Saturday, January 31, 2009

Residential housing: the drag drags on

I am sure that you have all heard about the Steep Slide in Economy as Unsold Goods Pile Up. I won’t bore you with my view of the report because others have already done a superb job of interpreting it. Here are several well-articulated takes on the various components of the Bureau of Economic Analysis’ massive GDP report:

But here are my two scents worth on the report: housing continues to be the bane of the U.S. economy's existence, even though new residential construction (housing starts) hit its lowest level...ever (at least since the series started in 1959)!

Residential construction's share of overall GDP is slipping quickly.

But it's drag on the economy is not.

This is truly amazing. Have you ever seen the DVD series Planet Earth? There are several shots of a predator (let's say a lion) attacking its prey (perhaps a Zebra); and even though the prey was likely to escape, the predator just wouldn't let go. Something like that.

Rebecca Wilder


  1. Where in the latest data do you unpack residential construction as a discrete percentage of GDP growth?

    (Not an economist, thus the notion itself seems suspect to me. But then the notion of GDP as a function of production denominated by its total current exchange value in dollars as opposed to output of a whole range of units of apples and oranges seems suspect to me. =D )

  2. Rebecca says "housing continues to be the bane of the U.S. economy's existence".

    Houses are commodities (things offered for sale), like oranges, pork bellies, hours with prostitutes, Super Bowl tickets, and innumerable other things.

    Americans of all stripes, buy-and-hold house buyers, speculator house buyers ("flippers"), mortgage bankers, credit-card issuers, home equity loan sellers; all miscalculated the worth (swap prices) of houses.

    The structural design of the U.S. economy is its bane, its scourage.

    Simply, an economy based on a massive run up in consumer debt without the economic means (worthy production) to pay for it, coupled with an incompetent chartered monopoly (the Federal Reserve) for the manufacture and distribution of notes and coins money as well as credit money working in cahoots with an incompetent, wastrel Political Class of profligate spenders using debt -- such an economy becomes unsustainable through time when outside participants (Chinese, Indians, Brazilians, Chileans, Russians, Koreans) get invited to participate in trading games (economic transaction).

    The collapse of house markets is a mere symptom of this inherent design flaw. It's not the cause of the design flaw itself.