Yet another 1/4 point

The Federal Reserve lowered the benchmark U.S. interest rate by a quarter point to 2 percent and indicated it's ready to pause after seven cuts since September. It said that "economic activity remains weak," but added that its measures "should help to promote moderate growth over time."

The action came just hours after the Commerce Department reported that gross domestic product GREW in the first quarter. The increase was a meager 0.6%, the same as in the fourth quarter of 2007, but it was still above zero. It may be semantics, but just the same, don't count on any official recession announcement any time soon!

We economists sifted the Fed's statement for hints of whether the Fed was done cutting but there were no obvious clues, indicating that the Fed doesn't want to paint itself into a corner on future actions.

Also noticeably absent was any mention of recession. It said, "Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters." On inflation, the Fed said it "expects inflation to moderate in coming quarters."

Regional Outlook is Mixed

If there are strengths in any regional economies, they are largely in two areas emanating from Texas. The first extends to the north all the way to North Dakota. The mid-section of the country is supported by high prices for a broad array of commodities—oil, wheat, corn, and industrial metals, to name a few. There is barely any weakness in any of the large or small metropolitan areas of this region. The second is to the east, extending from Texas to Georgia and the Carolinas. The stability of this area arises from the lack of a housing bubble during past years, which left house prices rather stable and the market less exposed to subprime lending. But in this region, the strength is less uniform. Where considerable investment is taking place, such as in Mobile or Huntsville, AL, or Raleigh, NC, the economies are doing well. Where there is considerable exposure to the manufacture of housing and construction-related materials or to import competition, then it is hard to avoid some weakness. And where there was some overbuilding of housing, as in Atlanta, the economy is more susceptible to a slowdown.

Cracks are widening in some regional labor markets of the West and South. Through February, new claims for unemployment insurance—a proxy measure for layoffs—were rising fastest in those two regions. The rise in new claims in each was about as fast as it was as when the economy entered the 2001 recession. Much of this has to do with both areas' high exposure to housing-related industries and their weak housing markets. However, with a 20% rise in each region, it seems to be approaching a scale that reaches beyond housing and closely related industries.

Downside risks are prevalent in most regions as consumer spending weakens. This is particularly evident on the West Coast and in Florida, Washington, D.C., and the Northeast, where strong borrowing against home equity in 2005 and 2006 had bolstered spending. The Northeast’s risk is compounded by impending layoffs and weaker income generated by investment banking. Risks will rise more broadly across the country as consumer credit quality falters and other sources of cash for spending disappear. Additionally, if business confidence remains as weak as it is, a falloff in investment spending will hurt the industrial Midwest and centers of tech-producing industries on the coasts and in Texas.

As I have stated in earlier posts, some regions of the country are faring well considering the circumstances. Regardless of what situation you find yourself in, maintain your marketing strategy (or even expand it). Stay the course.

Graphs sources: Moody's.com

Good Advice Sid!

On the OpenRegister blog, Sid Raisch, president of consulting firm Horticultural Advantage, offers some tips for retailers to keep in mind during these tight economic conditions. Click here for his comments.

Better Roses Than Cocaine

Nicholas Kristof, columnist for the New York Times, presents his view of the political nature of the Columbian free trade agreement debate and makes a case for the economic contributions of Columbian exports (e.g. the rose industry) in creating jobs and building national security. Click here for the full story.

No Company is an Island

For the twelve weeks from January 23 to April 16, 2008, HBRGreen (the sustainability arm of the Harvard Business Review) hosted six discussions on the emerging intersection of business and the environment. Leaders of the business world asked provocative questions and readers from around the globe answered with robust and lively commentaries, bringing an unparalleled level of insight and experience to the conversation. Click here to glean important sustainable directives for your business.

Mother's Day Consumer Intentions

According to the National Retail Foundation's 2008 Mother’s Day Consumer Intentions and Actions Survey conducted by BIGresearch, consumers will spend an average of $138.63 this year, compared to $139.14 last year. Total consumer spending is expected to reach $15.8 billion.

When it comes to popular gifts, consumers will shell out nearly $3.0 billion on a special dinner or brunch, $1.2 billion on consumer electronics like digital cameras, digital photo frames and video cameras, $2.0 billion on flowers, $1.4 on clothing and accessories and $1.1 billion on personal service gifts like a trip to a favorite spa or salon. Shoppers will also spend $1.6 billion on gift cards/gift certificates, $696 million on housewares and gardening tools and $672 million on greeting cards.

For the complete survey results, click here.

Ellison Chair Distinguished Lecture Series

The 5th lecture in the Distinguished Lecture Series sponsored by the Ellison Chair in International Floriculture was given Dr. Peter Bretting, USDA/ARS Senior National Program Leader, Plant Germplasm and Genomes. The lecture was entitled "HORTICULTURAL GENETIC RESOURCES: CURRENT STATUS AND FUTURE PROSPECTS." Dr. Bretting's position involves co-leadership, coordination, and direction of a national program of crop genetic research conducted at more than 50 locations nationally, with an annual budget of approximately $120 million. He also serves as a USDA representative for the US government delegations negotiating the UN-FAO International Treaty for Plant Genetic Resources for Food and Agriculture, and the UN-UNEP Convention on Biological Diversity. To view this or previous Distinguished Lectures, click here. To view the summary press release, click here.

Home Remodeling Spending Down

From Dow Jones: Home-Remodeling Spending To Fall 4.8% Through '08 - Study

Home-improvement spending is unlikely to improve until 2009, and the second half of 2008 is shaping up to be weaker than the first, according to Harvard University's Joint Center for Housing Studies.

Falling consumer confidence and a weakening economy are inhibiting remodeling spending, which is expected to fall by an annual rate of 4.8% through the end of 2008, the center said Thursday. That is steeper than the 2.6% annualized decline the center projected through the third quarter when it last updated its Leading Indicator of Remodeling Activity in January.

This might be optimistic for several reasons. First, falling house prices and the inability for homeowners to borrow against their homes (mortgage equity withdrawal) are probably "inhibiting remodeling spending" more than the weakening economy and consumer confidence.

Second, we have recently seen warnings from Home Depot and Lowe's that suggest same store sales are falling off a cliff (about 8% year-over-year).

And third, the Joint Center for Housing Studies forecast is mild compared to declines in home improvement spending during previous housing busts.

Click on graph for larger image.

This graph shows real home improvement investment (2000 dollars) since 1959. Recessions are in light blue (source: BEA)

As of Q4 2007, real spending on home improvement had held up pretty well (only off 2% in real terms from the peak). If this housing bust is similar to the early '80s or '90s, real home improvement investment may very well slump 15% to 20%.

Yes, the Joint Center for Housing Studies forecast is in nominal terms, but it appears they believe this slump in home improvement will be milder than the downturns during the previous two housing busts (early '80s and early '90s).

Don't throw in the towel just yet

Media stories abound with tales of economic hardship. These for the most part have elements of truth, but keep in mind when you read the news that at any time it's possible to find people in hardship. To know whether you are seeing a trend of just an unfortunate blip, you have to look at the data. Today's data is: (1) bad but expected, (2) bad but not as bad as expected, and (3) so-so. Let's start with bad but expected:
New housing construction continues to fade. Bad news, but a necessary correction with significant excess supply of housing. Now for the not as bad as expected:
The inflation rate outside of food and energy is not as bad as most expected. There were also major concerns that we would start seeing inflation rising not just in food and energy, but generally across the economy. This isn't happening right now.
Manufacturing production is basically unchanged in recent months. That's not good, not bad, but consider this: Any news that isn't bad these days, is good news.
One last data observation -- someone obviously forgot to tell the IPI data that we're in recession (click graph above for larger image).

Bottom line: The economy is NOT collapsing, despite all the doom and gloom in the press. The economy is certainly not booming, and some folks are in distress [regionally], but overall things are not so bad. Yesterday about four million people in the United States went to McDonald's to eat. That wasn't news, because most days there are about four million people going to McDonald's. It's not an economic boom, but neither is it a bust.

My discussions with growers, landscapers, and retailers continues to reinforce the importance of differentiation. Those who are providing a uniquely definable value proposition say they are holding their own and some even reporting a profitable spring thus far. Those who aren't, ... aren't. And by the way, the folks who are doing good business so far are NOT discounting prices. How do I know this? I asked them. Anecdotal evidence, yes, but telling nonetheless.

Business planning implications: Don't hunker down too much. In fact, it's time to do your economic contingency planning for an upturn in the economy.

Will the real trade issues please stand up?

President Bush said Monday that a trade agreement with Colombia is "dead" unless House Democrats agree to hold a vote on the pact, effectively admitting defeat on a White House priority. The standoff over Colombia began last week, after Bush submitted the trade agreement to Congress and urged lawmakers to approve it within the normal deadline of 90 legislative days. The Democrat-controlled House then voted to postpone the decision indefinitely, saying the pact does not provide enough protections for workers. As projected, this has spiraled into a political issue rather than one made on economic intuition.

On economic grounds, there's no reason to reject the agreement. Colombia's exports already enter the U.S. market duty-free under the 1991 Andean Trade Preference Act. Meanwhile, many U.S. exports to Colombia face stiff tariffs -- up to 35 percent on autos, 15 percent on tractors and 10 percent on computers -- most of which would ultimately go to zero under the agreement.

Yet, it's politically convenient to oppose the trade agreement because the popular imagery is that trade destroys U.S. jobs. The loss of almost 4 million U.S. manufacturing jobs since 1998 seems easy to explain by cheap imports or the flight of plants to Mexico, China and other poorer countries.

Nothing could be further from the truth. Although this has occurred, job losses also stem from greater efficiency (fewer workers producing more goods) and slumping domestic demand (for communications equipment and computers after the dot-com bust and for housing materials and vehicles now). Nor has falling factory employment crippled overall U.S. job creation.

The fact of the matter is that trade has become a lightning rod for a myriad of grievances (job insecurity, wage inequality, eroding fringe benefits). But even if trade caused all the factory job loss, its impact is shifting. The dollar's dramatic depreciation (down an inflation-adjusted 20 percent since early 2003) has enhanced the competitiveness of U.S. exports. Export growth now represents a major source of job creation and economic expansion.

It is no longer necessary to rely on elegant theories of comparative advantage, more consumer choice or greater competition to favor open trade. Jobs and economic growth will suffice. Indeed, without export-led growth, the economy may face a sluggish future.

Even after the current economic slowdown ends, the outlook is worrisome. Consumers are heavily indebted. Housing will recover and reach previous highs, but probably not for several years. Government spending is constrained by growth in the rest of the economy, unless Congress sharply raises taxes or deficits. Exports and related investments are our best hopes. Let's hope we don't shoot our other foot by constraining part of the current economic solution.

New AGR-lite training available

A new on-line course is available that will help growers in making more informed decisions in regard to the AGR-Lite risk management tools/insurance. The course can be taken at your own pace in the comfort of your home or office. As other on-line courses become available, I will attempt to post links to them as well. Click here to view the course website.

Mixed news regarding retail sales

According to the National Retail Federation, retail industry sales for March (which exclude automobiles, gas stations, and restaurants) dipped 0.9 percent unadjusted over last year and were down 0.3 percent from the prior month.

March retail sales released today by the U.S. Commerce Department show total retail sales (which include non-general merchandise categories such as autos, gasoline stations and restaurants) increased 0.2 percent seasonally adjusted from the previous month and increased 0.1 percent unadjusted year-over-year.

“Unseasonably cooler weather created a challenging sales environment for many apparel retailers last month,” said NRF Chief Economist Rosalind Wells. “With the earliest Easter in 95 years, the calendar shift will likely impact April sales as well. In order to get a true picture of retail performance, we will need to look at both March and April sales combined.”

The weak housing market once again had a negative effect on the home furnishing and home improvement categories. Sales at furniture and home furnishing stores decreased 0.3 percent seasonally adjusted from last month and 10.2 percent unadjusted year-over-year. Building material, garden equipment and supplies stores sales decreased 1.6 percent seasonally adjusted from February and 9.6 percent unadjusted from last March.

In spite of the weak selling environment, there were still a few bright spots. Health and personal care stores sales rose 2.8 percent unadjusted from last March but decreased 0.1 percent seasonally adjusted from last month. Sporting goods stores sales also rose 1.5 percent unadjusted year-over-year and 1.4 percent seasonally adjusted month-to-month.

What does this tell us? Consumers will still buy the things that matter most to them! Stay the course. Reports from many parts of the country (undergoing good weather on weekends) points to a favorable spring thus far. Friends in the Northeast do report tougher times however (hurry up spring!).

The results show a cautious household sector, but not one in retreat. Available indexes of consumer attitudes have moved to very low levels — close to or below the lows in the prior two recessions — raising the prospect of a sharp adjustment to consumer spending. However, spending patterns, so far at least, have not softened to the same degree as attitudes.

Gas vs. Education: Which is the better deal?

It has often been touted that education is the key to economic development. Perhaps, one caveat should be added: quality education is the key to economic development.

The American Legislative Exchange Council (ALEC) released its 14th edition of the Report Card on American Education: A State-by-State Analysis, which covers the school years 1985-1986 thru 2006-2007. This comprehensive guide ranks the educational performance of the school systems in the states and the District of Columbia with Minnesota placing first and the District of Columbia last. Findings include:

Based on a variety of indicators, ALEC's 2007 Report Card has found no direct correlation between conventional measures of education inputs, such as expenditures per pupil and teacher salaries, and educational outputs, such as average scores on standardized tests. For instance, class sizes today are 15% smaller than they were 20 years ago, yet of the 10 states that experienced the greatest decreases, only one(Vermont) is found among the highest performing states in the rankings.

Even with dramatic increases in the amount of educational resources spent on primary and secondary education over the past 2 decades--expenditures have risen nationally to an all-time high of $9,295 per pupil--student performance has improved only slightly; 69% of American eighth-graders are still performing below proficiency in math and 71% in reading, according to the 2007 National Assessment of Education Progress.

The latest results of comparison among participating nations of the OECD peg American students’ achievement levels in science below dozens of other countries including Croatia, Latvia, and mainland China. In fact, the United States scores below the combined average of all countries observed.

Comment: Based on data in the report from Table 1.6, real Per Pupil Expenditures for public elementary and secondary schools have increased from $6051 in 1985-86 to $9295 in 2005-2006, a 53.61% increase (see graph above). Over the same period, real inflation-adjusted gas prices rose by only 10.9% according to EIA data, from $2.24 per gallon in January 1986 to $2.484 per gallon in January 2006 (the mid-point in the school year). Even adding two more years of real gas price increases and using the January 2008 price of $3.059, real gas prices have only increased by 36.6% since January 1986, far below the 53.6% increase in real public school spending from 1985-86 to 2005-06.

And the quality of gasoline has stayed the same over the last 20 years, which is not necessarily the case with public schools. In fact, the graphs below show that increases in spending have either no effect on test scores (top graph below, taken from the report) or a negative effect on test scores (bottom chart below).

Who won't be around in 10 years?

According to Entrepreneur.com, these businesses are on their way out...are there lessons we can learn from them? Click here for more.

• Record stores
• Camera film manufacturing
• Crop dusters
• Newspapers
• Pay phones
• Used bookstores
• Piggy banks
• Telemarketing
• Coin-operated arcades

Columbian Free Trade Debate

Colombian flower exports, which represent about 60 percent of flowers sold in the U.S., currently enjoy duty-free access to U.S. markets under the Andean Trade Preference and Drug Eradication Act (ATPDEA). That act is set to expire on Dec. 31, 2008.

If it is not renewed, or if Congress does not approve the U.S./Colombia FTA sent by President Bush on Monday, U.S. floral importers of record will have to pay duties on Colombian flowers entering this country. Under federal law governing implementation of the U.S./Colombia Free Trade Agreement (FTA), Congress now has 90 legislative days to vote for or against the measure.

Currently, the FTA is embraced by the National Association of Manufacturers and the National Chamber of Commerce. Anti-trade Democrats already oppose the pact because they believe the Colombian government has not done enough to reduce violence in the country, especially against trade unionists. Thus, the issue has become a political hot potato.

From an economic perspective, however, a Colombia FTA is in the best interest of both countries. It eliminates tariffs and strengthens the rights of American exporters while giving Colombians predictability in their relationship with us, their largest trading partner.

This agreement would give our exporters the same duty-free access to the Colombian market. It creates an even playing field for U.S. businesses, farmers and workers who now pay hundreds of millions of dollars in duties on their exports to Colombia each year—duties that will be eliminated with the FTA. This agreement also increases investor rights, strengthens the rule of law and reinforces Colombia’s democracy and stability.

For a brief (3-page) summary of the agreement, click here.

Exploring the psychological "rules" of pricing

Even wonder why retailers price goods at $4.99 rather than $5.00? There may be a good reason - establishing the increment of comparison around the price anchor. In the April 2008 issue of Scientific America, an article by Wray Herbert explores this issue.

One of Alfred Hitchcock’s most enduring bits of cinematic comedy is the auction scene in the espionage thriller North by Northwest. Cary Grant plays Roger Thornhill, a businessman who has been mistaken for a CIA agent by the ruthless Phillip Vandamm. At a critical juncture, Thornhill is cornered by his enemies inside a Chicago auction house, and the only way he can escape is by drawing attention to himself. When the bidding on an antique reaches $2,250, Thornhill yells out, “Fifteen hundred!” When the auctioneer gently chides him, he loudly changes his bid: “Twelve hundred!” When the bidding on a Louis XIV chaise longue reaches $1,200, Thornhill blurts outs, “Thirteen dollars!” The genteel crowd is outraged, but Thornhill gets precisely what he wants: the auctioneer summons the police, who “escort” him past Vandamm’s henchmen to safety.

Clever thinking and good comedy. It is funny for a lot of reasons, and one is that Thornhill violates every psychological “rule” for how we negotiate price and value with one another. So much of life involves “auctions,” whether it is buying a used car or making health care choices or even choosing a mate. But, unlike Roger Thornhill, most of us are motivated by the desire for a fair deal, and we employ some sophisticated cognitive tools to weigh offers, fashion responses, and so forth—all the to-and-fro in getting to an agreement.

But how does life’s dickering play out in the brain? And is it a trustworthy tool for getting what we want? Psychologists have been studying cognitive bartering for some time, and several basics are well established. For example, an opening “bid” of any sort is usually perceived as a mental anchor, a starting point for the psychological jockeying to follow. If we perceive an opening bid as fundamentally inaccurate or unfair, we reject it by countering with something in another ballpark altogether. But what about less dramatic counter offers? What makes us settle on a response?

University of Florida marketing professors Chris Janiszewski and Dan Uy suspected that something fundamental might be going on, that some characteristic of the opening bid itself might influence the way the brain thinks about value and shapes bidding behavior. In particular, they wanted to see if the degree of precision of the opening bid might be important to how the brain acts at an auction. Or, to put it in more familiar terms: Are we really fooled when storekeepers price something at $19.95 instead of a round 20 bucks?

Janiszewski and Uy ran a series of tests to explore this idea. The experiments used hypothetical scenarios, in which participants were required to make a variety of “educated guesses.” For example, they had subjects think about a scenario in which they were buying a high-definition plasma TV and asked them to guesstimate the wholesale cost. The participants were told the retail price, plus the fact that the retailer had a reputation for pricing TVs competitively.

There were three scenarios involving different retail prices: one group of buyers was given a price of $5,000, another was given a price of $4,988, and the third was told $5,012. When all the buyers were asked to estimate the wholesale price, those with the $5,000 price tag in their head guessed much lower than those contemplating the more precise retail prices. That is, they moved farther away from the mental anchor. What is more, those who started with the round number as their mental anchor were much more likely to guess a wholesale price that was also in round numbers. The scientists ran this experiment again and again with different scenarios and always got the same result.

Why would this happen? As Janiszewski and Uy explain in the February issue of Psychological Science, people appear to create mental measuring sticks that run in increments away from any opening bid, and the size of the increments depends on the opening bid. That is, if we see a $20 toaster, we might wonder whether it is worth $19 or $18 or $21; we are thinking in round numbers. But if the starting point is $19.95, the mental measuring stick would look different. We might still think it is wrongly priced, but in our minds we are thinking about nickels and dimes instead of dollars, so a fair comeback might be $19.75 or $19.50.

The psychologists decided to check these lab findings in the real world. They looked at five years of real estate sales in Alachua County, Florida, comparing list prices and actual sale prices of homes. They found that sellers who listed their homes more precisely—say $494,500 as opposed to $500,000—consistently got closer to their asking price. Put another way, buyers were less likely to negotiate the price down as far when they encountered a precise asking price. Furthermore, houses listed in round numbers lost more value if they sat on the market for a couple of months. So, bottom line: one way to deal with a buyer’s market may be to pick an exact list price to begin with.

Employment down: Does this spell recession?

he unemployment rate rose from 4.8 to 5.1 percent in March, and nonfarm payroll employment continued to trend down (-80,000), the Bureau of Labor Statistics of the U.S. Department of Labor reported Friday. Over the past 3 months, payroll employment has declined by 232,000.

In March, employment continued to fall in construction, manufacturing, and employment services, while health care, food services, and mining added jobs. Average hourly earnings rose by 5 cents, or 0.3 percent, over the month.

The number of unemployed persons increased by 434,000 to 7.8 million in March, and the unemployment rate rose by 0.3 percentage point to 5.1 percent. Since March 2007, the number of unemployed persons has increased by 1.1 million, and the unemployment rate has risen by 0.7 percentage point.

So that's the bad news. Now for some perspective. The magnitude of the employment decline is pretty small: less than 2/10s of one percent from the peak in December through March. So don't think of massive layoffs; think of minor adjustment. (I know that to people who have lost their jobs, it feels pretty massive.)

The Wall Street Journal was more inane than usual. They noted the 80,000 decline in jobs and said, "Had it not been for a rise in government jobs last month, payrolls would have fallen by around 100,000." Let me add that had it not been for the drop in construction employment, payrolls would only have fallen by 29,000. Did you learn anything from this? I didn't think so.

How should business plans be adjusted now?

Now that you've looked at the forest, spend more time with your trees. Look at your own sales by segment and geography. Watch your customers' sales closely. There's plenty of variety of there; you need to know whether you are in the happy side of the economy (and there certainly is one) or the sad side.

So does this spell recession? I can only say at this point...maybe. Next month we could (not likely, but possible) see an expansion of employment, followed by nothing but expansion for the rest of the year. If that happens, then we'll look at these three months of decline and say "blip" rather than "recession." So anyone who says that we are definitely in a recession now is making a forecast about the next few months. They are probably right, but bear in mind they're making a forecast, not reading hard data.

FYI -- Distinguished Lecture 4/09/08

The fifth lecture in the Distinguished Lecture Series sponsored by the Ellison Chair in International Floriculture will be presented by Dr. Peter Bretting, the USDA/ARS National Program Leader for Plant Germplasm and Genomes. The title of his Lecture is Horticultural Genetic Resources: Current Status and Future Prospects.

A reception will be held at 2:30 p.m. in the Horticulture/Forest Science Building atrium on Wednesday, April 9, followed by his Lecture at 3:00 p.m. in room 102 HFSB on the West Campus of Texas A&M University.

Dr. Bretting has been USDA/ARS National Program Leader, Plant Germplasm and Genomes since 1998, and was promoted to the rank of Senior National Program Leader in 2004. This position involves co-leadership, coordination, and direction of a national program of crop genetic research conducted at more than 50 locations nationally, with an annual budget of approximately $120 million.

He also serves as a USDA representative for the US government delegations negotiating the UN-FAO International Treaty for Plant Genetic Resources for Food and Agriculture, and the UN-UNEP Convention on Biological Diversity.

His areas of research specialization and professional interest include: 1) Administration and management of scientific research, development, and service organizations; 2) Plant genetic resource management, emphasizing statistical genetic and molecular marker approaches to managing germplasm; 3) Crop genetics, genomics, systematics, and economic botany, with particular emphasis on maize, sunflowers, and new crops, especially ornamentals. He is the co-editor of one book and a collection of papers, and the author or coauthor of numerous scientific publications.

Click here to view the online Distinguished Lecture announcement. Please feel free to distribute this announcement to whom you deem appropriate.

How not to save housing...

I have pontificated previously regarding the value that landscaping provides in increasing perceived home values by enhancing curb appeal, etc. (see value of landscaping in the sidebar). In recent months, I have also reported on the record decline in home values. Intuitively, those who have landscaped their homes "properly" may have offset the devaluation of their home to some degree.

But several Congressional proposals seek to adjust home values artificially by authorizing the Federal Housing Administration (FHA) to guarantee $300 billion of new home loans to strapped homeowners, allowing them to refinance their existing mortgages at lower rates and lower outstanding amounts. Under it, homeowners who borrowed from Jan. 1, 2005 to July 1, 2007 would be eligible for new loans if their monthly payments of interest and principal exceeded 40 percent of their income, well above a more prudent level of 30 percent.

Everyone wins from this arrangement, say its supporters. Homeowners (some perhaps victims of deceptive lending practices) stay in their houses. Neighborhoods don't suffer the potential blight of numerous foreclosures. Housing prices don't go into a free fall, depressed by an avalanche of foreclosures. Although lenders take a loss, the losses are lower than they would be if homes went into foreclosure.

But Bob Samuelson provides a differing perspective, saying not only does not make good moral sense, but less economic sense:

About 50 million homeowners have mortgages. Who wouldn't like the government to cut their monthly payments by 20 percent or 30 percent? But Frank's plan reserves that privilege for an estimated 1 million to 2 million homeowners who are the weakest and most careless borrowers. With the FHA now authorized to lend up to $729,750 in high-cost areas, some beneficiaries could be fairly wealthy. By contrast, people who made larger down payments or kept their monthly payments at manageable levels would be made relatively worse off. Government punishes prudence and rewards irresponsibility. Inevitably, there would be resentment and pressures to extend relief to other "needy" homeowners.

The justification is to prevent an uncontrolled collapse of home prices that would inflict more losses on lenders -- aggravating the "credit crunch" -- and postpone a revival in home buying and building. This gets the economics backwards. From 2000 to 2006, home prices rose by 50 percent or more by various measures. Housing affordability deteriorated, with home buying sustained only by a parallel deterioration of lending standards. With credit standards now tightened, home prices should fall to bring buyers back into the market and to reassure lenders that they're not lending on inflated properties.

If rescuing distressed homeowners delays this process, the aid and comfort that government gives some individuals will be offset by the adverse effects on would-be homebuyers and overall housing construction. Of course, there are other ways for the economy to come to terms with today's high housing prices: a general inflation, which would lift nominal (but not "real") incomes; or mass subsidies for home buying. Neither is desirable.

None of this means that lenders and borrowers shouldn't voluntarily agree to loan modifications that serve the interests of both. Foreclosure is a bad place for most creditors or debtors. Although the process is messy, promising to lubricate it with massive federal assistance may retard it as both wait to see if they can get a better deal from Washington, which would then assume the risk for future losses.

Standards Committee deadline extended

Due to increased interest in the development of the Sustainable Agriculture Practice Draft American National Standard for Trial Use, the deadline has been extended for applications to participate on the Standards Committee and/or supporting subcommittees to May 23, 2008.

This extension is being implemented based on numerous requests to allow time for additional stakeholders to submit their applications. To learn more, click here for the official deadline extension announcement and click here for the Leonardo Academy press release announcing the call for Standards Committee applicants.

Why is it important to get involved? Ever heard the phrase "taxation without representation"? Need I say more?

SAF and OFA have great summary websites if you need to get caught up on this critical issue.