The Wizard admits that he is belatedly trying to wrap his mind around the staggering news that President Bush is trying to browbeat Congress into approving a whopping $700 billion to bail out Wall Street.
With that in mind, I present to the public a Microsoft power point presentation that should help explain to the viewer in easy terms how Wall Street and the financial community at large got itself into the sub prime mortgage mess in the first place. Note that the power point presentation is about 2.5mb in size, ergo it will take a minute or so to download, depending upon your Internet connection. Follow the usual power point instructions to go through the presentation; press the ESC button to get out and the up and down arrows to go forward and backwards in the presentation.
I get a laugh every time I go through it and laughs are few and far between these days.
Enjoy!
Wizard
In an act that borders on serendipity, KHOU-TV's Jeremy Diesel ran a story the day before tax day on the City of Houston's Floodway Ordinance. Diesel's story can be read here.
Amongst the property rights disasters include the loss of $38 - $70 million per year in tax revenues. O'Connor and Associates pegs the City's property regulatory takings at $1.9 - $3.5 billion. Diesel says that the loss to Houston could be bigger than the entire tax base of any city in Harris County except Pasadena.
The Wizard first told this story back in June 2007. It only took Houston's paper of note four months to catch up on the story.
The Wizard spoke to Pat O'Connor and told him that information in real estate markets on the effects of the Floodway Ordinance changes were not well known because the City of Houston made this ordinance change in secret. And one wonders why - pray tell - would the City do that? This is alluded to in the report published by KHOU-TV and which can be read here.
Look for the Floodway Coalition's Nancy Wilcox to speak at the upcoming American Dream Coalition conference on May 17, 2008. The Wizard knows that lawsuits are pending...
Wizard
This past week, the FTA issued letters to one, Mr. Frank Wilson, CEO of Harris County Metro, informing him that the FTA has moved the North Corridor and Southeast light rail alignments back into preliminary engineering status for fiscal year 2009. Of note, Metro stated in its FEIS for the Southeast alignment (see page 50 of this document) that a light rail component would cost $329 million (2006 dollars). The FTA PE approval letter now states, two years later, that the updated cost estimate is up to $663 million for the alignment. As for the North Corridor alignment, the FEIS for it stated that the North Corridor would cost $354 million (see page 50) in 2006 dollars. The FTA letter now states that the alignment will cost $677 million in year of expenditure dollars. The FTA administrator and outside auditor wrote in the accompanying report that Metro's estimated annual increases of 3.25 percent were optimistic because of volatility in commodities markets, uncertain scope of the project, and items like utility relocations. In other words, the cost of these two alignments has gone from $682 million to $1.34 billion in inflationary dollars, a rise of 96 percent. If you factor in inflation, the project's cost rise is about 63 percent and the outside auditor says these numbers are optimistic.
Folks, the word is now official. This 30 mile of the Metro Solutions Phase 2 expansion will cost over $4 billion - which I had predicted 4 months ago - and Metro will go bankrupt ponying up a mere one third of that money. Houston Chronicle transportation beat writer Rad Sallee wrote on March 28, 2008 that there is a problem with the Harrisburg rail alignment crisscrossing Union Pacific rail tracks. No problem if the money can be found to build an overpass. With the cost escalations however, this means that the 4 mile, 4 stop Harrisburg rail alignment will cost $500 - $600 million and will presumably be replacing a local bus route with many more stops. It will only cover a short stretch of the #50 Harrisburg bus route, which in 2007 carried a mere 4,192 riders per day. This is down some 20 percent from the pre-Main Street rail line peak patronage Metro achieved with the Harrisburg bus route in 1999 of 5,499 riders and in 2000 of 5,277 riders.
As for travel forecasts for both proposed rail alignments, Metro stated in its FEIS for the North Corridor in 2006 that a rail alignment would draw 14,000 riders per day. That's right folks. $677 million for 14,000 riders per day. For the Southeast alignment, Metro forecast in its FEIS that a BRT alignment (not a light rail alignment) would draw 13,900 riders per day. It's quite possible that light rail would draw more riders. Either way, we are looking at two rail alignments whose capital costs approach 50 percent of the entire cost of the Katy Freeway refurbishment and expansion, but will probably only carry about the equivalent of two lanes of passengers and do nothing to expedite the movement of freight or goods. Transit ridership is up about 10 percent over 2007, but transit still carries only 4-5 percent of work trips and only 1-2 percent of overall trips. Moreover, transit patronage is up for both bus and rail.
Mobility is what matters, not mode. There is a very strong argument to be made that patronage would also improve if Metro simply installed dedicated bus lanes, decreased the frequency of stops to improve bus travel speeds, and increased headway frequencies to cut down on catastrophic wait times. This could all be done at a fraction of the cost of $130 million per mile light rail lines.
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But enough of today's troubles. The purpose of this post is to talk about a wonderful book that every transportation fan should have in his or her library and that book is Steven M. Baron's Houston Electric - The Street Railways of Houston, Texas.
Baron, a rail fan, writes that the book - which he published in 1996 - was a time consuming process and gives much credit to a number of streetcar enthusiasts who are no longer with us. The amount of material Mr. Baron managed to uncover was tremendous, considering that hard evidence on Houston's streetcar system is very scarce. He still managed to publish a book that is 223 pages long, including footnotes and sources. I should thank Mr. Baron for his efforts.
Baron starts off, appropriately, at the beginning. In 1868 Houston was, in his words, a 1 square mile hustling place with nothing but dirt roads which of course turned to mud when it rained. Nearly everyone walked. That is when Houstonians were greeted to the news that a horse car would be utilizing some old tracks from the Houston Tap & Brazoria Railroad which had been built years earlier, but had fallen into disrepair. Mule pulled cars started operating along Houston roads. Mules were preferred because they were steadier than horses and did not frighten or bolt. Baron goes on to describe the schemes which various early pioneers tried to get regular rail service into operation during the 1870's and 1880's.
Baron says that many figures were involved in the initial construction of Houston's early streetcar system, but perhaps the one man who was best known and identified with it was Henry MacGregor. MacGregor, who was born in New Hampshire but moved to Houston as a young man, became a secretary of the Galveston City Railroad, then later bought out and became general manager of Houston's budding streetcar lines (along with William Sinclair) in 1883. He had a swath of real estate holdings and eventually became involved in the effort to widen the Houston Ship Channel. He left MacGregor Park along with North and South MacGregor Way (which lie on either side of Braes Bayou, south of the University of Houston) to the City in his will. MacGregor and Sinclair took over a company called Houston City Street Railway, which had received a state charter in 1870, but regular service did not really start until years later. HCSR faced competition from another rail line, but Sinclair and MacGregor stepped in and acquired the assets of both companies.
Things went well until April of 1888 when another trio of ambitious men received a franchise from the Houston City Council to start a competing streetcar system. For a while in 1889, Houstonians experienced the drama of two companies laying track, a battle where City Council members led both sides and which led to legal fights, injunctions, and a handful of arrests. Despite this, Houston lamentably still had chronically muddy roads.
This state of affairs improved dramatically in 1891 when enough capital and technological expertise was available to electrify the streetcar lines. In scenes that were reminiscent of the Main Street rail line, Baron describes how service was often dangerous. Still, the electrification of the streetcar lines were a tremendous boon to the city, even in the midst of the nationwide depression of the 1890's.
Streetcars in Houston, as they did in every city of the world, also aided and abetted suburbanization and sprawl, just as the automobiles which succeeded them did. In a letter written in 1893 to the newspapers, a person who signed the letter "A Poor Man" wrote:
The adoption of electricity as a motor by the streetcar company in Houston is a blessing to the poor people of this city, because it allows a man of limited means to rent a house or to build a home in the outskirts of the city where rent is cheap or lots can be bought for a very small price, and live there and at the same time get into town early enough to attend to business. Rapid transit is the only thing that can enable a poor man to own his own home.
Real estate was big business after the 1890's and no savvy developer would really want to develop without streetcar access. Most famously, the Heights was developed with the streetcar in mind, but most other neighborhoods were also.
Baron also describes the strikes from labor unrest, management difficulties, and financial problems which plagued HCSR until out of state bondholders created a reorganization plan which brought the engineering firm Stone and Webster into the management picture. S&W brought capital, expertise, and some financial stability to the management of Houston's streetcar system and in fact provided management services all the way until the system went through its final shutdown in 1940. S&W helped oversee bus services during WWII and for some years afterwards. S&W reorganized the company and renamed it Houston Electric Company. The streetcar company was known by this name even after Houston Lighting and Power came along, and which in fact contracted to sell power to HEC in the 1920's, an idea that alleviated HEC from having to produce its own power. He also tells of the innovation and design of the Birney car and the resulting cost savings that were reaped by HEC because of the ability to do away with a conductor needing to be on board the vehicle.
In November 1914, a booming Houston, fresh with a new ship channel and flowing oil fields, witnessed a new competitor into the transit picture - the jitney automobile car. Baron goes on to write how competitive pressures from jitney cars drove HEC management absolutely crazy for the next decade, as jitneys eventually captured some 22 percent of the market. It didn't help that inflationary pressures from the First World War crippled finances, as did rising capital expenditures. Efforts to raise fares were usually met with petition drives from Houstonians opposing the measures, which often passed in elections.
Intriguingly, in 1920, the City of Houston hired a traction consultant named John Beeler to do a thorough study of Houston's transportation system. Beeler wrote, amongst many other things, that two-thirds of the streetcar routes were losing money. But he also wrote:
One of the reasons why the jitney bus has made such inroads into the railway business is because it saves time... The public demands rapid transportation.
Beeler went on to note that the average speed of travel achieved by streetcars was about 9 miles per hour, whereas the jitneys were averaging 14 miles per hour. Successive ordinances were implemented to subject jitney cars to ever increasing regulatory measures over the following decade. They were opposed by jitney drivers, but in 1924 City Council unexpectedly shutdown and banned jitneys altogether.
Baron goes on to state what is well known in historical and transportation circles in Houston, namely that the streetcar network reached its apex in 1927 with 90 miles of routes. What few know however is that as early as 1924, Houston Electric started trying out substituting or supplementing shuttle and commuter bus services to neighborhoods instead of going through the massive capital expense of extending streetcar tracks. The now affluent Southampton area of Houston got bus service, as did Harrisburg alignment in February 1928 - ironic considering that Metro now is going to spend huge sums of money to bring rail back to the street. The famous Bellaire streetcar route was abruptly replaced with bus service in September 1927 because the track was falling into poor condition. By 1929, Houston Electric was operating some 70 buses on 16 routes. Meanwhile, the City of Houston was implementing a paving program on its streets and was requiring that Houston Electric pay for paving of lanes where its streetcar tracks were, which proved to be another massive drain on HEC's coffers. The Depression proved to be a hard blow to HEC, with patronage and farebox recovery plummeting and transit losing patrons to an ever growing fleets of private automobiles. Baron includes a telling photo, dated approximately 1938, where a streetcar is pictured going south on Fannin, but which is seemingly lost in a crowd of ever increasing automobile traffic.
The story Baron tells is one that Houston's streetcar system did not abruptly collapse. Instead, the story that emerges from his book is that Houston's streetcar network experienced a steady switch from streetcars on rail to buses from the period of roughly 1924 - 1940. The company executives at HEC knew something that so many people who argue and fight over transit today do not, namely that the capital costs of running buses was - and always will be - a tiny fraction of the expense of trying to maintain and extend streetcar rail networks. They knew as early as the late 1920's that the future belonged to the bus. Moreover, the per capita number of rides that people took on transit had been in steady decline for decades. The peak ridership per person was in 1913 where people took over 220 rides per year on streetcars. This number had declined to 159 per year by the late 1920's and decline accelerated over the decades of the 20th century and into the 21st. Baron writes nothing about alleged conspiracies to put streetcars out of business and replacing them with buses.
Baron tells the story of how Houston's new bus network served Houston during WWII. It was ironic that Houston dismantled its streetcar network just before the war, as patronage went from 56 million in 1940 to a record 130 million in 1945, a figure that has never been equaled. Conceivably, this surge in ridership, caused by wartime banning of automobile production and gas rationing, might have helped HEC keep its streetcar network alive until perhaps the early 1950's, but nearly all cities except for a few older cities in America dismantled their rail lines as the 20th century moved onwards.
Baron has a chapter on the aftermath of the dismantling of Houston's streetcar network, telling readers that patronage continued to decline during the 1950's and bus headways were steadily lengthened. Municipal ownership was discussed as early as the late 1950's. He tells of Bernard Calkins's valiant efforts during the 1960's to keep bus service running, but Calkins was unable to reverse declining ridership and had to sell out to National City Lines. He tells of the City of Houston's purchase of the bus system from NCL in April 1974 for $5.3 million, with the new company being named HouTran. Metro was voted into existence in August 1978 and, armed with a 1 percent tax on commerce, the rail plans started coming immediately, heedless of the fact that transit only was carrying 1-2 percent of all travel trips in Houston. In 1988, Baron notes that Metro carried 76.9 million passengers on 980 buses on 106 routes. In 2008, Metro is on track to carry about 112 million boardings using about 1,000 buses on a similar number of routes. On a per capita basis, there has been practically no change in the past 20 years in per capita ridership despite the fact that gasoline is now nearly $3.50 per gallon.
Baron's general history of transit comprises about half the book. The later half of the book describes individual neighborhoods and the lines which served them. In what can only be described as a godsend, Baron also includes yearly patronage and farebox numbers that HCSR and HEC achieved in their years of operation. This alone makes his book a wonder to read.
In summary, the Wizard think this book should be required reading by every political figure, both elected and appointed, in America. I think that every political interest group should also read this book. I think that every person who voices or writes an opinion on public transportation in this country should also be required to read this book and should keep their mouths shut until they do. There just might be a small chance that the world might become a far more rational and saner place if they did.
Wizard
On February 13, 2008, the Wall Street Journal published a fascinating story on a largely unnoticed revolution going on in American transportation. American railroads are, for the first time in a century, making massive new investments in their infrastructure. Better yet, not one dime of the $10 billion (with $12 billion more planned) is coming from public coffers. From the story:
For the first time in nearly a century, railroads are making large investments in their networks -- adding sets of tracks, straightening curves that force engines to slow and expanding tunnels for bigger trains. Their campaign is altering the corridors of American commerce, more so than any other development since interstate highways spread to the interior.
The story goes on to say that this burst of new private development of railroads has been driven by a massive burst of finished consumer goods coming in from Asia. These goods add to the usual cargo that freight rail carries, such as coal, grain, and chemicals. Compare all of this to the slovenly inefficiencies of Amtrack or light rail inner city transit. Moving goods is cheap. Moving people - at least in the economically affluent part of the world - is expensive.
This development, the story goes on to say, is generating development along the pathway of the railroads, but the development is primarily commercial in nature. Also, the railroads and freight trucks complement each other, where trucking companies find that sometimes they can ship goods long haul over rail rather than doing it over the Interstates.
And speaking of the Interstates, I was reading a story in this weeks' issue of The Economist of China's massive spending on transportation projects. The print edition carries a side story on the effects that America's Interstate Highway system had on productivity while it was being built. The Interstates were initially estimated to take 12 years to build at a cost of $25 billion. At the end, it took 37 years and cost (in 2006 dollars) $425 billion.
Question: Was it worth it? According to Ishaq Nadiri and Theo Manuneas, yes it was. America went through its greatest and most long lasting economic boom during its history after WWII and the Interstates had quite a bit to do with raising that productivity and making America a vastly wealthier country. Broadly speaking, Nadiri and Manuneas say that the greatest gains were reaped early on in the program and declined slowly as time went forward. The gains of the late 1950's were 31 percent of America's economic productivity growth, 25 percent by the late 1960's, and down to 7 percent by the late 1980's as more money was spent on road maintenance. One out of every five dollars was also being siphoned away from road building to build rail transit and bike paths. Freight costs in 32 of 35 industries dropped by an average of 24 cents for every dollar spent on the system.
Could something similar to the Interstates been done privately? The Interstates had incorporated into them some 14,000 miles of toll roads, mostly in the Northeast. Conceivably, a far seeing Governor and Legislature in some states could have launched state wide initiatives using toll roads, but it would have taken multi state cooperation to achieve a similar result to the Interstates. As it is, now that the Interstate system is complete, I wonder whether it would not be such a bad thing to turn most of it over to the states and either curb or shutdown collection of the federal gasoline tax the way that the Republican Congress of 1994 wanted to do? Entertaining ideas.
Wizard
The front page story on today's Houston Chronicle bespoke of the travails of $100 per barrel petroleum to modern day society. It was a good article, underlying the fact that the oil and gas industry does not waste one drop of a barrel of petroleum, but instead finds a way to use all of it. I write here because there was one aspect of the price rise of petroleum in recent years that was not covered by the story and that is the weakening of the United States dollar as a currency. This matters because petroleum is denominated in U.S. dollars when it is traded on world markets.
To give gentle readers a sample of how much the U.S. dollar has weakened in value over the past 5 years, I point you in the direction of the excellent Yahoo Finance and world currency website. What is really great about the Yahoo finance pages is that a reader can easily compare how the dollar has fared in world currency markets and what effect this can have on tradable goods.
Examples of how much the dollar has weakened include:
1) The dollar verses the euro. The dollar has gone from being worth 1.20 euros in 1999 to 0.96 euros in January 2003, all the way down to a petty 0.678 euros in January 2008. Put it another way, the euro was worth some 85 cents when it was created. Now a euro is worth about $1.50. The dollar has effectively lost some 44 percent of all of its value against the euro in the past 9 years.
2) The dollar verses the Brazilian real. I went to Brazil in 2003 on vacation. The real, (pronounced "hey ais"), was trading at 2.8 to 1 dollar when I went there. As one can see from the chart, the real has gone from 3.5 reals to 1 dollar in January 2003 to 1.76 reals to 1 dollar in January 2008. That's right folks. The Brazilians, who possessed currencies which suffered massive hyperinflation during long stretches of the 20th century, are now in possession of a currency which has doubled in value against the dollar in the past 5 years.
3) The Canadian dollar verses the U.S. dollar. The loonie has gained 1:1 parity on the dollar for the first time in some 30-40 years, having been worth only 64 cents in January 2003. So the loonie has also gained 55 percent in value against the dollar.
4) The U.K. pound verses the U.S. dollar. When I first went to the U.K. on holiday in May 2002, the Queen's money was worth $1.50. Now the pound, which hit $2 earlier this year, is just under, currently trading at $1.97. The dollar has lost 30 percent of its value against the pound in the past 5 1/2 years.
5) The Thai baht verses the dollar. The baht was trading at 43 to the dollar in January 2003, but now it only takes 30 baht to buy a George Washington note. The dollar has slid some 31 percent in value against the baht in the past 5 years.
6) The Russian rouble has gone from 32 to the dollar in January 2003 to 25 to the dollar in January 2008.
But then we compare these numbers against some of America's big trading partners, including Mexico, Japan, and China.
7) The Mexican peso has held steady against the dollar, losing only 8 percent of its value since January 2003.
8) The Japanese yen continues to bounce around the 110-120 yen to the dollar mark, a range it has done with some exception of the endaka period of the Clinton years.
9) Even the Chinese yuan, which traded at 5.2 to the dollar when I was in China, and which was revalued at 8.28 o the dollar in the 1990's, has been gaining strength and is now at 7.4 to the dollar.
As is well known, the Asian and Middle Eastern countries have routinely purchased untold amounts of U.S. Treasuries, both to help buoy their own currencies so as to continue to be able to sell something to America on terms helpful to themselves, and as a hedge in case markets lose faith in their own currencies. They also need a place in which to invest which is relatively safe and where their money will be put to productive use. They find all of these when they buy American treasury notes. In contrast, countries which have done little to interfere with currency markets have seen their currencies strengthen considerably against the dollar.
The Wizard thinks that what we are seeing is a long slow correction in the world's terms of trade with America. The United States has been running astronomically large current account deficits for 25 years now, and we have run up trillions of dollars of debts on our federal treasuries. Americans have essentially stopped saving money. Moreover, we will see in the next decade the retirement of the Baby Boomers en masse, which will per force require the United States to either raise taxes to meet the political demands of the Baby Boomer cohort retirements, cut their benefits, or continue to let things stay as they are and run up deficits and inflate them away through a punitive devaluation of the U.S. dollar.
The logical conclusion here is that world currency markets have spoken and have decided that the United States will not put its financial house in order, hence world markets will force America to put its house in order via the devaluation of the dollar. This of course revalues the terms of trade in all tradable foreign goods. As the Chronicle article notes, Americans will find foreign travel much more expensive, but we know that petroleum is also one of those traded goods. The Wizard postulates that had the dollar retained its strength, then we would be seeing oil prices at $60-$70 per barrel and not $100. That of course still means that the price of a barrel of oil has gone up 2-3 times since 2000, but that is different from a 5 fold increase in prices. What is interesting though is that a continuing slide in the value of the dollar would presumably improve terms of trade vis-a-vis the rest of the world, but it would also continue to push up the cost of petroleum imports which in turn would offset the improvements of the balance of America's terms of trade.
It is hard to tell how much of a correction would be required for America to come back to an equilibrium. The Wizard supposes that the Chinese, Japanese, and the Middle Eastern countries would need to be convinced that the dollar would continue to erode in value to the point where they would quit buying them. That in turn would send the dollar into a fully corrective tailspin. Maybe the dollar needs to lose another 50-75 percent of its value, on top of what it has lost already, before our current accounts finally balance out once again. On the bright side, manufacturing and other aspects of the economy which are not stuck in country would find it more preferrable to stay in America rather than to flee offshore. Jobs would be more likely to stay in country, indeed some of them might come back here.
As for what that would do to the price of a barrel of oil? Well, are you prepared for oil selling at $200 - $300 per barrel? Hold on to your seat folks. That would be a great reason for those jobs to come back here if we see prices like that. Prices like that also might finally make alternatives like cellulose ethanol a viable competitor to conventional petroleum. Hmmm. Now is that another reason why those Middle Eastern governments buy up our treasury bills? Think about it.
Wizard
As anyone who has been following the news in America over the past year, two of the biggest news stories have been turbulence in housing markets across the land, and what is the the story with petroleum prices. Tory wrote a blog entry back in August 2007 which raised questions on housing and commuting costs in American cities. In turn, his blog post linked to a story carried in Forbes about housing and commuting costs throughout the land. Naturally, much was made about commuting in Houston eating up a substantial part of our household budgets around here.
The Wizard has never put too much stock in such debates, indeed your learned commentator did not even bother to reply to Tory's post. Nor does yours truly think very highly of those who rage about transportation costs incurred from automobile use. And why, pray tell, is that? Let's just pay a visit to a very helpful and insightful website which reveals much: The United States Bureau of Labor Statistics web page which describes household consumer spending over the past 100 years.
Before going any further, we should remind ourselves that the figures from 100 years ago on household consumption are - well - just that. They are 100 years old. Governments of course have been collecting information on their respective populaces for a very long time. Still, there are as always the quality of that information, but the BLS does state that their statistical information on household expenditures for residents in Boston and New York City are amongst the oldest pieces of information that they have been continuously collecting and are of considerable interest when thinking of such issues.
So what does the Wizard believe are the observations of greatest import when it comes to household expenditures since 1900?
1) Rising incomes. American household incomes have gone up 10 fold or more since 1900. Budget constraints have been pushed outwards to astronomical levels. One very famous economist strongly believed - even during the depths of the Depression - that this massive accumulation of human wealth would continue. Regardless of what else you may think of him, on this issue he was absolutely correct.
2) Reduction in family size. The mean size of an American household was 5 people in 1900, whereas it was 2.6 people in 2000. The ramifications of the drop in the size of households cannot be underestimated. In 1901, the BLS says that American households spent some 42 percent of their household budgets on food, but 22 percent on housing (29 percent in Boston).
But reduction in household size also rolls over into housing markets. In the short run, the social demand curve for housing is very inelastic. And why is that? The reason is that very few people are willing to sleep outdoors or in their cars at night. In Houston, there are an estimated 10,000 homeless people out of an urban area of some 4 million people. When I read urban economics with Barton Smith, we discussed the issue of budget constraints one day and he said that poor people are often willing to part with 50 percent (or even more) of their incomes on making sure there is a roof over their heads. They are willing to double up if necessary, to move back in with family, or give up other consumer goods in order to make sure they do not have to face the elements.
Thus, reduction in household size allows for much greater monies for other goods, resulting in some very interesting changes in individual and household indifference curves. One thing I am very confident I can say is that housing is a normal good, as is spending on transportation.
My observations find confirmation if one studies BLS data on household spending for housing and transportation over time. The 1934-1936 data is the first time the BLS displays data for transportation expenditures. The U.S. household percentage was 8.3 percent, while the Boston and New York figures were 5.1 and 5.7 percent. The 1960-1961 data show that U.S. household expenditures for transportation were 14.7 percent, while New York households spent 10.7 percent and Bostonians spent 13.5 percent. The 1984-1985 data show that transportation spending was 19.6 percent, 15.8 percent for New York and 19.3 percent for Boston. The 2002-2003 transportation figures were 19.1 percent for the U.S., 15.4 percent for New York and 17.3 percent for Boston.
The food budget fell from 42 percent in 1901 to 33-36 percent in 1936, then to 24-28 percent in 1960-61, 12-16 percent by 1984-85. Food budgets have stayed at 13 percent since then.
Housing expenditures rose from 23 percent in 1901 (29 percent in Boston) to 32-35 percent by 1934-1936. They stayed at 30 percent in the 1960-61 and 1984-85 periods. They rose however by 2002-03 32 percent across the U.S, and 36-37 percent in Boston and New York.
So what can we say about all of this, besides the fact that housing and transportation are normal goods? It can be pointed out that food production has increased dramatically with modern agricultural methods. Some have pointed out that fossil fuels have much to do with this in terms of providing fertilizer, pesticides, and farm machinery fuel, but one has to wonder whether there are substitutes for these? Can genetic manipulation of crops provide even greater crop yields? The Wizard is watching the work of one man in particular to see what holds in store for the future, not only for agriculture production, but for future liquid fuel production and a lot of other items as well.
But I digress. Clearly household budgeting for food would fall with the decline of family size regardless of any other factors. Also, it does help to remember that not only was food a bigger part of family budgets 100 years ago, but to reiterate that family incomes themselves were lower! Even if our children were to see an era of rising food prices due to an alleged decline in the amount of fossil fuels or phosphorus available (and an implied decline in agricultural productivity), is that not to mean that we cannot put land back into agricultural use?
I ask questions like this because what all of this shows is that there are a number of issues that those who see nothing but doom and gloom for man's future seem to not consider. We do not know what future incomes (and hence household budget constraints) will be; we do not know what technological improvements will happen, nor do we know exactly how fast they will happen (and they may happen very quickly!); we do not know what percentages of household budgets people in the future will be willing to allocate towards various desires.
Are you just dying to see the world's stock of petroleum to run low so that people will stop driving gasoline powered cars, knowing that electric cars are more expensive? Did you ever think that the automobile manufacturers might consider allowing people to carry an 8 year car note instead of 5 years? Did you ever think that Americans might consider downsizing their average house sizes from 2,300 square feet to 1,700 square feet, and perhaps cutting down the size of their house notes 25 percent in the process? If doing so results in a drop in the amount they are carrying on their mortgage by $50,000, that would result in a drop of $300 per month every month for 30 years, if a mortgage is carried at six percent interest. And what will people do with that extra $300 per month? They just might spend it carrying a note on a $35,000 flex fuel car which might be powered up during their work day by an electrical outlet that is provided by their employer's parking lot, but we don't know that do we?
And that is the reason why the Wizard did not put much effort to get worked up about the Forbes article, nor do I worry about such things as how much of American household budgets go towards transportation costs, food costs, or any of the other things that work other people who really have nothing else to worry about into a lather. I am concerned about whether people try to make certain household expenditures more expensive than they need be because of political or aesthetic preferences. People will make adjustments as they want or need to do so, but why force them to make tradeoff decisions that they otherwise might not need to? I would have much more to be concerned about had suffered the genuine misfortune, like 80 percent of humanity, of having been born in a really poor country.
Wizard.