It's the Economy, stupid - Languishing & Lingering after the Great Recession

Yes. If there is "irrational exuberance" in a market, it is not a healthy market.

Yes.

If market prices are inflated relative to rational prices an adjustment may be in order, disinflation may not or may take a relatively long time to address the issue. The answer depends on the goal. For example if housing prices are inflated by 20%, a sudden drop in prices of 20% can send a shock throughout the system. However, a sudden drop of 20% can make housing more affordable to some in the market where disinflation may occur at a rate such that those priced out of the market can never gain entry. Pick your path. Those who advocate for affordable housing should prefer deflation rather than disinflation especially in an environment where wage increases are growing slowly.

Certainly it is not the only way. Is it the best way - it depends one's goals. This is a point falling being missed.
I prefer rational markets, neither booms or busts.

Not my position, or what you state lacks context. Busts can be avoided. Deflation is not equated to a "bust". I would argue a "bust" is a type of deflation that is extreme both sudden and large. Deflation can be beneficial and in many instances in market segments it is expected. For example in Moore's Law as it applies to computer chip technology - cost to performance - it is deflationary, it is good, it is beneficial. I would not call the the pricing drops a "bust". No reasonable person would.
--- merged: Apr 12, 2013 at 11:59 AM ---

When I talk to young men many have the attitude that short-term sacrifice for long-term gain is a subject for mockery. Your harping on PBJ sandwiches from my personal experience in the way you do it reinforces this type of thinking. "That person has a pair of $200 shoes, why shouldn't I have them too". That person has 22 inch rims (perhaps half the value of the car) on his ride, why shouldn't I". "This person has the latest cell phone, why should I". This person spends a few hundred a week on fast-food and beer (and not have a dollar in savings), why shouldn't I". A person reads what you write about PBJ sandwiches and says DC really showed Ace. Well some people actually have to make choices and sacrifices to get ahead.
--- merged: Apr 12, 2013 at 12:29 PM ---

Money supply and interest rates are components or variables that can be manipulated in regard to measures of total economic activity. Another is velocity or how frequently the money supply moves within the economy. So, yes Mr. Krugman if the money supply increases but there is an off-set in velocity the increase in the money supply will be off-set. However, GDP is not down in the US, it is up. Some how the economy is producing more and it is being consumed (inventories are not materially increasing). What is missing is investment. Increasing the money supply or lower interest rates will not change the outlook of those who would employ capital through investment to generate future earnings - i.e., create new demand. The real question is, how do we change the outlook? Krugman is focused on the wrong thing.

Krugman like Roach never define the goals, prior to stating if something is working or not. Is full employment the goal, low inflation, high wages for labor, trade balance, affordability measures, economic growth, equal out comes, environmental concerns, consumer safety, high interest rates, low interest rates, cost of capital, etc., etc., etc., and what policy do they think will achieve goals that often can be in conflict. Discussing these issues with the like is a fools errand.

 

these arguments are all outlined in the koo article above--connections between balance-sheet recession, the inefficacy of monetarist approaches to addressing it, the evaporation of investment, etc...except they aren't routed through the surrealism of ace-metaphysics. which is, i suppose, why they're still not part of the discussion about why it is that the actually-existing economy in the actually-existing world is stagnant.

i'd be tempted to attribute much of that stagnation to the persistence of less surrealist versions of the herbert hooverism that ace espouses.

 

I am not sure the above statement is true. My gut tells me that the changes in price and unit sales volume are related to some degree but I think other factors can be equally or more important. So, before we go on understand that the starting premise is in question. If you can further elaborate on your perception of this relationship I would be able to respond to the premise accordingly. I would normally add an example or two of how I perceive the relationship but I will wait.

I argue at the core they are the same. In terms of affordability, relative deflation (in one sector compared to others), can make any good or service more affordable to more people. You are in the publishing business, historically printed materials and books were not affordable to the masses, with innovations like the printing press relative deflation occurred making printed materials and books affordable to everyone. Further with information technology further relative deflation is occurring resulting in the cost of information being close to zero - while those in your industry fight to inflate the costs for profit or sustain costs for profit - in fact hurting affordability. Housing is different than technology and printed materials, but the principles in pricing and affordability are the same. The factions are the same, i.e. some advocate for high prices, some priced out of the market seek low(er) prices. The perception is that some industries have a halo effect and are not seen in this light. I would argue housing is one such industry as well as yours. I see industry as industry - I don't judge one way or the other. I simply want efficient and freely operating markets.

There has been innovation in the housing market. The inflation adjusted cost of construction per square foot is lower today than in the past. The quality in terms of heating, cooling, plumbing, insulation, etc. is greatly improved. The efficiency in construction is greatly improved. I, however, do not have a means to quantify these improvements, nor have I seen such a metric. With computer chip technology it is easy to measure.

In my area the cost to build compared to the cost to buy existing varies. And there is the issue of the land value, which I think has a bigger impact on overall pricing changes relative to the cost of construction changes. Also, in my area, it is prone to surpluses and shortages in regards to the labor required. In booms labor is difficult to find and costs go up measurably - in busts the opposite is true. Then we have the impact of natural disasters - try to get a quote for roofing after a hail storm - etc. etc. So the variables in housing are vary different than in technology - so yes there are some differences.

There are primary buyers and secondary buyers. I am not sure if still true, but at one time the average person stayed in a house about 7 years. A newly married couple may start in a small apartment/town house/condo, and move up several times until they get to their "dream home". I agree homes are not typically "discarded" as obsolete, but housing is subject to primary buyers and secondary buyers. Primary buyers have their reasons for "discarding" a home.

I agree that there are differences in the markets, but not in underlying market behavior.

Ha, ha. Keep your day job.
--- merged: Apr 12, 2013 at 4:23 PM ---

Roach - A dog somewhere in the world has a flea - see, monetary policy does not work.
Ace - ?!?
Roach - The flea on the dog dies - see, monetary policy does not work
Ace - ?!?
Roach - Don't you dare ask for clarification - you are just wasting my time! And Ace you have deep, deep physiological problems. I bet Ace hasn't even taken a shower today.

Must be nice to be in a position to win every exchange.

 

I owned a few Japanese cars during that lost decade, how did that happen? Where did Japan go? Was it lost, like the lost city of Atlantis? Was Atlantis the victim of monetary policy too? Now I get it. When the US goes through its lost decade will the people in Canada age ten years and the people in the US are like in a state of stasis? I could look forward to that. Should I put a few dollars into Facebook and when I come out of stasis I will be a billionaire? will a billion be worth a billion in ten years? Oh, so many questions - perhaps a new thread is in order - How are you going to handle the lost decade to come - all because of monetary policy?
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If housing went through a period of excessive inflation and became unaffordable short of excessive leverage - I stand that housing deflation is a good thing. Housing will become more affordable for more people with less leverage. I think many learned people agree and that is why we are going through this correction and de-leveraging process. Problem is to the average person if it was stated that directly they would not understand and have a problem with it. The housing market and the financial environment surrounding housing was broken.

 

ace, dear, the simple fact is that, because you refuse to address questions that aren't routed through stupid anecdotes and no actual data, there's simply no basis for a discussion with you.
the game is basically--one chooses to humor you or one does not.
that's not a discussion.

 

We agree, it is not a discussion. You can not describe what you expect monetary policy to do, yet hold the position that it does not work. What word would we use to describe a person who holds such a view?

 

I could not possibly be any more interesting or love myself any more than I do already. What is your point?

My opinion is my opinion. Given we have experienced housing deflation and are going through a period of de-leveraging, that is purposeful, I am confident that there are some who see this as a goal of current economic policy, monetary or otherwise.

I have an aversion to loosely related facts that have little significance. I prefer to focus on important issues. I also have an aversion for misinterpretation of facts. I prefer a thorough and detail understanding of facts. "global demand" is a vague and meaningless concept - you still have not really illustrated what that means in a manner consistent with "other facts". But when asked to clarify the standard response is, I am ignoring your "fact". And so it goes.

 

It is humorous how some here preach to me about ignoring "facts" when what I do is shed insight into those "facts". Then the targeted personal comments come and the discussion degrades.

If you choose to look at some random "facts" regarding housing sales, housing starts, days on the market, inventories, foreclosures, etc. and conclude something like (this is an example of a pattern, not a summation of a direct quote) demand for housing is down, and I say look deeper because demand for housing is not down because people got to live somewhere. I am ignoring your "facts". Yet you ignore the alternatives. Unless there is a material drop in the population or all of a sudden large numbers of people start living in the streets/cars/camp grounds the demand for housing has not changed. What has changed is the make up for the demand for housing.

I have fun with it, and never take it too seriously. And like I said it brings a smile to my face, not the misinterpretation of the "facts" but the responses when a broader perspective is presented.

 

Let me illustrate what I am saying relative to typical superficial analysis of the housing market -

What is more important to the owner of an apartment building, the market value of the building or the market value of rents?

There is a superficial response to the question, a thought provoking response, and a correct response. A person can focus on a large number of statistical measures of the housing market and conclude all types of things about housing demand. However, to the owner of the apartment building, who has no intent on selling, is going to decide to how he/she is going to adjust rents or keep them the same to maximize his rental income - multiplied many times over in the market this is a much more direct, yet still incomplete, measure of housing demand. And yes, there is a much more detailed explanation of why I and others think this is true.

So, how are rents figured into the housing statistics you look at? In the US as market prices of homes declined, rents went up! Vacancy rates went down! Is this the makings of a lost decade for landlords? The housing market? We get an article talking about the "lost decade" in Japan and prominently displayed is a graph showing the decline in housing prices but no mention of rents. And with a few other seemingly random bits of information the conclusion is monetary policy does not work! Isn't that analysis weak? Doesn't it beg to be questioned? Isn't the view point presented far to narrow? And you folks persistently think I have a problem?!? Yes, I find humor in that.

I really don't know if I understand what you are trying to say relative to housing demand. And I don't see how you can disagree with what I have presented other than to be argumentative.

 

You fellas should decide if you're discussing real estate transactions (Baraka) or providing shelter for the populace (Ace). Real estate is down, but the desire for shelter is a constant (relatively).

 

Even in regard to transactions I argue looking at demand in terms of house sales, house prices is too narrow. When we look at the entirety of the "housing market" (I take the broadest definition as I have been from the beginning) and compare it to marginal sales activities it is a very small percentage of the market at any given time. That is why rents, a much bigger percentage of the housing market would be more reflective of the condition of the market.

For me it is more than just defining housing. And I further argue against the notion of concluding monetary policy works or does not work based on narrow views of market activity.
--- merged: Apr 14, 2013 2:46 PM ---

If you were reading what I was writing, why didn't you know the distinction? Why would I assume you did not know? From my very first comments on this line of discussions I have been saying the points of view presented were far to narrow for the conclusions being drawn.

Again, I asked what demand? I asked several times. I asked you to be specific. I waited for examples for you to illustrate what you meant. I stated that I did not understand your point of view. I illustrated my view from a different perspective.

I state household debt has no impact on the demand for housing. Household debt may have an impact on the demand for new home construction, it may have an impact on turnover. It may have an impact on disposable income and then affect spending in other areas. There has not been a shift in housing demand based on household debt levels.

Again, I am not clear on how you see this. Spending on debt is a part of total household spending. Just because more or less money is spent on debt, it does not change total spending. Money spent on debt (interest and principle) does not dissipate - it goes to lenders or others who have sold something where others have financed the purchase. Total economic output is not currently declining - and it is not because of government Kaynsian spending.

The real issue involves de-leveraging and how it is being managed.. If the multiplier of a $1 spent is 100 (arbitrary number) and that multiplier drops to 50 due to de-leveraging there is a major economic impact, however, increasing the money supply (current US Fed policy) makes up for the difference. The US Fed knows what is happening and they are managing the money supply accordingly. So that in a period of de-leveraging/reduction in the multiplier/lower currency velocity, the Fed has injected massive amounts of money into the system to sustain economic stability. But somehow, some people in a very superficial analysis conclude that monetary policy does not work and has never worked - and they don't even know or understand what the objective is, while having these attitudes like they have all the answers. That is where the humor is.

{added} For the record - in my view the regulatory climate lead to leveraging excess and market inefficiencies, I further believe the current objective of the US Fed may be working relative to what they want it to do - but I do not believe it is the economy's best interest in the long-run. I believe excessive increases in the money supply and artificially low interest rates are counter-productive. Time will tell if the current course of action is the correct on. I do not support regulatory actions intent on managing market behavior as opposed to policing market behavior in a neutral manner. Specifically artificially low interest rates are providing cover for the massive amount of Fed. Gov. deficit spending and debt, with a jump in interest rates our debt can become unsustainable virtually overnight.