Monday, October 05, 2009

Economic Politics

I don’t usually write political essays… but …

When I was a kid, we lived in tenement apartments
These are (were) simple building, with 6 to 20 apartments, always 5 to 6 (more often 5) stories tall. They weren’t slummy, just low income. Simple no frills housing.

In NYC, a six floor building (vs. a 5 floor building) requires an elevator—elevators are more expensive than stairs—and the most inexpensive housing didn’t have elevators.

And in NYC, our gravity feed water system works (on water pressure alone) to about 60 to 75 feet –building taller than this (that is to say building with more than 6 stories) require a water tower –(the iconic image of NYC includes rooftop water tanks—each building over 6 stories high (be they commercial or residential) has one.

Lower income buildings, (low rent building) were 5 stories tall--No elevator, no water tank—these are what I mean when I say tenement. Decent housing, but no frills.

But many of them are gone. Abandon in the bad old days.

Well there was rent control-- And because of rent control, many times the rent roll didn’t cover the cost of the building, (the mortgage, the maintenance, and the taxes.)

But they struggled along. Why? Well for a while the Tax law made it reasonable.
A landlord could buy a building, and depreciate the cost (100%) over 5 years.

And this ‘tax loss’ meant –that if no more money was invested, the building could, just break even, (and occasionally, even make some money)

Then the tax law changed. Instead of 5 years, depreciation took 20 years.

That change spurred (in late 1960’s /1970’s) mass abandonment of building.
Whole neighborhoods were abandon. The poor (the working poor, not welfare, or illegal immigrants) found themselves virtually homeless.
Squatter and drug dealers moved into abandon building. Junkies striped them for the copper water pipes, and copper wiring. Vermin overran neighborhoods.

Things have changed. (And not all for the good) there are fewer abandon buildings--And there is less low income housing in NYC.
More and more people need to work 2 jobs to pay rent. People are crowded into overpriced spaces. (There is more homelessness)

Other laws, beside the tax law changed. Rent control still exist, but its going away. Once an apartment is vacated, it become ‘rent stabilized’ –which is the start of slow but insidious process of increasing the rent till it is ‘normalize’
There is still a housing shortage, (and with demand outstripping supply, high rents are the norm.)

And once abandon building have been refurbished, and are once again providing decent housing. The cost of the housing is high, and the building are profitable (and maintained) –the landlords make money from rent rolls, not from paper losses. (And as captains of industry go, being a NYC landlord is not the way to get rich quick—while everyone hates them, there are few RICH landlords.)

Today-- the housing in NYC is better in many ways. The oldest of the tenements, are gone, and some new housing has gone up to replace it.
Other tenements were rebuilt, (and as “new housing” not rent controlled.)
But the problem we once had with housing, is now gone corporate—and not locally, but nationally.

Today’s NYTimes has an article on Simmons (mattress) company, and how it went from a profitable business to bankrupt in several ‘sales’.

The corporate owners weren’t interested in mattresses –only in making money.
They bought the company, saddled it with debt, and paid themselves fat salaries and bonuses for wisdom of their decisions. And when the debt exceeded the value, they walk away (or rather bail out with golden parachutes) and left the company to go down in flames.

Today, our tax laws encourage this behavior.
Our landscape is littered with abandon factories, with out of work employees, with debt, (and failures to pay the bond holders and stockholder who invested) and a few greedy individuals are behind it. (OK, so a few is a few thousand, but still a very small percentage of population.)

These greedy individuals want money with out work--And are contemptuous of those of us who work for money.

We need to change the way we do business, and they way corporations are managed. Managing a business to bankruptcy isn’t managing. It’s looting.

And it’s wrong. And we shouldn’t have tax laws that encourage looting.
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