Lost: $720bn. If found, return to owner - in cash
January 18, 2008
By Stephen Dubner and Steven Levitt
Home prices in the US have fallen by about 6 percent on average over the last year, according to the Standard & Poor's/Case-Shiller index of housing prices, which measures the value of homes in 20 cities.
Homeowners have lost about $720 billion (R4.5 trillion) in wealth as a consequence. That is about $2 400 for every person in the US and $18 000 for the average homeowner. Compared with stock market declines, however, that loss of $720 billion over the course of the year doesn't look quite so big.
The total capitalisation of US stock markets is the same order of magnitude as the total value of the housing market (between $10 trillion and $20 trillion). In one week during October of 1987, the US stock market lost more than 30 percent.
The $720 billion is also about the same amount of money the US government has reportedly spent on the war in Iraq.
If you are an American homeowner, how bad do you feel about this? You should feel pretty bad. But you would feel a lot worse in the following scenario.
Suppose home prices did not fall at all last year, but one day you took $18 000 out of the bank to pay cash for a new car. On the way, someone stole your wallet with the $18 000 in it.
At the end of the day, your wealth would be the same. You'd be down $18 000, either from depreciation of the value of your home or because the money was stolen. But one loss is psychologically far worse than the other.
There are many possible reasons for why it doesn't hurt so much to lose money on an asset like a house:
It isn't very tangible, since no one really knows what their house is worth anyway.
It hurts less when everyone else is also losing on their houses. I once heard a rich person say that he didn't care about his absolute wealth, only what his ranking was on Forbes magazine's rich list.
You can't really blame yourself for house prices falling, but you could second-guess your decision to carry around $18 000 in cash.
The fact that a thief has your money might seem worse than the money just evaporating into space, as it does when house prices fall.
Which brings me to the concept of "mental accounts".
Mental accounts is a phrase coined by Richard Thaler, a University of Chicago economist, to describe the way people seem to treat different assets as non-interchangeable, even though in principle it seems as though they should be.
Although my economist friends make fun of me for it, I definitely use mental accounts myself. For me, a dollar made playing poker means much more than a dollar earned from the stock market going up. (And a dollar lost playing poker is likewise far more painful.)
What does this all mean for housing prices? Well, if prices start going back up, it would be a lot more fun if the price increases came in the form of little packets of cash dropped outside your front door with the morning newspaper, rather than via house appreciation - something, I suppose, all those people who took out home equity loans figured out a long time ago.
First bagels, now mohels
More and more Gentiles are calling in the mohel, or ritual circumciser, to have their sons circumcised, according to the Jewish Daily Forward, America's leading journal of Jewish issues.
The reasons include a desire for cleanliness (mohels operate outside of hospitals) and the addition of spiritual pizzazz - even if the pizzazz comes from outside a family's own religious tradition.
"Nearly two years ago, Jeannie Noth Gaffigan and Jim Gaffigan gave birth to their first son at home through the assistance of a nurse-midwife," wrote Forward reporter John MacDonald. "Though the decision to circumcise wasn't a religious one, as Catholics the Gaffigans wanted more than a simple medical procedure. 'We felt a mohel would lend a high level of dignity and significance to this very important moment in our lives,' Noth Gaffigan said in an e-mail to the Forward.
"[The mohel] Blake (52) arrived at a house packed with food, drink and family - a gathering that, were it not for the priest in the corner, would have looked like nothing less than a Jewish bris." (A bris is the ceremony of circumcision.)
I believe the US is the only country in the world where the majority of boys are circumcised even if the parents have no religious reason to do so. This has long been a puzzling issue, and a contentious one, too.
I have two questions about this:
Why is it that, in a country with such a relatively small population of parents whose religion requires them to circumcise their sons, so many boys historically have been circumcised?
According to the circumcision stats at the Circumcision Information and Resource Pages (cirp.org), circumcision rates vary widely from region to region in the US. Here are the approximate rates in 2004 for the following four regions: midwest, 80 percent; northeast, 68 percent; south, 59 percent; and west, 32 percent.
What can account for such a high midwest rate and such a low west rate?
I am guessing it is a combination of cultural preferences and some degree of religious dictate, of course, but also insurance policy and hospital culture. But I am still astonished at this vast diversity.
Stephen Dubner and Steven Levitt are the authors of Freakonomics: A Rogue Economist Explores the Hidden Side of Everything.Visit the website at www.freakonomics.com
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