The Housing recovery that wasn't

[justoffal]

Economics, despite all of the modern attendant mathematical formulae that phd college boys down on wall street like to flash around...is not complex.

Rule number one:

Spending more than you make creates debt.

No matter how you stretch it, twist it, contort it, color it, make love to it, cover it or in any way shape or form try to change it....you can't.

Rule number two:

Debt creates poverty and sometimes slavery.

Credit cards, Adjustable rate mortgages ( has anyone ever seen a ARM go down I know they always promise to do that...but have you ever seen it? ) past due property taxes.....car payments....et cetera et cetera.

Sure it would be hard to live without them.....but we could learn and we could survive.

Rule number three..

Never pay One hundred dollars for something that's worth ten dollars or in the case of the housing market ten cents.

With the advent of easy paper .... the real estate sector was quick to respond by sending the average price of a piece of property so far away from the ambient local income levels as to boggle the mind. Ergo shixt shacks, shanties and properties that had almost no intrinsic values were selling for ten to fifteen times their actual worth.

All of this activity broke all three of the above rules for many years running leaving us with a depleted value base in the real estate market, debt contracts held by banks that in effect enslaved the private sector worker and the false impression that a recovery would be a return to the former bad practices of driving prices up out of sight.

We are now being told by the experts that there still is no housing recovery. Well that would be true because the attempt to have a so called recovery for the past several years has been based upon the hope that we can once again reignite the fire that caused the unreasonable run up in the first place. Don't be fooled...this is no longer possible. A true recovery will appear when houses start moving at prices that reflect the ability of the local income level buyers to buy them. Currently we are experiencing yet another financial fornication with the influx of wealthy foreign investors who are buying up huge blocks of income property in order to drive up the rents. This practice should be disallowed....now here is one area where the government could actually do some good intervention. But of course they won't.

JO

 

[LeRoy_Was_Here]

Justoffal: Economics, despite all of the modern attendant mathematical formulae that phd college boys down on wall street like to flash around...is not complex.

LeRoy: I can't agree. Economics IS complex. It is concerned with the workings of human societies, which are the most complex phenomenon that scientific minds have ever tried to comprehend.

Justoffal: Debt creates poverty and sometimes slavery.

LeRoy: And this is a fine example. It's just not that simple. At the end of World War II, America had the highest debt/GDP ratio we have EVER had. And yet what ensued was three decades of almost unexampled prosperity and economic growth. On your theory, it should have led to mass slavery.

 

[Lukey]

Justoffal: Economics, despite all of the modern attendant mathematical formulae that phd college boys down on wall street like to flash around...is not complex.

LeRoy: I can't agree. Economics IS complex. It is concerned with the workings of human societies, which are the most complex phenomenon that scientific minds have ever tried to comprehend.

Justoffal: Debt creates poverty and sometimes slavery.

LeRoy: And this is a fine example. It's just not that simple. At the end of World War II, America had the highest debt/GDP ratio we have EVER had. And yet what ensued was three decades of almost unexampled prosperity and economic growth. On your theory, it should have led to mass slavery.

Yes, economies are complex. But good economic policy is simple. Small government, low taxes, stable currency, commitments to maintaining labor flexibility and free trade. Every step you take away from these simple principles begins to erode your ability to compete in the world markets and your economy's ultimate capacity to grow.

 

[LeRoy_Was_Here]

From the volume titled "Policies For Long-Run Economic Growth: A Symposium Sponsored By The Federal Reserve Bank Of Kansas City"; and from the article "Causes of Declining Growth in Industrialized Countries", by Kumiharu Shigehara (who was the Head of the Department of Economics and Statistics, Organization for Economic Cooperation and Development [or OECD]):

"We know many more stylized facts than we used to about the characteristics of countries that grow fast over the long term. In brief, rapid growth is associated with high saving, well-educated work forces, and the ability to tap the technology of the leading countries. Export orientation, low government spending, and stable political systems are also often linked with good growth performance."

LeRoy: To what extent does this agree with your prescription? Well, it does, to a large extent. They specifically mention low government spending. But SMALLISH government, not NO government, is the prescription. Free trade? Yes, but with a specific export orientation. The export-promotion policies of the East Asian dragons (South Korea, Taiwan, Singapore and Hong Kong) were FAR more effective at inducing economic growth than the import-substitution policies of India and Brazil, in the decades following World War II. I agree that having flexible labor markets is highly desirable. [I mentioned that in another recent post.] The major omission from your prescription is this: WELL-EDUCATED WORK FORCES. Why is that, Lukey? And would you agree that this is a major area where America is falling very short? And, if so, what would you DO about it?

High saving is also mentioned by Shigehara, but not by you. And this is yet another area where America is falling very short of the mark. [And, yes, our large budget deficits---as well as our very large trade deficit---are emblematic of this. I quite agree that we need to work on that.] But here's the thing: tax cuts generally LOWER national saving---unless you are willing to maintain the position of 'Ricardian equivlance', the proposition that people will generally SAVE any tax cuts they receive. Sound macroeconomic policy includes not only 'stable currency', but sound fiscal policy as well. Getting our budget closer to balance is FAR more important than more tax cuts.

If the American economy is not growing as strongly as we would like over the past three decades, it is because we are doing a lot of things wrong. We are not saving; we are not preparing our young people for the high-paying jobs of the 21st century. East Asia has been dogin those things right. And those East Asian nations also show, as one economic development expert put it, that "Growth with equity is not only possible, but highly desirable". Those countries have a rather more equal income distribution than we do.

 

[Lukey]

From the volume titled "Policies For Long-Run Economic Growth: A Symposium Sponsored By The Federal Reserve Bank Of Kansas City"; and from the article "Causes of Declining Growth in Industrialized Countries", by Kumiharu Shigehara (who was the Head of the Department of Economics and Statistics, Organization for Economic Cooperation and Development [or OECD]):

"We know many more stylized facts than we used to about the characteristics of countries that grow fast over the long term. In brief, rapid growth is associated with high saving, well-educated work forces, and the ability to tap the technology of the leading countries. Export orientation, low government spending, and stable political systems are also often linked with good growth performance."

LeRoy: To what extent does this agree with your prescription? Well, it does, to a large extent. They specifically mention low government spending. But SMALLISH government, not NO government, is the prescription. Free trade? Yes, but with a specific export orientation. The export-promotion policies of the East Asian dragons (South Korea, Taiwan, Singapore and Hong Kong) were FAR more effective at inducing economic growth than the import-substitution policies of India and Brazil, in the decades following World War II. I agree that having flexible labor markets is highly desirable. [I mentioned that in another recent post.] The major omission from your prescription is this: WELL-EDUCATED WORK FORCES. Why is that, Lukey? And would you agree that this is a major area where America is falling very short? And, if so, what would you DO about it?

High saving is also mentioned by Shigehara, but not by you. And this is yet another area where America is falling very short of the mark. [And, yes, our large budget deficits---as well as our very large trade deficit---are emblematic of this. I quite agree that we need to work on that.] But here's the thing: tax cuts generally LOWER national saving---unless you are willing to maintain the position of 'Ricardian equivlance', the proposition that people will generally SAVE any tax cuts they receive. Sound macroeconomic policy includes not only 'stable currency', but sound fiscal policy as well. Getting our budget closer to balance is FAR more important than more tax cuts.

If the American economy is not growing as strongly as we would like over the past three decades, it is because we are doing a lot of things wrong. We are not saving; we are not preparing our young people for the high-paying jobs of the 21st century. East Asia has been dogin those things right. And those East Asian nations also show, as one economic development expert put it, that "Growth with equity is not only possible, but highly desirable". Those countries have a rather more equal income distribution than we do.

I didn't mention education and high savings because they will flow from the policies I mentioned. If you don't have a vast social welfare safety net people will have an innate desire to get themselves as much education as possible so they can get (and keep) a job (and not starve). Look at what lengths people in India and China do to get an education (and a meaningful one in STEM - not gender studies or diversity management). Our education problem is a result of the Great Society that taught generations of under achievers that they were just as valuable to society standing around on street corners as engineers and mathematicians. Savings too - if the economy allows people freedom to profit from their good entrepreneurial ideas (without major interference from big government) the incentives to save and invest are heightened. Again, I suggest we not try to overthink this stuff and try to account for every facet of the social economy. That just starts us down the big government road.

And we haven't been growing the past few decades precisely because we have gotten so far away from the simple sound principles I laid out.

 

[ITALIA]

Every ARM I have had has gone down overall.