What is the impact of the $10k new home buyer credit?

Recently the governator announced that he will sign AB 183 into law. I mentioned to my co-worker that this will create a micro-bubble and raise the price of house by $10k for the duration of the tax credit (may1-dec31 2010)

Today, he comments to me that actually the bubble might be more than $10k higher price. Let's make the simplifying assumption that instead of a tax credit spread through 3 years, the tax credit is actually a cash payment that the government gives you at the point of closing. And also, let us assume, without serious loss of generality, that the home buying reward is given to all home buyers instead of new home buyers.


Then, he's argument is, if you put down the $10k that government gives you into the downpayment, you actually save more thank $10k. Because you won't have to pay the interest of those $10k. So the total  savings will be

10000*(1.05)^30 = 43129.42


(assuming 5% mortgage interest), so a dumb person may be persuaded to buy a house as high as $43129.42 above it's actual market price if there wasn't an incentive.

Now, let's take this a step further. Say the interest rate is zero, and the lowest amount of down payment a person can pay in order to buy a house is 10%, then this $10k incentive allows him to buy a house that is $100k more expensive than the market price without incentive. So gives us a bubble of $100k above normal.


The psychology of this is well known. A person would probably be satisfied with keeping $5k of the incentive and allow seller to take the other $5k, but he would probably not buy the house if he was only able to keep $1k and the buyer takes $9k.


Anyways, the true size of the bubble will be known soon enough...

Alternative Great Leap Forward

Often, children of Chinese will hear parents speak of a mythical great leap forward. This was a gigantic effort to catch China up with America and exceed the United Kingdom. According to the documentary from Discovery Channel, (along with film from the era), the people were asked to cut down forest and melt their pots and pans to create steel. When the forest were exhausted, they went on and burned furniture.

Some people suggested that the Chinese were creating some kind of weapon, but had no defence against American spying planes and satellites. So they created a massive social movement to mask the secretive weapons labs and factories. (heat signature...)

So, let us suppose that this was not the case, and that the whole great leap forward(1958-1961) and cultural revolution was a necessary evil. (There could be many reasons. For instance, because of the closed-mind west is insanely scared of communism and could not possibly be open to any kind of communication or exchange of technology. Without this kind of exchange, there could not be much progress in China. So.... they have to wear down the communism's political power (but without losing to the ROC leadership).) If it was necessary for China to do nothing for a decade or two, what could have the 1.3 billion people (or 750 million at that time.) do?

Well, let's suppose that they can maintain agricultural output, then the people won't starve.

But let's suppose that they were indeed stuck in a rut, with out external stimulus (war, capital, knowledge), that it would take many years for things to improve, what could all those people do?

Hmmm, well, they could spend the time popularize Kung Fu. People can practice it and Chinese people would become physically strong. In this arena, the Chinese was still fairly advanced, if not the most advanced. Why not make more people practice the martial arts? Strengthen the bodies.

Chinese culture and history is certainly filled with ideals: ethics, morals, virtues, "cultivation", "self improvement", "self-sufficiency", "well rounded man", "solidarity", "brotherhood/fraternity", "orderly society", they thought about relationship between the people and the government, their responsibilities and obligations to each other, they levied taxes, wrote laws, they explored men and his relationship with the world and other creatures of the world.

As much as any western educated person would like to believe in the originality and uniqueness of these ideals, they all existed and were common knowledge in Chinese historical culture, language, and practice.

You don't believe me?

Think about this then: Do you think Chinese had sex? Did they have oral sex? Did they have three-some's? Did they have orgies? Did they have gay sex? Did they do it and then write about it? At risk of some kid in the PRC will be disallowed to read my blog, think about this: Did they do it anally in China five millenniums ago? Do they do it today??

Given this commonality in our human history, let us further imagine for the Communist government to call upon some of these powerful ideals fully embedded in the population of China of the time and say: "let us strengthen ourselves and practice Kung Fu." The Communist party is very powerful. It was fully capable of widely improve it's population by leveraging this powerful pre-existing conditioning in the Chinese people.

Second thing is the arts. Granted, the great majority of the population is undereducated, they still have their local forms of arts. Establish art institutions. The dances of each regions of China are so beautiful and so different. The songs of each race are so endearing, even if we don't understand the words. The paintings, the pottery, the architecture of their buildings... the poetry... This was apparently how the Renaissance was started... Some city state (Florence) had a benevolent leader who liked art. He commissioned many painters and sculptors to make art. And that lead to all those things that we know to be great about the Renaissance. Mao loved the arts, he himself is a great poet, and surely had great appreciation for the Classics (Chinese Classics), the instruments, chess, calligraphy, and painting. The documentary that I saw put serious emphasis on his dance parties (social, ballroom type, it would appear, or some Chinese dances), and that he often "rested with young girls in his private room." He, clearly has great appreciation for dancing, he clearly appreciates life, and all it's beautiful blessings! He could have encourage the practice of arts beyond the martial arts by giving massive amount of money to those causes (top down economics...)

Wait, while we're at it, why don't they build roads like America did when it faced severe depression? Build massive road and rail systems. Learn experience by doing, through doing we find our weaknesses. By doing we discover what we need, and necessity is mother of inventions. Why don't they build roads? Can't build rails because they don't have iron/steel. But they can build roads right?

Let's take a turn for the worse...

What else could they have done?

They could have gotten mad.

Build an army twice the size of the Japanese population.

Trained in advanced martial arts.

Invade Japan.

And get even with them.

Why the fuck not?

They didn't have guns or boats? learn to build them! I mean, China had been a great ocean faring power just a few centuries ago. It's not like they can't build big boats. Just get the troops over there, and take over Japan. Why not??

Okay, I know, you are rolling your eyes into your skull.

"The point of the cultural revolution was to get rid of the old stuff" you say, "encouraging the arts and kung fu is the last thing they'd think of"

well... I don't have to be responsible about this. This is just a thought experiment... had Mao knew the outcome. Would he have done something different? If he waste money/time, why not waste on something beautiful and empowering?

Okay, I know, you are still rolling your eyes into your skull for the second time having completed the first 360 rotation.

"They'd die starving, or being invaded. Kung Fu is no match for machine guns and air raids"

sigh... I need to learn more history. No matter how closed the west were, they did teach the Japanese how to make steel, how to make cars, what was it about the Chinese that prevented them from doing the same???

It's not the language. There are plenty talented Chinese people who can learn English, French, or Russian. Certainly the leaders of China almost were all students of the west.... I do not believe that language was truly the problem...

And some years from now, if I were to think about this issue, would I think myself silly? OR would I feel the same way?

I guess only time will tell.

Or.... if I die from a Chinese bomb some day, and my suspicion that China had secretly developed weapons and was using the great leap forward to hide heat signatures of weapons factory...

well, then

HA!

carve "I knew that!!" on my tombstone.

The 6-2-10 system, part II

Okay, I've had a chance to discuss this with a kindred spirit mate of mine. So, there are some concerns:

Q: what happens to families in this system?

A: Well, the plan is to have the families belong to the same day-cycle. If dad goes to work 6-2, then the plan is for the wife to go to work 6-2 and for the child to go to school 6-2. The schools will multiplex between the shifts. And in fact, this is a most important feature of the 10-2-6 system. It is precisely because the schools are shared between two or three shifts that we can increase throughput of society. The school building is a limiting resource. We save money/resource by building one building and service twice or three times as many students as the 9-5 system can do in the same building.

Another important feature of the 6-2-10 system is enlightened by this question is that in the 6-2-10 system we penalize over-time. The company (and possibly each worker who consume multiplexed resource) is charged for overtime. This is necessary to keep spaces and other resources maximally available for the people who have reserved that space or resource for their shift.

If I'm in the 6-2 shift, I am incentivized to leave work at 2pm. If I don't, both my company and my income may be charged. Company and work culture will change to allocate resource and plan work in such a way that it does not exceed the time allotted. This incentive means people will be more strict with their work time and will be able to spend the extra time with their family.

Q: How to you incentivize the system?

A: Agreed, this is a tough problem. we are in a predominantly 9-5 system. How do we migrate into a 6-2-10 system? Well, because we have doubled the throughput of society, we can actually afford to give an extra weekend day. Three day weekend for all in the system.

To maximize the utility of the space, we may want to shift the weekend days by enforcing a phased weekend.

Fri., Sat., Sun. is weekend

Sat., Sun., Mon. is weekend

This setup allows family to share Sat. and Sun., but adds an extra day (unshared if desired) so that the additional free time can be spent alone or with family.

Q: Can I work two shifts to make more money?

A: If you or your company finds that this is worth the money then yes. Since we charge for space and other shared resources, you would only do this if you can guarantee high work efficiency for the entire shifts.

Q: Doesn't some big companies already use this?
A: Yeah, manufacturing companies does this. The "sweat shops" in China does. Actually their state run companies also does. Iron smelting, oil refineries, pilots and flight attendents, Taxi drivers,..., many industries already apply similar system, though not as thorough and systematic as what I'm proposing here.


Also, the navies of the world probably operate on shifts. This is also likely the inspiration for the shift system on the Starship Enterprise...


Q: How do you say 6-2-10?
A:The two system sounds alike some people work "9 to 5" while others work the "6 2 10". Morning shift, Afternoon shift and the graveyard shift.