tax subsidies (mainly the mortgage interest rate deduction) for housing, which push Americans toward ever-bigger homes. (Note: If you move to a home 25 percent larger and then increase energy efficiency 25 percent, you don't save energy.)

I hadn't thought of that. Another point, though, is that now that I'm looking at the parenthetical on the page, I don't think Samuelson's math is actually correct. If your house is 100 Volume Units and requires 1 Energy Unit per Volume Unit per year to power, you're using 100 EUs/year. Increase the house to 125 VUs and you're up to 100EUs/year. Now increase energy efficiency to 0.75 EUs per VU per year and you're down to 93.75 EUs/year. Samuelson's right that having the tax code create incentives for people to save money in the form of buying very big houses rather than smaller houses plus an equity portfolio is bad policy, including energy policy, but on both this small point and on the broader point, a weird crankiness seems to be getting the better of him.

Comments

[E]liminate tax subsidies (mainly the mortgage interest rate deduction) for housing, which push Americans toward ever-bigger homes

While I am all for this, there is no way this will ever happen. Even if we were in stable times, this would cause home prices to drop, as the cost of the house would need to adjust to the new cost of borrowing (especially since so few people have money for a downpayment these days, much less money for a house upfront). Combine this with the fact that we are at the start of a real estate down cycle (which last on average last around 5 years) and the result will be equity armageddon. With 69% of the population as homeowners, no one who voted for this would ever get elected to any office ever again.

Posted by Walker | July 25, 2007 4:38 PM

He's an idiot, this is elementary school math, or at least a trick that everyone learns for the SATs. An item at store x is 25% more expensive than the same store y. Store x has then a 25% off sale- where is the cheapest price for the item?
a) Store x
b) Store y
c) They're the same price
d) Can't tell from this information.

Posted by SP | July 25, 2007 4:39 PM

putting aside the typical arithmetic error that samuelson makes, and indeed putting aside samuelson at all (i would say the problem is much worse than "weird crankiness"), i would love to see the mortgage deduction done any with, too.

but if you'd like some truly politically impossible, try that.

the problem is that the deduction doesn't make houses cheaper, because prices have adjusted to the existence of the deduction (i.e., people can afford what they can afford in after-tax dollars); pull that deduction away and all housing values fall overnight.

there was never much chance of that happening, beneficial as it would be to the economy overall, and there certainly is no chance as we enter a period of housing price stagnation or decline in many parts of the country.

Posted by howard | July 25, 2007 4:41 PM

He is ambiguous. He says increasing energy efficiency by 25%, not decreasing energy use by 25%. I'm not sure they are the same. Presumably the original house had some level of energy efficiency. What is the baseline, zero efficiency, house, an uninsulated tepee?

Perhaps a better evaluation is the difference between a 25% energy efficiency improvement in the original house (75 EU due to unspecified investments) and the new house (93.75 EU).

Posted by Mudge | July 25, 2007 4:45 PM

Matt,

Before adjusting for efficiency, the 125 VU house uses *125* EU's. The 93.75 number after correcting for increased efficiency is correct though.

Your right that Samulsen's piece is a very odd. I guess its another case of "love the policy, hate the hippy"

Oddly he spends the first part complaining about how insufferbly smug and unserious Prius drivers are and then at the end points out that one of the "serious" ways to attack climate change is to improve fuel efficiency in cars!!

Posted by Dan F. | July 25, 2007 4:45 PM

This is an issue that really rubs me the wrong way. You're looking at home ownership from a completely wrong perspective. Eliminating the mortgage interest rate deduction will push people towards renting, instead of owning, their homes. Any impact on the amount people want to spend on housing will be secondary. Here's why:

Owning your own home is an investment. The return that you get on that investment is not having to pay rent on your place of dwelling. Interest that you pay on your loan counts against your investment return. Not being able to make that deduction is like being taxed for your investment returns without being able to deduct your losses first.

Compare this to a company which owns and rents property. They borrow money from the bank and buy property. Their income is the rent they get on that property. Their expenses are the interest they pay to the bank and the repair and other costs incurred by their property ownership.

If you remove the interest deduction all you have done is advantage independent ownership of homes from personal ownership of homes. But personal ownership of homes can be a good thing because you will probably do a better job of taking care of the home and making it a nicer place to live. Additionally, home ownership is a forced savings vehicle for many Americans who would otherwise not save enough for retirement. Finally, home ownership is great hedge against inflation for retirees who have paid for their home or at least are on a fixed rate loan.

Its possible that having to directly face the cost of the home they live in on a monthly basis would encourage people to live in smaller homes. But that argument can't really be made on an economic basis. The direct impact here is actually to just encourage them to rent the same size home.

Posted by mpowell | July 25, 2007 4:49 PM

You claim that he argues that "it's obvious that environmentalists are all frauds and we shouldn't do anything to stop global warming." He says no such thing.

As for the 25%/25%, if he had correctly said 25%/20%, he would have lost far more people than just you and a few other sticklers for detail (as though ewe should tock).

Posted by ostap | July 25, 2007 4:50 PM

Being a columnist seems to have completely rotted out Samuelson's brain, particularly when it comes to the environment. He knows environmentalists are right about global warming but has decided that they are nonetheless unserious, so he has to crap out tortured columns like this one where he goes to great lengths to distance himself from the hippies before quickly admitting (all in one breath as it were) that he basically agrees with their policy agenda...except when HE does it's cool...or something...

Posted by Jake H. | July 25, 2007 4:52 PM

I wonder whether eliminating the home mortgage interest deduction would have positive ramifications for transit policy. If you can get all that new urbanist stuff going with people living densely in rented apartments rather than big suburban houses, you have less sprawl and mass transit becomes easier.

Like everyone else, I think it's too bad that this will never happen.

Posted by Neil the Ethical Werewolf | July 25, 2007 4:57 PM

mpowell, i don't completely follow your logic, but that's a minor point.

the major point is that, in fact, for most of the 20th century, owning a home was not an "investment," in that housing prices tracked with cost of living, so that there was net, no real return.

and yet, the rate of housing ownership went up in america.

there is no gainsaying the very real psychic benefits people reap from owning their own home; it's deeply embedded in american culture. the tax deduction is doing nothing to increase demand for home ownership (now, no-doc, no downpayment ARMS: that increased demand!).

Posted by howard | July 25, 2007 5:02 PM

Besides Samuelson's innumeracy, he also screws up the geometry, though you following him there. The energy required to heat doesn't scale with the volume of the house, it scales with the surface area (since that's where the energy is lost).

Posted by Ben V-L | July 25, 2007 5:05 PM

But personal ownership of homes can be a good thing because you will probably do a better job of taking care of the home and making it a nicer place to live.

That effect is real, but overstated. Research on this suggests that how long you live in a place, rather than ownership per se, tends to determine upkeep like that. Ownership does have an effect, but it's swamped by tenure.

Additionally, home ownership is a forced savings vehicle for many Americans who would otherwise not save enough for retirement.

If you want the retirement benefits of home ownership, why not provide retirement savings directly, through social security or add-ons?

Posted by greg claxton | July 25, 2007 5:09 PM

Dunno, maybe it's because I've always lived in areas with pretty high costs of living but I'm not sure how close the correlation is between home size and property value. Where I live, if you reduced the mortgage interest deduction, you would likely increase energy consumption - people fled the urban core for cheaper, typically larger homes in the outer suburbs and would spend a lot more time driving.

I'm sure this is only relevant for a few metro areas, but I think these metro areas also account for a large % of the total population.

My recommendation - if you want to decrease energy consumption, then set policies to decrease energy consumption. Don't assume that fiddling with other factors will lead to the result you're hoping for.

Posted by Rob | July 25, 2007 5:16 PM

[E]liminate tax subsidies (mainly the mortgage interest rate deduction) for housing, which push Americans toward ever-bigger homes.

So punish someone in a 2BR Manhattan condo or tiny Silicon Valley ranch (in my case) for someone living in a Saint Louis or Atlanta McMansion? No thanks. The mortgage interest rate deduction is a life-saver for those of us living on the expensive coasts (don't get me started on the AMT).

Posted by JayDawg | July 25, 2007 5:17 PM

Besides Samuelson's innumeracy, he also screws up the geometry, though you following him there. The energy required to heat doesn't scale with the volume of the house, it scales with the surface area (since that's where the energy is lost).

Except a larger house is not just a scaled-up version of a small one. I would guess that the surface area of actual houses is closer to proportional to proportional to the volume, than to the two-thirds power.

Posted by lemuel pitkin | July 25, 2007 5:19 PM

Don't know if anyone mentioned this, but the entire premise of NotPaul's column, especiallly from an economist, is dog mess.

Posted by ed | July 25, 2007 5:26 PM

I've spent ~$3k this year upgrading the insulation in my house - which we bought last year after a top to bottom remodel. Why wasn't the contractor required to update the insulation to current codes? Why weren't they required to replace incandescent lighting with CFLs?

It just seems like there's some really basic stuff we don't do today around incenting people to use energy more efficiently to waste any time theorizing about the environmental benefits of removing the mortgage deduction.

Posted by Rob | July 25, 2007 5:33 PM

"owning a home was not an 'investment,' in that housing prices tracked with cost of living, so that there was net, no real return"

Leverage, my son, leverage. If you own 20% of a house that maintains the same real value, and inflation is 5%, you just made a 25% return. (I know it's a double edged sword, but this particular sword almost always cuts up and rarely down.)

Posted by ostap | July 25, 2007 5:34 PM

There are obviously a couple of different ways to look at the maths, I don't think it is necessarily true to say that a "25% increase in energy efficiency" is equivalent to a decrease in the energy ratio EU/VU to 0.75.

Another way to interpret a "25% increase" would be to say that you can now heat 1.25 VU for one EU input. In that case the EU/VU ratio is 0.8 and there is net change.

Posted by flapple | July 25, 2007 5:46 PM

I think Ben V-L is the closest to seeing the problem with Samuelson's math - although I think think the correct formulation when considering house size and energy efficiency is not simply surface area, but the ratio of surface area to volume. As the ratio of surface area to volume is reduced, less energy is required to heat and cool the building. Thus one of the key reasons why spherical buildings are more efficient - little surface area, lots of volume. Also why bears have a much easier time staying warm than hummingbirds.

But it is also important not to confuse efficiency with actual usage. While a bigger home might be more efficient at energy usage/unit area, what matters for the environment is actual total energy usage and the attendant pollution (not to mention all the additional resources that must go into building that big house). If we all lived in poorly insulated tents and slept in warm sleeping bags, the most ridiculously efficient 4,000 sq. ft home would be a tremendous energy hog by comparison.

On the issue of whether or not Samuelson's idea would force people into smaller homes, I haven't the slightest clue. In the same way that SUVs are rapidly losing their luster, I suspect the burgeoning housing crash and increasing cost of energy will start the transition to smaller homes.

Posted by HungChad | July 25, 2007 5:47 PM

Taking away tax subsidies for mortgages would just punish the middle class -- while ignoring the biggest greenhouse gas culprits. For instance, we need to pressure the frigging oil companies to cap those giant natural gas flares in Nigeria and Russia -- which can be seen clearly in Google Earth. It's been estimated that we could completely meet the greenhouse gas reduction goals of the Kyoto protocol by capping this wasted burn-off of natural resources. And it would also have the added benefit of shutting down a major source of air pollution that drifts well beyond those two nation's borders. Big oil is is more than happy to let you waste your time on efforts that penalize ordinary people rather than penalize their corporate waste. Jeez!

As for the "miracle" energy savings of CFLs, well, so far there's no safe way to dispose of these things. We're going to have mercury contaminated landfills soon unless we force the CFL manufacturers to cover the expenses of special disposal methods -- and train people not to throw them in the trash (which will happen anyway, because the average person just doesn't care).

Arrrgggghhh! Can't people use the web to research the cost/benefits of things? Or do we take everything we read at face value?

Posted by beowulf888 | July 25, 2007 5:54 PM

Property is a very complicated investment vehicle because of the leverge aspect that ostap mentions. But it isn't necessary to see the simple picture I am trying to paint. Why do companies buy property and rent it out? Even without appreciation in the market, this is an investment opportunity. Whether you own the property and thus pay an opportunity cost in other investment opportunities on that sunk capital or are servicing a loan, there is your cost of ownership. Rent is your income. If you are a business doing this, the government taxes your net income. One way to understand home ownership as an investment is to think of it as owning the home and then renting it to yourself. At the very least let me say that it makes no sense whatsoever for the tax implications to be such that it would be preferable to set up a private corporation that you control to buy property and then rent to yourself instead of just having the home ownership interest deduction. When people advocate getting rid of this deduction they are strongly advocating for people to not live in the homes that they own. This makes no sense to me. The financial incentives of that kind of tax policy are not to own smaller homes, but to rent the same size homes. If rental property had this kind of financial advantage, then large suburban rental homes would become considerably more common.

Finally, this is not just a political thing- it would be profoundly unfair, in my opinion, to change the tax policy in such a way as to cripple the financial positions of those Americans who own their own homes. They have an expectation that the law regarding their largest investment would not change suddenly and do their substantial detriment.

Posted by mpowell | July 25, 2007 6:00 PM

As for the "miracle" energy savings of CFLs, well, so far there's no safe way to dispose of these things. We're going to have mercury contaminated landfills soon unless we force the CFL manufacturers to cover the expenses of special disposal methods

Whether they can/cannot be safely disposed of is a different question than whether they consume less energy, no?

Posted by Rob | July 25, 2007 6:05 PM

"While I am all for this, there is no way this will ever happen."

They did it by stealth in the UK: just didn't increase the cap on mortgage deductability with inflation.

Though why people there don't respond by setting up shell corporations to own their house (which *could* deduct the interest) I don't know.

Posted by Sock Puppet of the Great Satan | July 25, 2007 6:10 PM

Why install a de facto tax increase on _all_ borrowers/homeowners, weighted to younger people with less equity, because _some_ people have bought large, environmentally disreputable homes?

Public policy through tax incentives is awkward to begin with, but at least tie the tax as directly to the behavior you are trying to influence. Energy taxes would create incentives for people to buy homes with plenty of living space but without gluttonous consumption just because I can afford it. Eliminating the mortgage deduction just prices people out of the market while reducing the value of everyone's property, which seems to me to be crappy public policy, too.

Although not a typical situation, in my case the mortgage interest deduction made buying a 800sqft home a possibility. We are DINKs with 3 master's degrees and 20+ years teaching experience between us. Get rid of the deduction without grandfathering or means testing and some middle class people are going to lose their home... great policy!

Matt, an observation -- you seem to view all policy choices through your own young-adult worldview or through broad statistical cost-benefit analysis. Sometimes neither is all that satisfactory.

Posted by ScottS | July 25, 2007 6:28 PM

Actually, the tax code pushes toward expensive houses, not large houses. Localities can do more for global warming by zoning for small, nice houses in walkable neighborhoods than they know.

Posted by Kimmitt | July 25, 2007 6:31 PM

SPGS: "Though why people there don't respond by setting up shell corporations to own their house (which *could* deduct the interest) I don't know."

Deduct it from what? Unless you increase your "rent", the corporation is really just a passthrough entity (i.e., its income will be exactly the same as its expenses). There could be other reasons to hold your house in a separate entity, but deducting current-year interest expenses from current-year taxes ain't it.

Posted by zaleriana | July 25, 2007 6:41 PM

In my opinion, Robert Samuelson is a liar -- a deeply dishonest whore for the wealthy. I formed that opinion back in 2001 -- when he claimed we would have a big federal surplus and I pointed out that Bush's own budgets documents showed that to be false. Here is a letter I wrote to the Post at the time -- it is NOT prescient, I merely did straightforward arithmetic. Actually, our present debt situation is even worst than what I saw then.

Needless to say, Samuelson didn't bother to inform his readers that he had misled them. In my opinion, because he is paid to deceive his readers by the wealthy Washington Post owners.
--------------
To: Editor, Washington Post 12 July 2001

From: Don Williams; XXXXXXXXX; XXXXXXXXXXXXXXXXXXXXXXX

Subj: Robert J. Samuelson editorial, "The Surplus du Jour"; July 11,2001

1) Robert Samuelson is wrong when he says that the Social Security/Medicare Trust Funds are not being raided ("The Surplus du Jour", July 11.) Currently, government Trust Funds hold about $2.2 Trillion in paper IOUs, unbacked by real assets, because Congress has "balanced the budget" in the past decade by diverting worker payroll taxes into general spending. According to Bush's budget document[1], unbacked paper IOUs held by government Trust Funds will have increased to $6 Trillion by 2011, when the huge baby boom generation begins entering retirement. Bush's own budget shows that he is not reducing the debt--by 2011, total federal debt will have risen to $7.2 Trillion , up from today's $5.6 Trillion.

2) If the government cannot even run a real surplus today, in the peak earning years of the baby boomers, then how will government generate an extra $6 Trillion in 2011, when Social Security and Medicare will need to redeem the IOUs in order to pay essential benefits to baby boomers with few assets (working poor and blue collar workers)?

3) In 2011, the taxes of younger workers will be consumed just to support ongoing government operations like defense. Prior to 2011, the rich will have used the window of low Bush tax rates to convert their assets into after-tax wealth. Wealth is protected from taxation by the Constitution's Fifth Amendment. In my opinion, the government will have to heavily tax middle-class baby boomer IRA/401K withdrawals (e.g.,at a 70% rate) in 2011 -- in order to raise money to support retirees with lesser retirement assets.

4) The situation would have been less grim if Bush had cut PAYROLL taxes (so that workers could build up private savings) and if Bush had left income tax rates unchanged in order to pay down the federal debt. Instead, Bush's tax cut will let the rich evade paying their share of the $5.6 Trillion federal debt (about 53% or $2.3 Trillion) by shifting the debt burden onto middle class baby boomers.

-------------------------------

References:

[1] http://www.whitehouse.gov/news/usbudget/blueprint/budx.html#ts-16 ; Bottom of Table S-16 clearly shows that "Debt securities held as assets by Government accounts" --i.e., IOUs held by Trust Funds-- will increase to $6 Trillion by 2011 and that total federal debt will increase to $7.2 Trillion.

Posted by Don Williams | July 25, 2007 6:52 PM

Well, garbage in, garbage out. Samuelson rambles incoherently, Matt responds haltingly, and pandemonium follows.

Doesn't anyone here know how to play this game?

I guess a weird crankiness is overtaking me.

Posted by serial catowner | July 25, 2007 6:53 PM

DW: "Wealth is protected from taxation by the Constitution's Fifth Amendment."

You're an odd one, Mr. Williams, using a tax protester point to (implicitly) argue that income tax rates shouldn't be reduced.

Posted by zaleriana | July 25, 2007 7:03 PM

Anyone who thinks about taking Robert Samuelson seriously should look at his 2001 column on the " Surplus du Jour" that I referenced above. A copy is here: http://cba.unomaha.edu/faculty/padidam/web/htm/surplus.htm

Note how he refers to "actual budget surpluses ".
Note how he argues that "The trust funds simply aren't being raided. "

Let's see. In 2001, I had $200,000 in my Social Security/Medicare account. Bush took it, spent it and gave me an IOU in return.

7 years later, I look at the IOU (Treasury Bond) and it says that I, the taxpayer, get my $200,000 back only if I --NOT Bush and his supporters -- pay $200,000 to myself -- by giving the government ANOTHER $200,000 (in taxes) .

Yet according to Samuelson, I --and tens of millions of other middle class baby boomers -- haven't been screwed.

The point is that Samuelson can put out bullshit like this year after year --and still keeps his job as a columnist at the Washington Post.

Posted by Don Williams | July 25, 2007 7:22 PM

Another aspect of Samuelson's analysis that is flawed concerns the age of the housing and its mechanical systems. I own a 55 year old house with an original one zone heating system (natural gas with hot water radiators). When we bought the place in 1998 we installed central air with two zone high efficency units, electronic timed thermostats,etc. The heating is uneven and incredibly expensive. The AC is incredibly efficient and cost about one-fifth of the peak heating bills.

Repealing the mortgage interest deuction is beyond political suicide. However, the Republicans are enjoying the benefits of the AMT - the ultimate Blue State tax.

Posted by klein's tiny left nut | July 25, 2007 7:31 PM

DW: [Samuelson deceives]

I don't know if this was partially in response to my prior post or not, but, for the record, I don't disagree that RJS was pushing a political agenda rather than providing a sound economic assessment of the budget situation through 2011. My point was that your letter a tax protest/income-tax denialist tenant ("Wealth is protected from taxation by the Constitution's Fifth Amendment."). I found it odd within the context of the whole letter.

Posted by zaleriana | July 25, 2007 7:33 PM

Re: In my opinion, the government will have to heavily tax middle-class baby boomer IRA/401K withdrawals (e.g.,at a 70% rate) in 2011

Um, why won't they just tax the INCOME of the wealthy? There will still be plenty of that. Also, doing what you suggest would get a government voted out office even faster than enacting an immediate $3 a gallon carbon tax would. So no, it won't happen*. The rich will scream, whine and cry, and an army of rightwing pundit will serve as their chorus, but they will be taxed because in the end that will be the only course that is politically possible.

* Of course IRA and 401k withdrawls will be taxed at the usual income rates as they are now.

Posted by JonF | July 25, 2007 7:45 PM

the tax deduction is doing nothing to increase demand for home ownership

Perhaps, and perhaps not. The main problem I think that Samuelson is getting at is that the tax deduction induces people to spend as much money as they possibly can on their house. Once you do that, you want to maximize the utility you draw from your house, and these days, utility translates to square footage.

(and to a degree, it is. the interest on the extra payments required for a bigger mortgage to buy a house that has room for a home gym is tax deductible, while the monthly gym membership payments aren't. I'm sure there are many similar examples.)

That said, the tax deduction on mortgage interest will never, ever, ever be repealed, though perhaps it should be capped.

Posted by Tyro | July 25, 2007 7:55 PM

RE zaleriana's comment "My point was that your letter a tax protest/income-tax denialist tenant ("Wealth is protected from taxation by the Constitution's Fifth Amendment."). I found it odd within the context of the whole letter"
---------
AFTER-TAX Wealth IS different from INCOME. INCOME can obviously be taxed --there was a Constitutional Amendment passed to allow it.

However, the Fifth Amendment says "nor shall private property be taken for public use, without just compensation ". So if you pay tax on income during Bush's low tax window, then the resulting Wealth is immune from future takings. Especially if you put it into gold coins, real estate property,etc.

Future governments have one way around this Constitutional barrier -- high inflation to drive the value of holdings up then high capital gains rates on the resulting appreciation. Jimmy Carter did this -- and brought on 12 years of the Reagan-Bush Administrations.

The poster who argued that federal commitments to baby boomer retirees will be met by high taxes on the wealthy is --in my opinion -- wrong.

We already have wealthy people renouncing their US citizenship in order to avoid taxes. The wealthy can blackmail any administration by simply putting their wealth under the mattress --or sending it abroad -- and waiting for the unemployment rate to soar up to around 20%. That's what advocates for the superrich are really hinting at when they talk about the Laffer curve.

So I think the $Trillions in Bush IOUS will be paid by high taxes on baby boomer withdrawals from their 401K/IRAs. That money is TRAPPED -- the reason why the government encourages you to put money into that pot -- its recorded and it's in before tax dollars --so it can be taxed as high as future governments want. Unlike wealth, it is not protected by the Fifth Amendment.

True --the Middle class will scream bloody murder. But starving blue collar workers will scream even louder. After all, the blue collar workers only want back what they have paid into Social Security over the past 45 years.

All of this was obvious back in 2001 -- but our lying mass media deceived the voters about Bush's tax cuts in the same way they deceived us about the Saddam's nukes in Iraq. That's because the superrich owners of the Washington Post, New York Times,etc benefited greatly from Bush's cuts.

Posted by Don Williams | July 25, 2007 8:15 PM

DW,

Why can we tax capital gains then?

Posted by klein's tiny left nut | July 25, 2007 8:38 PM

I hate to defend Samuelson, but his math is right and yours is wrong. However one measures "efficiency", it has to have output in the numerator and input in the denominator, so the example that flapple gave and modestly called "another way" is the only sensible way.

By jumping to a conclusion that Samuelson is innumerate, one just makes an ass of oneself.

Posted by bullfighter | July 25, 2007 9:05 PM

I didn't find this piece unusual by the standard of Robert J. Samuelson columns. He's a mushy-brained, slightly-right-of-center contrarian, purporting to be an economics columnist despite having no background in the field.

But most importantly, he's just stupid. There's just very little thought or substance in his columns.

He and Anne Applebaum ought to be kicked off the WaPo op-ed page just because of sheer idiocy; it's got nothing to do with ideology, because they hardly seem to have any to object to. It's just that if you're one of the nation's most influential newspapers, and you have the pick of pretty much every writer out there, you shouldn't be giving space on a routine basis to people whose thought is as muddled as Samuelson's or Applebaum's.

Posted by low-tech cyclist | July 25, 2007 9:12 PM

Also, I generally agree with RJS's article, far more than I usually do. His reasoning is correct, his criticism well-targeted, and his proposed policies right on. That doesn't happen too often.

Posted by bullfighter | July 25, 2007 9:13 PM

Eliminating the mortgage deduction just prices people out of the market while reducing the value of everyone's property, which seems to me to be crappy public policy, too.

Pricing out will be temporary. The prices will have to come down or there will be no buyers. Home value is determined on the margin by what buyers are willing to pay. Of course, this means that your second claim, that everyone's property drops in value, is quite correct.

It is just like now. Sane borrowers (i.e. people who aren't borrowing 500k while working a minimum wage job) are already priced out of this market. However, there is plenty of inventory to go around (in fact, we have cannibalised demand for a few generations). Prices will drop and people will no longer be priced out after the market corrects itself. It just won't be pretty in the meantime. Hope you didn't buy after 2002.

Posted by Walker | July 25, 2007 9:46 PM

I hope you are right now. Because at the moment mortgage deductions seem like a big f you to people like me who are completely priced out of home ownership (bay area).

Posted by Stephen | July 25, 2007 9:59 PM

I hope you are right now. Because at the moment mortgage deductions seem like a big f you to people like me who are completely priced out of home ownership (bay area).

Posted by Stephen | July 25, 2007 10:13 PM

Can we get back to the point that Matt characterizes RS's column completely incorrectly? Matt says that RS argues against doing anything about global warming. In fact, RS puts forward a three point plan to combat global warming (increased fuel efficiency for cars, increased gas taxes and decreased mortgage deduction.) Matt doesn't like the mortgage deduction point, fine, but the math error is trivial and really, really, beside the point.

And by the way, I say this as someone who loves the typical MY post and really dislikes the typically RS column. All the more reason to call MY to the carpet when he screws up this badly.

Posted by Esbey | July 25, 2007 10:20 PM

Good point about the arithmetic. Also energy consumption shouldn't depend on volume but the rate of loss of heat (or cool in the summer) which would depend on surface are or the square of the cube root of volume.

Also what about the carbon in the houses themselves ? Let's think. I big a big *wood* house. Greens might hate me for saying this but cutting down trees and building houses reduces global warming. Consider 2 possibilities. 1) We stop building more and more huge houses and let the forests reach equilibrium or 2) we repeatedly clear cut forests and use the wood for houses. In case 1, no carbon is fixed in the forests (in equilibrium photosynthesis and rotting cancel out). A tree farm or repeatedly clear cut forest fixes tons of C02. If we build more and more houses and don't tear down the old ones (think Northern Virginia) a lot of carbon ends up in houses.

So if I assume that wood used in construction never rots or burns I calculate that carbon sequestration from the lumber business is going on at a rate of about 500,000,000 tons of wood a year. Residential emissions of C02 are about twice that. I have the weight per mole of carbon of wood and C02 at my blog. The point is that carbon sequestration by turning forests into tree farms is a huge huge deal in the USA (and aren't we net importers of lumber).

Posted by Robert Waldmann | July 25, 2007 10:21 PM

Because at the moment mortgage deductions seem like a big f you to people like me who are completely priced out of home ownership (bay area).

Yes, well I was once you. Then I scraped together enough to buy a condo in Mountain View and things changed. Suddenly, Prop 13 and the mortgage deduction aren't such a bad thing anymore.

Removing the mortgage disruption would cause a serious economic disruption and as I pointed out earlier, would not do anything about energy consumption and global warming, the argument RJS was making. Remove the mortgage deduction and one of two things will happen - people will downsize houses or they will move to exurbs where land is cheaper. It depends on priorities - assuming they will choose the former rather than the latter is just a wild guess.

Posted by Rob | July 25, 2007 11:12 PM

Samuelson knows the mortgage deduction is a sacred cow. So since environmentalists can't change that then they are obviously frauds.

If the problem is energy use, how about fiddling with energy-related taxes and incentives? Some ideas:
* tax on square footage. Or scale mortgage deduction by square footage
* tax on home energy use. But the VP says "Conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy,".
* Gasoline tax. My home electric/gas bill is circa $150/month. That's only 50 gallons of gas at $3/gal. Let's see, assume 15 mpg for 750 miles/month, 20 working days/month, round trip commute, and the answer is that if my commute were > 18.75 miles each way then I'm spending more on gas to commute than home energy. Now think about all those McMansions out in the exurbs...
* Carbon tax.

Posted by VOR | July 26, 2007 12:34 AM

It's the kids!!

Why do we provide tax deductions for the number one energy-sapping entity in our lives? Eliminate tax preference for raising children.

Children are the reason for larger cars, larger houses, larger energy bills, etc, etc.

Your kids will be here on earth enlarging your carbon footprint long after you have become fossil fuel substrate.

Even the most energy and carbon-conscious citizen cannot control the behaviors of their children, who may grow up to be the biggest energy wasters of all time. Even the lowest carbon-consumers in our society are among the top 10% consumers on the planet.

That's the inconvenient truth.

Posted by grodge | July 26, 2007 5:00 AM

It is not reasonable to rest the argument and critique on totally arbitrary numbers.

A "ridiculously efficient house" would actually produce a lot of energy with the entire roof devoted to solar energy. So, start with a McMansion with two SUVs in the garage. Replace the roof with solar generator, SUVs with small plug-in hybrids and make all normal efficiencies, insulation, geo-thermal heating/AC, fluorescent lighting etc. Replace the ridiculouls lawn with eco-friendly ground cover (did I mention mowing tractor in the garage of McMansion?) Investments in 50-100k range, not enormous compared with the price-tag of the McMansion. With "eco-mortgage", reduced current costs, and "home improvement" angles, this is what we can actually afford.

Of course, in many ways detached houses are inefficient, so it would be nice to outlaw zoning laws that would prevent multi-family housing (within reason), or minimum lot size (perhaps, again within reason). There are subdivisions with multi-acre lots that cannot be further subdivided, and McIdiots have multi-acre lawns that are duly fertilized and mowed. Of course, there is devil in details. Living on 1/3 acre in 2300 sq ft house, I think that it is a bit large once the kids moved out, and anything larger is ridiculous. Our neighbor has 3500 house and lives alone, retired. So what lower limits on density should be illegal? 1/3 acre per dwelling? 1/2 acre? What upper limits on multi-family density should be illegal?

People introduce those limits to secure "nice neighborhoods", which is a flexible notion. I read about the case when a 10 million dollar property on ca. 10 acres near NYC was inherited and new owners wanted to subdivide it into 5 pieces. Multi-millionaire neighbors were aghast because the neighborhood would loose its character, with riffraff moving in (meaning, families that spend less than 3 millions for the dwelling) and NYT described resulting lawsuits.

Getting rid of upper limits on density is eco-friendly and semi-libertarian. Semi, because the limits may be in zoning, but also in private contracts made when land was subdivided. A precendent is that it is not legal to restrict selling to ethnic minorities. Some property values could go up, because of the new potential, some down, because of lost "character of the neighborhood".

Posted by piotr | July 26, 2007 5:50 AM

For what it's worth, I didn't built an over-sized, energy inefficient house because of the mortgage interest deduction. I did it because the damned local zoning intended to maximize property tax revenues forced me to build a big house or none at all, which left me without enough budget for all the energy efficiency that I actually DID want.

Forget the mortgage interest deduction, and see if you can do something about zoning making small houses illegal.

Posted by Brett Bellmore | July 26, 2007 6:34 AM

VP is correct but mendacious. Private virtue can't overcome systemic problems in energy. Of course, VP sees anything short of turning the planet into a taper for the burning of oil as unsound.

Posted by Jeffrey Davis | July 26, 2007 8:10 AM

Robert Waldman at 7/25 10:21 is correct - all else being equal, a larger house is more efficient because the ratio of surface area to volume is smaller. But if you're building new, you can make houses that are enormously more efficient. Builders know far less about it than the DFH's did 30 years ago. Start with 'which way is South'? Duh.

Posted by Gordon | July 26, 2007 10:29 AM

Why are there so many statements of "perhaps the mortgage interest deduction should be capped"? The mortgage interest deduction IS CAPPED. Just because a $1,000,000 mortgage seemslike it's not a "real cap" (to you) doesn't mean it isn't. Ask anyone buying in Manhattan below 96th.

Posted by zaleriana | July 26, 2007 11:50 AM

DW: "Unlike wealth, [401k/IRA assets are] not protected by the Fifth Amendment."

Why is that? Because they haven't been previously taxed pursuant to the income tax? Under that theory, any "wealth" generated prior to the implementation of the Income Tax would be subject to taxation.

I agree with most of your points. I think that using buzzwords of the tax-denialist movement does damage to the rest of your argument.

Posted by zaleriana | July 26, 2007 11:54 AM

Lot size per person should not be seen as something that should be necessarily minimized. It depends on the character of the lot. Subdividing a large lot to put more people on it is not necessarily advantageous to the environment. Example follows.

I've got a 2 acre lot with one house on it. The majority of the lot is covered with trees with smaller areas grassed. I'm slowly enlarging the forest by allowing it to overtake the grass at the border.

What would be the effect of subdividing into 4 half acre lots? The end result would be 3 more houses and much less forest and plantlife. You'd have more driveway, more house, and very little trees left. Currently the land supports a variety of wildlife and I am trying to shape the land to support more. But increasing the human density of the land by building more houses on the lot would only serve to destroy what is already a threatened remmant of a once vast forest.

The counterpoint to this of course is that having two acre lots spreads people out and leads to more driving. Of course that is true but it is a mistake to take that fact and then argue that what should be done is to subdivide existing large lots and increase their human density. No. What should be done in considering new development is to consider not only the carbon cost but also animal habitat. Subdividing my slice of forested suburbia would indisputibly reduce wildlife habitat. Thus, maximizing human density obviously is not the correct action in every situation, especially when existing human settlement is protecting wildlife habitat.

Even in new development large lots could be environmentally preferable to small lots if they protect plant life and wildlife habitat without leading to excessive carbon production due to long commutes in energy inefficient vehicles. It depends on the local situation and the character of the land that is being developed.

Posted by Curt M | July 26, 2007 12:05 PM

It's the kids!!

Why do we provide tax deductions for the number one energy-sapping entity in our lives? Eliminate tax preference for raising children.

This is lame. 2 kids is slightly below the replacement rate. If you want to make the tax laws such that they encourage families no larger than 2-3 kids, fine but efforts to regulate family size below 2 kids would effectively be choosing economic calamity instead of environmental.

Posted by Rob | July 26, 2007 12:21 PM

I think that if you increased energy efficiency 25% you would use 0.8 instead of 0.75 of the old energy to do the same things, which works out OK when multiplying 1.25 * 0.8! (I'm defining it logically, not in terms of possibly alternative conventions...) For example, if energy efficiency was 60% before, then rose 25%, the new efficiency is 75%. (NOT to be confused with "percentage points" which would raise it to 85%. You'd be surprised how much that gets gamed ...) That should mean, use of 1000J gets you 750J of real energy instead of 600J. That is the same as 0.8 of the old 1250J you would have needed before, to get 750J (1250 * 0.6 = 750.) Then if energy use is per square foot, that works out to break even. OTOH, that maybe isn't the best way to define "efficiency" in this context. But I think Samuelson meant something was non-linear anyway; not that he does a good job in general.

PS, just to show you how intuition can mess up your thoughts: You might think, half of the population must be below average, right? But that's true only with a symmetrical distribution like the standard distribution. If for example there are lots of high values at the top, skewing the average, then plenty more than half of the sample can be less than average (as with income in the USA!) Don't confuse average and median.

(Fun commenter fact: I'm #1, 2, 3 and 4 in Google search for "quantum measurement paradox"! Check it out, I may be on to something ...

Link #1)

tyrannogenius

Posted by Neil B. | July 26, 2007 12:40 PM

Re: So I think the $Trillions in Bush IOUS will be paid by high taxes on baby boomer withdrawals from their 401K/IRAs.

But you're ignoring the fact that this would be politically impossible: anyone who seriously attempted it would be voted right out of office and the tax promptly repealed. Moreover you are also ignoring the high likelihood that most of the Bush tax cuts will be allowed to sunset in the next few years, restoring a saner taxation regime and obviating the need for some huge new tax. Finally, if a new tax is called for, you're ignoring an obvious and politically doable one: a VAT.

Posted by JonF | July 26, 2007 1:31 PM

I agree with Brett Bellmore. We would be scandalized if any other sector of the economy had resource owners who were as blatantly dedicated to maximizing prices through uncompetitive, monopolistic, regulatory-capture-based methods as the housing market.

Robert Waldmann, I've previously sometimes seen forest growth modelled as a sigmoidal function. As such, clear cutting might not be optimal. The calculus solution, of course, is to say that we should cut forests down at exactly the rate at which they regrow where the second time derivative of forest biomass is equal to zero, but how useful that actually is in real life is uncertain.

Of course, I'm not forestry expert, so my idea that forests grow sigmoidally should be taken with more than a grain of salt.

Posted by Julian Elson | July 26, 2007 2:43 PM

A hypothetical: If you install more efficient light bulbs (say in your new, 25% bigger house) which let you run 125 bulbs for the same total wattage as 100 of the old style bulbs, is it incorrect to say you have you achieved a 25 percent efficiency improvement?

If it is not incorrect, then Samuelson's statement is not necessarily incorrect either. There are two ways to understand the phrase "a 25% improvement".

Posted by ERF | July 27, 2007 10:10 AM

A hypothetical: If you install more efficient light bulbs (say in your new, 25% bigger house) which let you run 125 bulbs for the same total wattage as 100 of the old style bulbs, is it incorrect to say you have you achieved a 25 percent efficiency improvement?

If it is not incorrect, then Samuelson's statement is not necessarily incorrect either. There are two ways to understand the phrase "a 25% improvement".

Posted by ERF | July 27, 2007 10:10 AM

Apparently almost nobody here understands "energy efficiency" the way Wikipedia (and most engineers) would understand it: http://en.wikipedia.org/wiki/Energy_efficiency

Using Matt's hypothetical house, a 25% increase in efficiency actually means that 1.25 VUs are powered per 1 EU (energy is the input here, and powered volume is the output). Equivalently, 1 VU now costs 0.8 EUs to power.

So we see that a 125VU house with 25% increased energy efficiency consumes 125*0.8=100 EUs, which is the same as a 100VU house that requires 1EU per VU. Samuelson is correct about this.

To see why Matt's formulation actually is absurd, consider a 100% increase in energy efficiency. According to Matt, this means 1 VU would cost ZERO EUs to power. A 200% increase in efficiency would have us powering our TVs with lightbulbs.

Be careful to refute Samuelson's arguments on their merits, instead of looking for petty ways to attack him from your pedestal.

Posted by Sean | July 29, 2007 9:40 PM