How Housing Market Regulations Affect Real Estate Growth and Affordability

Mike Mills

(0:13) What is up to all you housing bill heroes out there? (0:16) So with the election season in full swing right now, housing affordability is at the top of every voter's mind in America, along with the costs of everything else, of course. (0:26) But even with the highest mortgage rates that we've seen in almost 20 years, insurance premiums that are going through the roof and property values that have priced many Americans out of the housing market, along with the lowest volume of transactions that we've seen in over 30 years, how is it that home prices are still climbing?

(0:44) In fact, home prices in 2024 are still expected to increase between three to 5% in the United States this year, even with all of these factors. (0:54) So how in the hell is all of that possible? (0:56) Well, today we're going to break it all down for you.

(0:58) You have found the Texas real estate and finance podcast, and I am your affordable housing advocate, Mike Mills, a North Texas mortgage banker with Geneva Financial. (1:06) And today we're going to swim into the deep waters of economic policy and the government's role in housing affordability, and what, if anything, can be done to help us get back the American dream of home ownership that is slipping away from many Americans, and how you can help. (1:23) But before we jump into today's episode, I've got a small favor to ask.

(1:26) If you find even a hint of value in what you hear today, do this old bald guy a solid and hit that subscribe button, or even better, share this episode with a friend. (1:35) You guys are the flux capacitor that keeps this DeLorean on the road, and believe me, I am not above begging to keep me breaking those download records. (1:44) So go ahead, subscribe on YouTube, Apple, or Spotify, or whatever you get your ear food, and unless you enjoy missing out on the good stuff.

(1:52) And hey, if you have a client who needs help finding that perfect home loan, feel free to send them my way as well. (1:56) Well, sure, I pontificate into this microphone twice a week, but my real talent is helping you turn one closed deal into eight more referrals. (2:04) So if you're curious as to how we can team up to help get the American dream of home ownership for your clients, then give me a shout.

(2:11) All right. (2:11) So my guest today is a leading economist and advocate for the free market principles in fiscal conservatism. (2:18) He's shaping policies across the US through his work in 15 think tanks.

(2:22) He has experience as the Associate Director for Economic Policy at the White House's Office of Management and Budget, and Chief Economist at the Texas Public Policy Foundation, and his insights are frequently featured in major media outlets. (2:37) He's the founder and the president of Ginn Economic Consulting, and the host of Let People Prosper Show podcast, and he's here today to share some of his big brain with us. (2:46) So please welcome to the podcast, Dr. Vance Ginn. (2:50) Vance, how are we doing, sir?

Vance Ginn

(2:51) Hey, I'm doing well. (2:52) Hello, Mike. (2:52) How are you?

Mike Mills

(2:53) I'm doing good. (2:54) I'm doing good. (2:55) We had a little technical issues getting fired up, so we're just running a few minutes late, but that's how life goes.

(3:00) Sometimes you got to go with the flow. (3:01) So how is Round Rock treating you these days?

Vance Ginn

(3:05) It's going well. (3:06) You know, it's been hot. (3:07) It's been a little cooler here recently.

(3:08) We got some rain came through, but otherwise it's been going well.

Mike Mills

(3:14) Yeah, I'm hoping at least that our Texas summer is probably over at this point, but I guess we'll see. (3:20) We can always climb up to the 100 degree heat in September, but I'm having to wake up every morning at like 4.30 to take my son to football practice because they can't practice in this weather. (3:31) So I would appreciate the heat index to come down a little bit.

Vance Ginn

(3:35) Yeah, that's right. (3:36) That's right. (3:36) Yeah, I was in Houston for a soccer tournament for my oldest son last weekend, and man, that humidity was hitting me hard.

Mike Mills

(3:43) It's gnarly, man. (3:44) And especially with soccer, there's no shade out there. (3:46) At least I can sit in bleachers with an umbrella or something.

(3:50) It's pretty tough. (3:50) So, all right, before we get into all your extensive credentials, which are quite impressive, I really want to jump right into something that I saw the other day as it pertains to housing. (3:59) And I really want to get your take on it because this is pretty much your wheelhouse.

(4:02) So CNBC reported, they did a recent feature about housing affordability in the US, and they stated that currently in the country that it's estimated that we have a housing shortage between 2 million and 8 million units, and even some estimates up to 20 million, although you know how those things go. (4:17) And builders in the last 12 months have only completed about a million and a half homes. (4:21) The average new home price is down from 430 in 2022 to 417, but the average American household income right now is only about $75,000, and in most markets, you're going to need around 130,000 to afford the average home.

(4:37) But the home builders are not keeping up with the demand to bring that pricing down. (4:42) Right now, the 10 biggest builders in the United States, which had about 10% market share in the 90s, are up to about 50% market share right now. (4:51) And in some major cities, it's close to 80%.

(4:53) Now, Texas is a little bit different for a number of reasons, which I'm sure we'll get into, but this is a real crisis that we're facing in the United States when it comes to home affordability and the Americans' ability to buy a house on the whole. (5:04) And I really feel like that it seems to be somewhat underreported and not really a major focus of either the red or the blue team. (5:10) So what do you make of all this, and why are we in this situation?

Vance Ginn

(5:14) Yeah, Mike, and it's a pleasure to be with you today and talking to all the audience and everything. (5:18) This is a great opportunity. (5:20) And you're exactly right.

(5:21) I mean, the mortgage market, the housing affordability is an issue not only here in Texas, but across the country. (5:28) And it's a big part of a number of things that are going on since the COVID lockdowns and supply constraints. (5:35) But also you had the Congress issue about $10 trillion in new debt over the last four years, plus the Federal Reserve, the Central Bank issued all this new money.

(5:45) They bought about $5 trillion worth of assets on their balance sheet from $4 trillion to $9 trillion. (5:50) So a lot of that money also went into mortgage-backed securities. (5:53) And so there was all this money pumped into the economy, too much money chasing too few goods.

(5:58) We saw general levels of inflation go up about 9% in the latter part of 2022. (6:02) That's moderated some now to around 3%, at least measured by the CPI. (6:07) But average wages hadn't increased to the same rate.

(6:10) So we've seen affordability go down no matter what you're trying to buy, food, houses, and everything else. (6:15) Well, of course, some of that money, that liquidity also went into the housing market. (6:20) And when you have such a large increase in demand as people move to remote work and moved out of the cities in many places and across the country, and not as much supply coming online, you're going to see higher and higher housing prices.

(6:33) The Case-Shiller Home Price Index is still showing that it's up substantially around 5% just over the last year. (6:39) So they're not coming down. (6:41) But I think we're in a bubble territory.

(6:43) I've been saying this for a while, that the higher interest rates haven't been able to poke the bubble just yet. (6:48) But I feel like it's going to be coming down pretty quickly, given the affordability crisis that's going on across the country.

Mike Mills

(6:55) So you think that we are in a housing bubble?

Vance Ginn

(6:58) Yeah.

Mike Mills

(6:59) OK. (6:59) So now, my question on that, I don't, I mean, listen, you know way more about this than me. (7:05) But from what I've seen, at least, because we've been in a, for the last decade, really, (7:11) since the great financial crisis, truly, because at that time, that was an economic event that (7:18) was centered around housing and around lending on housing specifically, because of all of (7:23) these bad loans that were given to people with no income and no assets and all the (7:28) rules being so loose, because there was so much money being thrown into that market at (7:31) that time. (7:32) And after that crashed and we had a big fall off, then builders really, really pulled back on how much they were building at that time.

(7:40) They had ramped it up big time leading up to that. (7:42) And then after that all happened, they pulled it all back. (7:44) And since then, we have kind of been sitting in a anywhere between, I mean, look, at the height of COVID or right after that, you know, we were down to one or two months worth of inventory.

(7:54) Right now, we're sitting at about 3.8 months of inventory across the country. (7:59) Texas is higher right now. (8:00) We're closer to, you know, four and a half, something like that.

(8:02) But to have even a balanced, equal, you know, housing market, we've got to have somewhere between six to eight months of inventory on the books in order for buyers and sellers to kind of have equal weight. (8:13) So where are you seeing that inventory is going to come from that's going to push it to that beyond eight or nine months, which will really cause home prices to fall dramatically?

Vance Ginn

(8:23) Yeah, well, I think it goes to the supply and the demand side, right? (8:26) So the demand side, I think it's overpriced in the sense that people can't afford a lot of these homes. (8:32) And they're also being locked into a lot of their homes.

(8:34) Why would you sell your house right now? (8:36) If you had a 3% mortgage rate, now you got to get six and a half or 7%. (8:39) So you locked into your house.

(8:41) So that reduces supply. (8:43) At the same time, there's not going to be as much demand because the interest rates are so high. (8:47) Affordability is so high around us.

(8:49) And going back to the 2000s, we saw kind of this boom and then bust cycle within the housing market whenever interest rates were left too low for too long. (8:57) And then you had a situation of this everybody own a home sort of American dream sort of pushed by Fannie Mae, Freddie Mac. (9:04) Well, not Fannie Mae and Freddie Mac, but some of these government-sponsored enterprises that were going on at the time.

(9:09) And that led to a huge increase in demand. (9:12) And then it collapsed later on. (9:14) But also to your point, some of these banks were giving out no check on income, mortgages, things of that nature.

(9:20) That's happening again now. (9:22) I mean, there's still a lot of liquidity that's out there in the marketplace. (9:26) And that's setting us up, in my view, to a crash later on.

(9:29) And some of these markets, we've already seen that. (9:31) In Austin, the housing market's been going down. (9:33) I think it's down about 8% or 9% over the last year or so.

(9:36) There are other markets that are going down because you saw a huge increase over several years. (9:41) And so when you look at the supply and the demand part of the housing market, I think it's fragile. (9:47) I think that there are a lot of indicators that it's bound to come down, given the affordability issue that's happening across the country.

Mike Mills

(9:55) Yeah. (9:56) Well, I definitely agree on the demand side, for sure, because we've seen that. (9:59) Again, like I stated in my intro there, right now, we are at the lowest purchase volume as far as transactions are concerned that we've seen in 35 years.

(10:08) I mean, it's literally the lowest market. (10:10) But then that, on the other side, is where I look and say, OK, well, the demand's already completely evaporated. (10:15) I mean, because it's lower than it's ever been, or not ever, but in a very, very long time.

(10:20) And so, at least from what I'm seeing, on the demand side, we've already experienced that. (10:26) That's there. (10:26) Now, it could still get worse, because I'm sure, as we'll talk about a little bit more, too, I think the economy is probably in a position that it's not going to get better anytime soon.

(10:34) It's actually probably going to head the other direction. (10:37) So that could probably impact demand even further. (10:40) But go ahead.

Vance Ginn

(10:42) Well, one thing to think about, Mike, is that if we have restricted supply, like you're saying here, and demand is falling, if you shift the demand curve to the left, you would see lower prices. (10:53) And to me, that's what's kind of holding this together right now, is that demand is falling off, supply is increasing slowly, and that's helping to keep prices from falling too quickly. (11:05) But that may change pretty abruptly, like it did during the 2000s.

(11:11) I mean, people in 2006 were still like Ben Bernanke. (11:14) There was their chairman saying that nothing's happened to the housing market, everything is OK. (11:17) And then everything hit the fan in late 2006 and 2007.

(11:21) So what I want to make sure that I do is to look about what's coming along on the horizon, not necessarily just what's happening today.

Mike Mills

(11:29) Right. (11:30) Yeah. (11:30) No, I totally understand that.

(11:31) And that's where I kind of come from a point of view where I think of us, because you talk to any realtor, any lender, any title company, anybody in the housing industry, and we would tell you that we've been in the heavy recession for the last two and a half years. (11:45) So we are kind of almost like the canary in the coal mine to some extent, because we've been experiencing it, anybody that's been in our industry. (11:53) And I think it's starting to bleed into the rest of the economy, which through job numbers and some of the inflated GDP, that's all based on government spending.

(12:01) We're seeing all that stuff kind of trickle into it as well. (12:03) But I guess where I'm coming from as far as like the demand piece, I understand the supply side is where I don't know where we're going to get a glut of supply, because it's going to come either from massive job losses, which is possible. (12:16) But we're talking we're at probably 4% of unemployment right now.

(12:22) It's maybe even a little bit higher, if we're being honest. (12:25) But even back in 2008, I think we were somewhere around 10%. (12:30) And so it was quite a bit higher.

(12:31) So we'd have to see a big spike in that. (12:33) People have more equity now than they've had at any point in the history of homeownership, essentially, because we've had so much appreciation that's occurred in the last couple of years. (12:42) So you're not going to see people necessarily underwater.

(12:45) Now, if you bought in the last couple of years, maybe. (12:47) But for the most part, they have a lot of equity there. (12:50) And they're not planning on moving.

(12:52) So you've got people that are locked into their homes. (12:54) Builders are not building right now. (12:55) I mean, in fact, even with the shortage that we've had in 2024, building permits so far are down 7%.

(13:01) Housing starts are down 16%. (13:03) So it's not like they're ramping up building either. (13:07) So it's kind of like I look at it and go, OK, the demand, yes, I definitely see that side.

(13:11) The supply side, I don't know, because I just don't see where the supply comes from. (13:15) Now, will it mean that we will see a plateau of appreciation? (13:18) Absolutely.

(13:19) We've already seen that. (13:20) And I do think prices will come down some. (13:22) They've done it in Texas a little bit, like you said, in Austin.

(13:25) But I think Austin is a very unique market in that it was literally the hottest market in the country, you know, back in the height of all this stuff. (13:36) And so you're going to expect any time you're way up that you're going to make, you know, have some correction that comes down. (13:41) And a lot of those declines, you know, you're seeing in the house that was listed for 2 million dropped down to 1.7, right?

(13:48) I mean, that's a limited purchase market as it is. (13:51) You know, there's not a lot of people searching for those. (13:53) So I do think that there's going to be a small housing correction for sure, which we definitely need.

(13:57) And I want like I want affordability to come down. (14:01) I just don't know that we're going to see a bust because I don't see where the glut of supply comes from. (14:05) That's just what I look at it.

Vance Ginn

(14:07) That makes sense. (14:08) That makes sense. (14:09) I think maybe time will tell.

(14:11) But there's and, you know, a lot of this stuff happens pretty quickly, just like the unemployment rate is usually a lagging indicator for the labor market. (14:18) And right now it's at 4.3 percent nationally, 4.1 percent here in Texas. (14:23) But it's went up from from 3.5 percent a year ago nationally to 4.3 percent. (14:28) I mean, that's almost a full percentage point within a year. (14:32) And usually if you have a half percentage point increase in the unemployment rate over six months, then that's indication of a recession. (14:38) And so it can go up really quickly.

(14:40) And we're not seeing a substantial number of job losses just just yet. (14:43) But the last number was one hundred fourteen thousand. (14:46) As you probably know, to the Department of Labor just revised down over the last year, a million, nearly a million jobs, eight hundred eighteen thousand.

(14:53) And that was after the revisions of three hundred thousand before that.

Mike Mills

(14:57) So there's a million two when you put them all together. (14:59) Yeah, yeah, yeah, yeah.

Vance Ginn

(15:00) And, you know, even Texas lost jobs last month of nine thousand in July and lost fourteen thousand in June. (15:06) Some of that was from Hurricane Burl down, you know, along the Gulf Coast and Houston and everything. (15:10) But for two months, that's kind of interesting to me.

(15:13) And Texas being the, you know, the place where everything's been happening since the pandemic, it's been Texas and Florida that have really led the way in job creation. (15:21) If we start slowing down, we've got some major problems. (15:24) Twenty two of twenty twenty two of fifty states have lost jobs over the last month and more than half of the states have increases in their unemployment rate.

(15:34) So there's a lot of stuff that's going on, you know, across the economy.

Mike Mills

(15:37) Yeah, the the job thing really frustrates me because I don't know. (15:41) I'm sure you know who Danielle DeMartino Booth is, correct? (15:45) OK, so I love her.

(15:46) I follow her a lot on Twitter, different aspects. (15:49) And she's been on this for quite a while. (15:52) And as far as like the job numbers concerned, what's coming out of the BLS?

(15:55) And, you know, I hate to get political with stuff like this because I'm generally I'm a pretty neutral guy. (16:00) I think there's a lot of messed up parts on both sides of the aisle here. (16:04) But it's frustrating when a department of the government is putting out numbers that are consistently, you know, inaccurate.

(16:11) Look, I understand it's not a perfect science. (16:15) There's a lot of equations and algorithms based on predictions and, you know, the birth death model for businesses and how all that's factored in. (16:22) I totally understand that.

(16:23) But when you're talking about revisions of this significant level and these numbers that move markets the way they have, I mean, the stock market alone right now seems like it is so overinflated based off of numbers that just aren't real. (16:36) And, you know, I think you'll probably know this number, but, you know, it's something like, you know, 30 or 40 percent of Americans are even in the market in general. (16:45) So it doesn't impact the average everyday American necessarily except for pensions and 401ks and that kind of thing.

Vance Ginn

(16:51) I was going to say that. (16:52) Yeah.

Mike Mills

(16:52) Yeah. (16:52) But as far as, you know, what we're getting from the current administration that's coming out in these numbers and then being so far off and then having the revisions that don't impact the news cycle as much as they do on the initial headlines and then having stuff like this come out. (17:08) And then you have on top of that a corporate media that definitely has a certain bias in one direction.

(17:14) So it isn't as heavily reported. (17:16) And all of this leads to creating economic conditions that on paper or on the media seem like, oh, the economy is booming and we're doing great. (17:24) But you talk to the average person and they can't afford to pay their grocery bills.

(17:27) They can't afford to put gas in their tank. (17:29) They're working two jobs and nobody is feeling this prosperity that we see all over the headlines.

Vance Ginn

(17:34) No, man, preach. (17:36) That's exactly right. (17:37) Yeah.

(17:38) I mean, it's one thing after another right now. (17:40) And I don't really foresee where that's going to be turned around anytime soon, because we still have a lot of inflationary pressure that are out there. (17:48) Yes, it's moderated, but it's still there.

(17:51) You know, Kamala Harris is talking about price controls and everything. (17:54) And going back to your, which is a bad idea, by the way, we can get into that, too. (17:57) But, you know, I was chief economist for the Office of Management and Budget in the Trump White House for a year.

(18:03) So June 2019 to May of 2020. (18:06) So in 2019, things were going really well. (18:09) Right.

(18:09) Like the job numbers were actually going up a little bit, but not by a lot because you're right. (18:13) They do surveys and they do these algorithms that they use to estimate what the what the job creation rates are over the last year. (18:20) And they use a lot of the benchmarks from the last couple of years.

(18:23) OK. (18:24) And so at that time, job numbers kept going up. (18:27) But then, of course, we had COVID and then everything else hit the fan.

(18:30) And then I moved back to Texas to try to get some sense of freedom instead of up there. (18:34) But but right now, what seems to be going on is that, you know, they're still using some of the numbers after COVID and the lockdowns. (18:42) So all these numbers are kind of just screwed up.

(18:46) What the benchmarks are. (18:48) And so that can create some of these other problems. (18:51) I'm not saying there's not any political games that are going on.

(18:55) I tend to think that there's not as much of that happening at the BLS and other places. (18:59) But at the same time, politics is.

Mike Mills

(19:01) Well, I mean, there are institutions that are run by individuals. (19:03) So I mean, not everybody is playing political games. (19:07) Some people are just going to work and doing their job to the best of their ability with the information they have.

Vance Ginn

(19:11) Because you've got a lot of career staff, right? (19:13) Yes. (19:13) Which can be good and bad sometimes.

(19:16) But the career staff are really doing a lot of this stuff. (19:18) And then the political appointees, they're the ones that are reporting it. (19:23) And you see them in the news and everything.

(19:24) But behind the scenes, it's the it's the career staff that does a lot of that work. (19:29) But regardless, let's say it's politics or not politics. (19:31) These are major revisions that we've never seen.

(19:34) And I think a lot of that has to do with the benchmarks are all messed up because of COVID and the lockdowns. (19:39) And, you know, we lost 22 million jobs and all the other things that were going on. (19:43) Some of that's still feeding through through these numbers.

(19:46) But it also you made a really good point, though, is that we get these huge headline numbers and the media likes to tout them and everything. (19:51) But then when the revisions come out later, it's like quiet crickets. (19:55) Nobody's nobody's saying anything.

(19:56) And that's where folks like you and me and others and my podcast Let Deal Prosper show. (20:01) I have a this week's economy where I talk about all the economic stuff that's going on and all the major platforms. (20:06) And I try to highlight a lot of this stuff that's going on.

(20:09) And, you know, they like to talk about average weekly earnings are up right now in real terms, inflation adjusted terms. (20:15) Well, not since January of 2021. (20:18) They're still down about 4 percent.

(20:20) And this is why I think people feel so far behind. (20:22) You mentioned earlier, too, that, you know, a lot of the numbers are indicating that we're not a recession, that we have some economic growth and everything. (20:29) But 58 percent of Americans believe we're in a recession right now.

Mike Mills

(20:33) Yes.

Vance Ginn

(20:33) Yeah. (20:34) And so that indicates to me that this is not hitting Main Street. (20:37) It may be hitting Wall Street and others, but it's not hitting Main Street.

(20:40) And I also agree with you that the stock market is way overpriced. (20:44) I thought that correction that we had about a week or it was two weeks ago that Monday collapse was going to be an indication of a correction in the marketplace. (20:52) And now we're back already to record highs.

(20:54) I mean, it's the P ratios are just through the roof.

Mike Mills

(20:57) Well, the you know, that that particular crash or day, you know, fall for that day crash is a strong word, but was obviously related to the Bank of Japan announcing that they were going to raise interest rates. (21:10) They didn't even do anything. (21:11) They just said they were going to raise rates.

(21:13) And then everybody that was doing that carry trade where they were taking in and then getting it at zero percent and then investing it in the U.S. market and getting 5 percent return. (21:21) They all sold off everything and moved it all around. (21:23) But here's what I do believe on that is, you know, we went through this this this 2008 thing is actually very indicative of what's happening.

(21:32) It's just in a different sector, because in 2008, we had all of these, you know, very (21:39) complicated financial instruments that were built around mortgages with these different (21:43) derivatives and these, you know, packaging, you know, C rating loans with a rating loans (21:48) and then getting the rating agencies involved with, you know, putting these different package (21:54) deals or these securities together and then saying that they were rated at this higher (21:58) level when they really weren't and they were put together.

(22:00) And there was just this deck of, you know, house of cards that was stacked up and it was all based on these bad mortgages. (22:05) Well, now fast forward to today. (22:08) That doesn't happen with mortgages.

(22:09) It's I mean, we're I do them every day. (22:11) The rules are strict. (22:12) You know, we have to verify everything.

(22:14) It's actually getting stricter. (22:15) There's the money supply. (22:17) And because nowadays there's a lot of buybacks because people can't pay their mortgage and as, you know, independent lenders or independent mortgage banks, if we sell a loan to somebody and then they don't pay it the first 90 days, we got to buy that thing back.

(22:28) So, you know, it's getting very restrictive to some extent there. (22:31) But what we do have is now we have all of these different types of debt instruments that are based on currencies that are based on different markets around the around the globe because we're a very global economy these days. (22:43) And so there's all of these different that we don't even fully know.

(22:47) And I've heard of a couple. (22:48) There's another podcast I love called The All In Podcast, where there's a lot of Silicon Valley guys that talk about a lot of this stuff. (22:54) And, you know, all of these different instruments that are now used to invest in debt on top of debt on top of debt.

(23:00) And so when you take one little thing like the Bank of Japan announcing that they're going to raise rates, that can cause a ripple effect through the rest of the world economy. (23:10) So did that incident cause everything to crash? (23:12) No, it was a, you know, one change and only because they walked it back and said, OK, never mind, never mind.

Vance Ginn

(23:17) Yeah, right.

Mike Mills

(23:18) But yeah, but what other thing could occur that we're not even aware of that is a problem right now that could trigger another what they call Black Swan event that would cause everything to, you know, to crash back down again? (23:31) So so that's the real concern, I think, is again, it goes back to the what are the unknowns? (23:35) Because back in 2008, we didn't realize as a as a broader economy, broader society that those instruments were in play and were causing that much risk.

(23:44) Those on the inside knew it, but those on the outside didn't. (23:47) And so what you know, what things like that exist today that could cause a similar issue, not related to housing, but related to the economy as a whole?

Vance Ginn

(23:55) Yeah, yeah, definitely. (23:57) You know, and what I call those the contagion effects, you get contagion effects that happen across the globe and little things here and there. (24:04) And you've also got a lot of talk about the Federal Reserve.

(24:06) I think he's also Jerome Powell, the Federal Reserve chairman has kind of helped to support a higher stock market by indicating that next month they're going to cut the federal funds rate, their rate that they they target for overnight lending rate between banks from 5.25 to 5.5 percent is the range now, probably 25 basis points to 5 to 5.25 percent. (24:27) But, you know, and I've been kind of on the record saying I don't think that they should cut yet. (24:32) I'm still more worried about inflation.

(24:35) I think that the Federal Reserve, if we're going to have a Federal Reserve, and I actually don't think we should have a Federal Reserve, there should not be a central bank in the United States. (24:42) They shouldn't control the money supply or interest rates. (24:44) That should be the job of the market, not by.

Mike Mills

(24:46) Careful, though, they'll treat you like they'll treat you like Saudi Arabia or, I mean, Iraq, because we go and invade countries for that kind of stuff. (24:56) So be careful.

Vance Ginn

(24:56) Yeah, yeah, yeah. (24:58) But but but with all that, I mean, you know, they have these interest rates that are out there right now. (25:03) There's a lot of money supply that's been going around.

(25:06) But, you know, this is only the fourth time, I believe, where the money supply of M2 is actually contracting. (25:12) And it's backed up a little bit now, but it contracted for a little over a year. (25:16) And that will start to help with some of the bubbles popping.

(25:19) And usually it takes there's a lagged effect. (25:21) Right. (25:21) So usually it takes a year to two years, so let's say a year and a half before you really start to feel the effects throughout the economy of what that would look like.

(25:29) So if some of these other markets like mortgage backed securities, the Treasury securities and everything else, if that's not even really felt in the marketplace just yet, then we still have to wait for those effects to happen over time. (25:42) And that's similar to what we saw after the 08, 09 and 10. (25:45) I remember the QE1, QE2, all the quantitative easing that they did back then was to buy a lot of other assets that weren't trade securities and Treasury bonds.

(25:54) A lot of those matured or they sold them off. (25:56) But we still have a lot of long term Treasury debt, short term Treasury bills, which is usually what they use. (26:01) But mortgage backed securities still makes up a large portion of the balance sheet and agency debt.

(26:06) And so when all of that is considered into the marketplace, we would have much higher interest rates throughout the economy that I think would have corrected the market a lot faster. (26:15) But they wanted to keep interest rates lower for longer, which is one of the issues I have with the mortgage market, the housing boom and whenever the bust happens with the housing boom and also the stock market boom. (26:25) Because usually what you see, Mike, is that CPI, consumer price inflation, doesn't increase overnight.

(26:32) Usually what you see is asset prices increase first. (26:36) And then that tends to trickle down to inflation across the overall economy. (26:41) And so I still think we've seen these asset prices that have a lot of inflationary pressures in them that I think are going to be felt even longer for inflation.

(26:51) And this is one reason why I think that they probably should not cut, because if you cut too soon and you put more money in the economy, you create more inflationary pressures. (26:58) And this is what happened in the late 1970s before Volcker came in. (27:02) Actually, Volcker came in, he raised interest rates, started to reduce the money supply.

(27:07) But then they said, oh, OK, well, this is hurting the economy. (27:09) So they started cutting interest rates again, put more money supply in, and then inflation went up even higher than it did before. (27:15) So we don't want to repeat the mistakes of the past, given the lessons that we should have learned at that time.

Mike Mills

(27:21) Yeah, I've seen that quite a bit mentioned in different circles of the idea that we could go through a period where they start lowering rates a little bit, things kind of settle down some. (27:34) But as rates come down, especially these days, because the market is so speculative, that people start borrowing heavily again, pumping money back in, back in, back in. (27:43) And then you see inflation really start to skyrocket, because really and truly, in certain sectors, well, I think here's where people get confused on the inflation argument, is that we're talking about the rate of inflation.

(27:57) Meaning when it slows down, all that means is that it's not going up as fast as it was going up. (28:04) It does not mean that it has come down, right? (28:07) It does not mean that the prices have come down.

(28:09) It just means they're slowing their rate of increasing. (28:12) So we haven't seen a reset in really any housing hasn't seen it. (28:17) You know, we're obviously people in the grocery world, you know, buying groceries hasn't seen it.

(28:22) Maybe oil and gas is as volatile as it is all the time anyway. (28:25) So that's not a great example sometimes, because energy costs move for many other factors not related directly to the money supply. (28:32) But all of that stuff plays a role.

(28:34) So, you know, I have heard and seen where there are some economists that are concerned about if we do start cutting rates when we haven't really gotten back any of the money that we lost to inflation, that it's going to spike it back up. (28:48) And then we're going to have a real issue at that point. (28:50) And it's going to get even worse.

Vance Ginn

(28:51) Yeah, yeah. (28:54) One of my concerns here, too, is to put in the fiscal side of things is that Congress keeps overspending. (29:00) I mean, we're expected to run two trillion dollars a year in national debt.

(29:03) We're paying more than a trillion dollars in interest payments on the debt alone. (29:07) And I don't care if somebody is a progressive or conservative or more libertarian like me. (29:11) I think we can all think about better ways to use that trillion dollars.

(29:15) And so if the interest rates stay too high for too long, it's going to be even more costly, given that we have more than thirty five trillion dollars in national debt. (29:23) So there is some pressure on the Fed to lower interest rates to help finance that national debt as well, instead of really doing the hard work by Congress of reducing spending. (29:35) We're spending way too much.

(29:37) And so we don't have a revenue problem. (29:40) We've got a spending problem. (29:41) Revenue continues to be at record levels when you look at the tax revenue collections that are coming in.

(29:47) Yet they keep spending all this money. (29:48) And we've got to find a way. (29:51) I know this is also off topic a lot of times or not being one to talk about, but we've got to do something about Social Security and Medicare.

(29:58) Those are politically very difficult topics, but it's going to be more politically difficult whenever we have a debt crisis and further economic strife, given that we don't want to touch these things that are going to cause more problems over time. (30:12) And so, you know, when you spend too much, you tax, then you tax too much. (30:17) Interest rates are going to be higher for longer and you're going to have more inflationary pressures.

(30:22) And so those are all the things that I think are really going to be a problem for the next few years, unless we really can see some things start to turn around. (30:30) And this isn't really too political in the sense that even as someone who worked in the Trump administration, like, you know, Trump is also a big spender, just like Kamala Harris is a big spender. (30:40) And the deficit went up a lot when Trump was there as well.

(30:44) I will say that OMB, we were trying to tighten the strings for spending. (30:49) We found $4.6 trillion in savings over a decade. (30:52) But then, of course, COVID hit and then all that was out the window, if Congress would even have listened at all.

(30:57) And so this is something that is really tough to deal with. (31:00) And it's one reason why, Mike, I've worked with a lot of state think tanks, whether it be in Texas or Louisiana, 15 of them across the country, because states are really where the action is happening, not necessarily in Congress. (31:11) And I think that's something, too, that can help out with the longer term inventories and supply.

(31:17) It's not necessarily the federal level, but it's local level, like local zoning laws, the amount of the space, the lot sizes, you know, minimizing, you know, reducing those lot sizes and allowing for more multifamily homes could also increase the supply faster. (31:34) That would help to deal with some of the higher prices that are across the state and across the country.

Mike Mills

(31:39) Yeah, well, in Texas, I mean, there was something that was said that half of the new home sales in the entire country are concentrated in 10 cities and four of them are in Texas. (31:49) And it's primarily because of the friendly zoning and regulation environments that we have here that allow builders to get in and start building and putting homes up, you know, at a quicker pace and, you know, with less roadblocks, essentially. (32:01) So this is the thing that I talk about quite a bit on my market updates when I do them every week, which is the national debt.

(32:07) So, you know, I'm not, I'm 45 years old, been through a few election cycles. (32:13) And I remember, you know, and granted it's, you know, it's every few years and you see people come around. (32:17) But I do remember when you talk about national debt, it was always a subject of conversation in whether it be debates or political ads or whatever the case may be, because if you were the incumbent, whatever it was, Senate, House, you know, president, regardless, and the deficit was high.

(32:34) If you were coming in as the challenger to the incumbent, that would be something you would often focus on because no matter what anybody says, the number one issue to every American in the country is the economy. (32:46) It's number one. (32:46) I'm always, no matter what, what is it?

(32:48) You know, what's the most important issue? (32:50) It's the economy, stupid. (32:51) Like that's always what it is.

(32:52) So and so there would always be a push of, you know, they're spending or they're cutting or they're doing whatever to raise the national debt. (32:59) We've got to get it under control, whether or not anything ever happened because it never does. (33:02) But regardless of what happened, they would always talk about it.

(33:06) Right. (33:07) And in today, this is, you know, one of the most consequential election years we've had in a long time. (33:12) It seems like we say that every four years, but but here we are.

(33:16) And I don't hear that being discussed on either side. (33:19) I don't hear it from the Biden, Harris or whatever they are, administration or the Trump administration or the Trump campaign that's coming in. (33:27) You don't hear him talking about it.

(33:29) To me, that is very concerning because it means that either they're just not interested in discussing that because, you know, obviously on the on the red team, you know, they want to cut taxes, which decreases revenue and still they still do their own little spending. (33:43) And on the blue team, they want to spend a lot more and raise taxes some degree, but they never do. (33:50) So there's a lot of rhetoric around it, but there's never any actual action.

(33:54) So why do you think in this cycle in particular, we are not hearing about what is possibly one of the biggest existential crisis as it comes as it relates to the US economy about our debt load and how it's increased 14 trillion dollars in the last four years, and it took 250 years to get to 14 trillion prior to that. (34:14) So why is nobody talking about it?

Vance Ginn

(34:16) Yeah, yeah. (34:19) There's a lot of reasons, but I think it kind of boils down to populism. (34:22) I think populism from both sides is driving the narrative.

(34:26) It's got to be about what they can sell. (34:29) And typically, I mean, look, politicians are always selling something because they got to win reelection or get elected to begin with. (34:35) But at the same time, right now, it seems like populism on steroids from really both sides.

(34:41) I mean, look, JD Vance came out and said that we need a five thousand dollar child tax credit, which, of course, is costly. (34:48) That's a huge expense. (34:49) But, you know, we could debate the merits of it, but it said five thousand dollars.

(34:52) Well, then, like the next day, Kamala Harris came out and said six thousand dollars. (34:55) So we're just upping the ante trying to buy votes along the way. (34:59) And then Kamala Harris comes out with a twenty five thousand dollar first time homebuyer tax credit or a subsidy, whatever, which is not a good policy.

(35:07) But of course, that would be very costly. (35:09) You know, Kamala Harris will talk about raising taxes on the rich. (35:12) But, you know, the top one percent of income earners pay 40 percent of the taxes.

(35:16) Top 10 percent pay about 70 percent of the taxes. (35:19) So how much more do you want them to pay in taxes? (35:22) And incentives matter.

(35:23) When you raise taxes, you get less ability, less incentive to work, less economic growth.

Mike Mills

(35:29) Real quick on that. (35:30) Yeah, I find that hilarious for them, because if you go to the if you look at the DNC, the National Convention, and they're talking about raising taxes on billionaires. (35:39) And yet if you look at all of the you know, the the people in the in the suites and you know, they're all that's where all of the billionaires are.

(35:48) So you really think that the Democratic Party, even if you're even if you're for that, do you really think that they're actually going to do that? (35:57) No, I'm not going to do that. (35:58) They never have.

(35:59) They talk about it all the time. (36:00) It's never happened. (36:01) Kamala Harris has changed her opinion on that stuff five times.

(36:04) So it's not something that's going to occur even still. (36:06) It's all just rhetoric. (36:07) Yeah.

(36:08) And that's the frustrating part is that you and you know, when you look at the libertarian side of things, when you're just like, hey, can we let the market decide versus trying to put all these controls on things? (36:18) It seems to be a better way. (36:20) There's, you know, look, we can't I don't believe in unfettered capitalism, because you've got to have guardrails.

(36:25) There has to be some rules in play. (36:27) Otherwise, which we're going to get into in a second, you get into some antitrust issues. (36:30) But but there's got to be some rules in play.

(36:32) But either way, most of this stuff is is is more about grandstanding and saying what they're going to do and not any action. (36:40) Because I think I don't know, you could tell me, but over the last I mean, I don't know, 16, 20 years, how much has Congress actually done? (36:49) How many laws have actually been passed and put into play that had impacts that weren't a tax cut or something along those lines?

(36:56) Because there I don't see much, honestly.

Vance Ginn

(36:59) No, I mean, all I can think of is they let the I think the top two income tax rates from the George W. (37:05) Bush administration from way back, they let those expire by Obama. (37:09) But other than that, I mean, yeah, there hasn't been much in the way of raising taxes.

(37:14) And and this is the part of it, I think, that we have a longer term problem when you think about Social Security and Medicare is how are we going to pay for these things over time? (37:21) Nothing is free. (37:22) Right.

(37:23) And so this is a huge cost. (37:24) And I would mention, too, I mean, it's not just the the Democrats with Kamala Harris and them. (37:28) I mentioned J.D. Vance on the five thousand dollar tax credit. (37:32) But, you know, I've also had some issues and I've talked about this publicly. (37:35) But with with the no tax on tips, you know, I think that that's also trying to appeal to a very certain group of people who get tips, who otherwise would pay taxes on those. (37:49) Some of them are not taxed anyway, but a lot of them are.

(37:52) You know, why would we be narrowing the tax base? (37:54) To me, sound tax policy is the broadest base possible with the lowest rates. (37:58) I want to see a flat income tax rate, you know, and not have the progressive income tax system that we have today that distorts investments and people's willingness to work and everything else, not going to something that's going to narrow the tax base, just like no social security, no tax and social security, no federal income tax and payroll taxes.

(38:18) For one, that's going to deplete the Social Security Trust Fund even faster and make it go bankrupt faster. (38:23) But but it also means that we're going to run larger budget deficits. (38:27) And so those things there and there's not the connection with less spending.

(38:30) And if the President Trump and Vance want to come out and say these things about, you know, no tax on tips and other things, which a lot of you will start getting paid in tips. (38:39) I know I want to be paid.

Mike Mills

(38:40) Well, we'll see. (38:40) That's the that is the thing that I hear on the other side of it is that is that all you're going to see is a lot of corporate bonuses and corporate payouts in the in the in the millions of dollars now be classified as some version of a tip. (38:54) And now you're not going to be paying taxes on that.

(38:55) So it sounds good in theory for the. (38:58) But but like you said a minute ago, the vast majority of people that are earning a good chunk of their income on tips, they're not paying taxes anyway because they're under that threshold of how much income they're earning off that money. (39:10) I mean, I was a bartender and waiter for years.

(39:12) We didn't pay hardly any taxes on my tips. (39:14) I mean, you paid in the front, but you got a big refund every year. (39:17) So it wasn't there's not that's not a big issue anyway, other than it just sounds really good.

(39:21) But then it ultimately benefits those that are are skirting around the tax laws anyway.

Vance Ginn

(39:26) Yeah, yeah, yeah. (39:27) And in the federal security, when only 40 percent of Social Security earners on average pay federal income taxes above what they get in because you can reach up to like twenty five thousand dollars or something like that in income. (39:39) So really, it's helping the upper income people who get capital gains and other types and pensions and stuff like that.

(39:46) They're the ones that would benefit from that. (39:48) And so it's very small, it's very targeted segments of the population to win votes, whether it's from the left or the right. (39:55) And I get it's a political game.

(39:57) But but for me as an economist and a principled economist, I try to be anyway, you know, I want to make sure that, you know, spending restraint is there. (40:05) I want to get back to limited government, you know, like constitutional roles of government. (40:10) We're way too far from that.

(40:12) And if we do that, we can have lower taxes, we can get rid of some of some taxes. (40:16) But until then, we're running massive deficits that are taxing us today through inflation, higher interest rates and higher taxes on our kids and grandkids over time. (40:27) So we're still paying for it today.

(40:28) It's just through different means.

Mike Mills

(40:30) Yeah, yeah. (40:31) It's still coming out of your pocket one way or another, whether you realize it or not. (40:34) It's just a matter of how they're getting to it.

(40:35) And and it's just like they do with, you know, like the right. (40:38) They call it the Patriot Act, right? (40:40) When they had the Patriots.

(40:41) Well, if you're not a you're not a patriot, if you don't support the Patriot Act, it's like, yes, I don't want you spying on everything that I do. (40:47) I'd prefer that not to be the case. (40:49) But that doesn't mean I'm not a patriot.

(40:50) It just means it's not something on the top of my list. (40:52) But that's what politicians do. (40:54) They mask things with no tax on tips.

(40:57) OK, well, the people paying tips or getting tips aren't being taxed that heavily as it is. (41:02) And this is really just another loophole for somebody that makes a ton of money to have something not taxed. (41:07) So, I mean, yeah, it's really most more often than not what it is.

Vance Ginn

(41:10) Inflation may increase by the same amount, because let's say that the revenue does go down. (41:14) You run deficits because you don't control spending. (41:16) The Federal Reserve will print that money.

(41:18) And then you just get inflation. (41:19) So you've depleted you devalued your dollar just by trying to do something by less target.

Mike Mills

(41:27) Yeah, I want to get so I could go on in this stuff all day long, but I do want to get into housing a little bit more when and it's around antitrust. (41:36) So these days in our world, you know, with the big suit that went against the National Association of Realtors related to real estate agents in their commission structures, which, you know, if I'm being honest, there is something to the fact that, you know, how the structures were set up and how they were paid to the amount of money. (41:52) Because when you look at the rising price of homes and, you know, if you're selling a two million dollar home, did you really earn, you know, three percent of that?

(42:00) Maybe, maybe not. (42:00) I can I can understand that argument. (42:02) I don't understand the argument of the idea that, you know, we're no longer allowing sellers because it was always a pay it forward type of environment, which I'm I think is a valuable thing, especially when it comes to home ownership.

(42:14) If if I buy my house and the seller pays my agent so they can represent me and do what's in my best interest, then when I go to sell my house, I do the same thing and so on and so on and so on. (42:24) And so now they've basically not yet because they haven't said you can't do it. (42:28) They've just limited on the advertising of it, which is fine.

(42:31) But in this in this environment right now, buyers agents are still getting paid as of August 17th because people are trying to sell their homes. (42:39) But as soon as we get to a place where interest rates are back down again and the demand for housing is up and sellers are getting multiple offers, they're not going to pay buyers. (42:48) It's going it's going to go away at some point or at least be significantly reduced.

(42:52) Then you get into what's going on in the home building side, which is, I think, causing a limitation on supply where we had, you know, back in the 90s, the top 10 homebuilders had something like 30 percent or excuse me, like 10 percent of market share. (43:06) Now, those top 10 have 50 percent because of consolidation, because they're buying up all these other smaller builders. (43:12) They have lenders, which, you know, as a as an independent mortgage bank, I hate the builders lenders because they have such an advantage over us in those circumstances because they can just build it into the price of the home where they can give these reduced interest rates and all these incentives that, again, are built into the price of the home that buyers are committed to.

(43:29) And then if you buy a new house, you want to turn around and sell it in two, three years. (43:32) You're going to have a really hard time getting the same value out. (43:35) And so all of this goes into that idea of antitrust, where you would think, seeing as supposedly the Democratic Party is the antitrust party and they've been in control 12 of the last 16 years, that it would have gotten better.

(43:50) But actually, it's gotten dramatically worse. (43:52) So where do you see the government's role in that as far as as it relates to housing? (43:58) Because there's so many pieces that are playing a role.

(44:00) Like you brought the price control thing earlier. (44:02) I mean, that's a whole other thing. (44:03) But you're framing that argument for things that aren't an issue, but then staying away from the stuff that actually is an issue and is causing problems for the average consumer.

Vance Ginn

(44:14) Yeah, yeah. (44:16) So this is kind of new for me. (44:18) So I'm just kind of thinking, talking with you on this, because I haven't really studied that particular area as much.

(44:24) But my question usually whenever I hear about price controls or antitrust issues and a monopoly power from a certain group because they have too much of the share of the marketplace is what sort of government problem regulations are keeping competition to come into the marketplace? (44:47) My first instinct isn't to say, what's the market failure and how can we get government to solve it? (44:52) It is, what is the government failure?

(44:55) Because in my view, Mike, I'm kind of radical on this, is I think in the private sector that there are not monopolies. (45:02) But as long as there is opportunities for competition and for other firms to enter the marketplace, that there's not a monopoly. (45:10) Now, there could be one or two big companies like Standard Oil and that sort of thing that happened.

(45:15) But it's usually because of the demand, like Microsoft or Google Search. (45:20) I know that there's a recent case on that. (45:22) But I actually think most people prefer Google Search.

(45:25) And that's why they become so dominant in the market. (45:27) And so without knowing all these builders and everything, are there restrictions that are keeping others entering the market? (45:35) And have the cost become such that these guys, the 10 that you said, have they been able to keep their average cost lower than others?

(45:42) And therefore, that's why the consumers go to them. (45:45) Those are some of the questions that I would have.

Mike Mills

(45:48) Well, so one that I kind of know about because I've looked at it is like the Microsoft one. (45:52) So here's an example of why this is an issue. (45:55) And again, I don't know the solution to it.

(45:57) This is how it happens is Microsoft gets to such a big portion of the market, right? (46:03) That when they decide they're going to add another piece to their suite of products, right, particularly Teams. (46:12) So Microsoft Teams.

(46:13) Microsoft Teams is in direct competition with Zoom, with StreamYard, with all these other video platforms that are out there, right? (46:20) But because of Microsoft's position in the market where they have control or enterprise accounts with large companies and individuals and everybody has a PC and all that stuff, that when they introduce a product that competes directly with these other products, they can just automatically include it inside their suite of products at, quote, no charge or reduced amount or whatever the case may be. (46:42) The idea being that once they get people onto Microsoft Teams and using Microsoft Teams, then those other platforms essentially go away because the market for them shrinks up.

(46:52) The issue with that is that what if Teams, which it isn't, what if it's not as good of a product as Zoom or as these other ones, but because of Microsoft's big, huge influence on that market, they push those other guys out, and that isn't a true competition. (47:11) Because at that point, it's not the best product that's winning. (47:14) It's the group that has the most clout and the most money in that sector.

(47:18) You know what I mean?

Vance Ginn

(47:18) Yeah, yeah. (47:19) No, I follow that. (47:20) I just think that the consumer has a lot more sovereignty than we often give them credit for, because they could still buy an Apple product.

(47:27) They could buy other products that don't have to use Microsoft or Teams at all. (47:31) There is still competition that's out there. (47:33) Even though they may have a dominant amount, it doesn't mean that they will forever.

(47:37) In fact, most of the companies that had a market share 100 years ago do not have market share today. (47:42) The ones that have market share 50 years ago don't have the same market share today, and even 10 years ago, they don't have the same market share. (47:48) I think by focusing too much on one particular entity or others, we kind of get lost in the sense of, maybe they're providing the best service, maybe they're not, but that should be up to the consumer to be able to determine versus them.

(48:02) Because then, let's say that we do have antitrust come in, and they rule, and FTC rules, or whoever's going to rule on this. (48:08) The judge is going to rule that they have too much market share, and then you want to break them up. (48:13) Well, now have we done a disservice to the consumer?

(48:16) Because we should be basing it on the consumer welfare standard. (48:19) Is there a level of satisfaction in consumer welfare that's given to this marketplace? (48:24) Lower prices, because that's one thing.

(48:26) Microsoft's still pretty cheap. (48:27) They're providing Microsoft Teams where you can use it for no charge if you want to, I guess.

Mike Mills

(48:31) Yeah, that's because of economies of scale, though. (48:33) That's not necessarily because they do things more efficiently. (48:36) It's just like when you're bringing in trillions of dollars or billions of dollars in revenue every year, if you shave off a couple million to gain market share, no sweat out their back.

(48:44) They're still making a lot.

Vance Ginn

(48:45) But if the consumer is still using it, then they're still providing some sort of revenue to the entity. (48:53) From this perspective, I think breaking them up or having the government come in, it's being determined by a third party of what the marketplace is setting compared to the consumer and the producer determining what the prices should be. (49:06) I'm very hesitant of looking at antitrust policy, especially the way the government has done it over time, by them coming up with, we think we know what's best for the marketplace whenever the marketplace is already setting prices and people are acting within that market.

(49:23) Because the only thing I can do as an economist is to determine whether or not people are acting. (49:28) That's why I think people act rationally. (49:30) That's all I can observe is the activity that's happening in the marketplace.

(49:34) And so we can look at the opportunity cost and say, what are the trade-offs that are going on here? (49:38) For your example with Microsoft, maybe the trade-offs are too high. (49:42) But then what's the alternative?

(49:44) What's the trade-off that we choose instead? (49:46) And that to me becomes very costly whenever the government gets involved.

Mike Mills

(49:50) Yeah. (49:51) Well, I mean, I definitely think there should be limits on it for sure. (49:55) But at the same time, I look at it to some degree like I would look at a football game, right?

(50:00) I mean, when I've got two teams competing against each other, if I remove the refs from the game and the refs go away, well, that's a whole other game that we're playing now, right? (50:09) And if I remove the NFL and don't have restrictions on steroids and don't have restrictions on stealing signs and all the stuff that goes into people, look, I know the basics of economics is that people are going to act in their best interest, which is true. (50:25) However, a lot of times their best interests aren't necessarily rational.

(50:28) And so therefore, they're not exactly operating within the bounds of the standard textbook look at how an economy should behave. (50:36) And so a lot of that comes into play. (50:38) I mean, personally, I do think that there is a role to have guardrails.

(50:43) How much those guardrails are and how significant and who gets to pull those strings is a whole other thing. (50:48) But I do think there should be rules to some extent, like your Standard Oil one that you brought up.

Vance Ginn

(50:52) I mean, that was the thing. (50:54) The way I like to put it is that I believe in institutions. (50:57) The institutions matter.

(50:58) And then within those institutions, the government as being one institution is going to set the rules of the game. (51:03) And you should stay within that rule of the game. (51:05) But the government should also be a referee and not an active participant of the marketplace.

(51:11) And when that starts to happen, that's where I become very hesitant to see what goes on there.

Mike Mills

(51:17) Yeah. (51:17) What do you think, looking at the two administrations that are challenging for our, what do they call it? (51:25) Our illusion of choice.

(51:28) You get to pick one or two. (51:29) Which one do you want? (51:30) What about three?

(51:30) Well, there's no three is not an option. (51:32) You get one or two. (51:32) Okay, great.

(51:34) So when you look at that, what do you think? (51:36) Are there any policies or is there anything that, obviously, you're libertarian, or maybe there's things that we take away that could open up housing for bigger supply for construction to bring? (51:50) What's going to bring the price of homes down?

Vance Ginn

(51:52) Yeah, yeah. (51:53) I think one of them will be the higher interest rate for as long as it's been in place, and you get the lower demand over time. (52:00) But then on the supply side, you know, Austin just recently passed a measure that will allow for smaller lot sizes, minimum lot sizes, and then that will allow for more multifamily homes, things of that nature.

(52:15) So that will increase the supply. (52:17) Because one reason why housing prices have increased so fast in Austin, yes, people are moving there, but they're also moving in Dallas and Houston, and they haven't increased as fast, is because of the regulations that have been in place in the People's Republic of Austin, is what I like to call it, even though I don't live very far, but I definitely don't live in Austin. (52:33) So I think that is something that even the state legislature is going to be looking at a lot in this next session, is how can we start to remove some of those barriers?

(52:41) Last session, the legislature passed what's known as the Death Star, to where the regulations by local governments can't be by more than what the state sets. (52:50) And this could be another area where there are minimum regulations that are set for by the state for building that could then be across the entire state. (52:59) And some of that, you know, I want the government that's local to have the most control.

(53:06) But too often, we see is the local control goes too far, that's not preserving liberty. (53:12) And to me, government should only be in place to preserve liberty. (53:16) And by doing so, you need lower regulations.

(53:19) And liberty comes also by having more money in your pocket, and not having affordable crises like we're having across, even in Texas, where people can't afford their homes anymore. (53:29) And also property taxes. (53:31) I mean, I think another area that in Texas, we need to be working on is lowering property taxes.

(53:36) We haven't even gotten to this, but I'm actually I'm in favor of eliminating property taxes. (53:41) I think they're an immoral tax. (53:42) That's an unrealized capital gains tax that you pay year after year on the same asset that no other tax does.

(53:50) And you rent from the government forever, because you're always paying those taxes. (53:55) And I think a simple way to do it, simple, (53:56) but a way to do that is for the state to limit government spending (54:00) to no more than population plus inflation, (54:02) and use surplus money to buy down the school district (54:05) maintenance and operation property tax until it's zero, (54:08) meaning the state will fully fund, (54:10) pay 100% of school districts across the state, (54:13) like Article 7, Section 1 of the Texas Constitution says.

(54:16) And then local government, cities and counties should limit their own spending, the population plus inflation as a maximum, and use surplus money to buy down their own property taxes. (54:25) And within about a decade, we can have all property taxes gone, or most places. (54:30) Some places aren't going to have the sales taxes and other revenue sources to bring in.

(54:34) We don't need an income tax. (54:35) But the main reason why we have such high property taxes is not because we don't have an income tax. (54:40) A lot of people like to say that, but it's because we spend too much at the local level.

(54:45) I mean, Tennessee and Florida don't have income taxes. (54:47) And we have the sixth most burdensome property tax in the country in Texas. (54:52) Florida ranks 26th.

(54:53) And Tennessee's at 37th, according to Tax Foundation. (54:57) And it's because they spend less on average at the local level. (55:01) We have big spenders at the local level across the state here in Texas.

(55:05) And therefore, we have higher property taxes, which hurts lower income people the most. (55:09) Whether you have low income and low skills, you can't buy a home. (55:13) And then if you're on fixed income, property taxes can oftentimes be more than your mortgage payments ever were.

(55:18) And you lose your home, your legacy. (55:21) This is a horrible situation. (55:22) And it's one reason why I think that, you know, property taxes got to go at some point, but at least start to bring them down in a good fashion.

Mike Mills

(55:31) Yeah. (55:32) Well, listen, I think that sounds awesome. (55:34) But you and I probably both know that, you know, like I want to ride a unicorn one day, but I don't know if that's going to happen.

Vance Ginn

(55:41) Well, you know, it's been talked about more, especially Governor Greg Abbott was in favor of this plan. (55:46) I worked a lot with him last session. (55:48) The legislature have been doing this.

(55:50) Over the last three sessions, they've used money to buy down the school maintenance and operations property taxes. (55:56) And so there is a path. (55:57) It's just a matter of continuing that to go on year after year.

(56:01) So that's the other problem with politics though.

Mike Mills

(56:04) Well, okay. (56:04) I want to touch on one thing before we go about the politics side. (56:08) And this is more of a personal thing than anything else.

(56:10) But I've met, you know, I've met a few politicians in my days and talked to a few of them. (56:15) And I will tell you that the vast majority of them, I was relatively unimpressed with. (56:21) I've met their staff and I've met their aides and I was impressed with a lot of those folks.

(56:27) But the actual person in the front of the camera talking on the microphone in a conversation, I was like, okay, you're in charge. (56:35) This is concerning. (56:36) So, but I believe that part of the reason for that is that money plays such a big role in electing, you know, state.

(56:46) And especially I see it more so on state and local levels. (56:51) Than anything else. (56:52) Because in order to get elected to be the mayor, to get elected to the city council, to get elected to the state Senate, any of those, you need money.

(57:00) You need someone that's willing to give you, unless you're self, you know, self-funded, you need money to come from somewhere. (57:05) And whenever you need money from someone, more often than not, you're going to have to, let's call it, you're going to have to, you know, give up on some of your principles that you might've had when you were running. (57:16) And, you know, you scale that up far enough, especially when you get to the federal government, then all of a sudden principles are out the door and you're just doing whatever you can to keep your job.

(57:23) So, you know, why is this? (57:26) I mean, when you talk about those who spend money, these are the people we're talking about. (57:30) So how is it?

(57:31) I mean, how did our political situation get to a place where the person with the biggest purse strings gets to decide how the pie is cut up and who does what? (57:42) And is there a way to fix that?

Vance Ginn

(57:45) Yeah. (57:45) I mean, it's a major issue. (57:47) I mean, it's one that's always kind of been around, right?

(57:50) James Buchanan, public choice economics, talks about this a lot where politicians are rational. (57:55) It's just that they also need to win re-election. (57:57) And so their marginal cost and marginal benefits are different than those of us in the private sector.

(58:02) And so they need to win the re-election. (58:04) They need to give out handouts and everything else. (58:06) And sometimes it goes to the biggest bidder oftentimes.

(58:09) And unfortunately, and to me, I think the way that you start to shake that up and find some cracks in it is to reduce the size and scope of government. (58:19) The smaller the government is, the less reason, the less incentive there is for you to go out and try to buy those votes, to try to get your regulation, to try to build your fiefdom or your tax breaks, whatever it is.

Mike Mills

(58:32) But the people in government would have to do that, right? (58:34) What's that? (58:35) I said, but the people in government would have to be the ones to do that.

(58:38) And they're not exactly incentivized to do that, right?

Vance Ginn

(58:40) Yeah, that's right. (58:41) That's right. (58:42) But I think, you know, this is one reason why I'm also big on like rules, like fiscal rules.

(58:45) I don't think there should be a spending limit based on population and inflation as a maximum. (58:50) And if it goes above that, then you should have to go out to the voters to see what goes on. (58:54) And in monetary policy, I think there should be a money rule, something that reduces the discretion of politicians and bankers and everyone else because it's all taxpayer money.

(59:05) Nothing is free. (59:06) There's always a cost. (59:07) And so we need to rein them in somehow.

Mike Mills

(59:10) Yeah. (59:11) Yeah. (59:11) It's a problem that I don't know that there's a big solution for, because again, it's kind of like when you get to vote on your salary, right?

(59:20) And if it should go up or down, I mean, look, if I got to vote on my salary once a year to determine if it was going to go up, I'm pretty sure I'd raise it every single year. (59:29) Like, you know, that's just kind of how it goes. (59:31) And if you don't have, you know, constrained limits on some of those stuff, maybe term limits is the answer, but that's been talked about forever.

(59:36) And that's never passed. (59:38) You know, it's never been anything that anybody's actually given any kind of real consideration. (59:43) So, you know, it is, it is.

Vance Ginn

(59:45) I like term limits, but you're right. (59:47) I mean, that's another uphill battle because they're also the ones voting to put a limit on themselves.

Mike Mills

(59:51) Right. (59:51) Exactly. (59:52) It's like you can't align these incentives together.

(59:54) You know, there are, you know, there's a lot of things I think that could possibly fix some things. (59:58) Like, you know, I'm from what I've seen and I'm not a scholar in this stuff, but like, I like the idea of rank choice voting. (1:00:04) I think that's a good route to go to kind of change things up.

(1:00:07) And then, you know, just the thought that, you know, Warren Buffett, I thought was brilliant when he said, he's like, you want to fix politicians, like vote into law that unless you balance the budget, then you don't get to go up for re-election next year. (1:00:20) Like that's pretty much, you know, if you're a part of a Congress or a Senate that doesn't balance a budget, then you're out.

Vance Ginn

(1:00:25) Yeah, yeah. (1:00:26) You know, there's things you can put in place. (1:00:26) Or there's another one too, where if you don't pass a budget, then you don't get paid.

Mike Mills

(1:00:30) Yeah, exactly.

Vance Ginn

(1:00:31) Because they're not even passing budgets anymore in Congress.

Mike Mills

(1:00:33) Oh yeah, well now, yeah, now we're not even, or the deficit, you know, the debt ceiling is all but gone, you know, at this point. (1:00:39) They don't even talk about it anymore. (1:00:41) It's not even brought up anymore.

(1:00:42) It's completely, and the American, because our attention span is so short, we don't even realize that this thing was there and it was very important. (1:00:51) And now it's just completely out of the picture and nobody on either red or blue team is even talking about it anymore. (1:00:55) And our spending just keeps going up.

(1:00:57) So we definitely solved a lot of problems today, man. (1:01:01) I think so. (1:01:01) I don't know.

(1:01:03) But man, I really appreciate it. (1:01:05) This is something I love to nerd out about. (1:01:07) And I saw a few of your episodes and really got me fired up because I just love talking about this stuff.

(1:01:12) I wish, you know, it's kind of sad these days as far as discourse is concerned that, you know, they say when you go to the bar, when you're with family, don't talk about religion or politics, you know? (1:01:21) And to me, I'm almost like, you should. (1:01:24) Like, it's two things that impact you more than anything.

(1:01:28) Your ideals and how your life is managed, I think is probably two of the most important topics in the fact that everybody avoids it and nobody wants to have a conversation because everybody gets so worked up because, you know, we're so tribal. (1:01:40) If we're on one team or the other, then it's to your core if someone disagrees with you. (1:01:44) And it's like, it's okay.

(1:01:46) Discourse is how the country was built. (1:01:47) Like, the idea that I don't agree with you and we have a differing opinion, that's how you come to consensus. (1:01:53) And when people walk away from a negotiation and both lose, that generally means it worked out for everybody.

Vance Ginn

(1:02:00) Yeah, that's exactly right. (1:02:01) I'm glad to have these sort of discussions. (1:02:03) We need more of them.

Mike Mills

(1:02:05) Yes. (1:02:06) So I really appreciate your time today, Vance. (1:02:08) It was great talking to you.

(1:02:09) I'd love to have you back again in a couple of months, you know, especially as we get a little closer to the election because I think it's going to get pretty crazy. (1:02:16) At least it has, it's already been insane. (1:02:18) It's been one for the book.

(1:02:19) So I can't imagine it gets any more boring between now and then.

Vance Ginn

(1:02:22) So that's right. (1:02:24) I'm always glad to come on and I'm a fellow Texan too, right? (1:02:27) So I got the Texas capital.

(1:02:28) What is it right over here?

Mike Mills

(1:02:30) So it's always good to talk to you about your show, tell them where to find you, all that kind of stuff. (1:02:34) So everybody knows where to get you.

Vance Ginn

(1:02:35) Yeah, yeah. (1:02:36) So my show is Light, Fuel, Prosper show. (1:02:38) I have an interview that comes out every week with someone, an expert on a certain topic.

(1:02:42) And then my this week's economy comes out every Friday talking about the economy. (1:02:45) So you can find that on all the major platforms. (1:02:47) You can also check out my newsletter, vancegin.substack.com, where I put all this information. (1:02:52) And I have a website, vancegin.com, where I have a lot of other information as well. (1:02:56) And I work a lot of, you know, research issues. (1:02:59) And so if you need any help with that, my main goal is to let people prosper.

(1:03:02) And so it's always a pleasure to work on those sorts of things.

Mike Mills

(1:03:06) Yeah, and I highly, you know, in the last couple of years, I've become a huge fan of Substack. (1:03:10) And if you want to find a place where you can get all kinds of information from people actually trying to do real journalism and not always trying to come from a particular angle, Substack is awesome. (1:03:20) So I definitely recommend you guys check it out and check out Vance because, you know, we need more people out there highlighting all the issues that we got.

(1:03:30) Because the, you know, there's fewer and fewer of those these days. (1:03:33) So I appreciate everything you're doing. (1:03:34) And thanks for coming on.

(1:03:36) Take care, everybody. (1:03:37) We will be back next week. (1:03:39) And I hope everybody has a great weekend.

(1:03:41) I guess this is Labor Day weekend, right? (1:03:44) Everybody's going to be out at the lake, maybe having a good time. (1:03:46) So enjoy your weekend.

(1:03:48) And we'll see you guys next week. (1:03:49) See you later.