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Ed, According to the Economist, the economies of much of the developed
world are resting on the shifting sands of land speculation, just like the Yet, every major depression has been preceded by wild land speculation. I hope you saw the piece I posted about According to Classical theory, rising rack-rents and land sale prices
in due course place the economy in an untenable position. At this point,
anything may trigger a full-scale depression. This is why Samuelson can tell us
that, asked to give reasons for an economy falling into depression, a diligent
student could prepare a list that could run into dozens. These “reasons” are triggers – events that give the
economy a final push over the edge. The free market economy can adjust to any
trigger, but it cannot adjust when a major component of the economy –
land - is not controlled by the market price mechanism. Failure to recognize the real problem has led to ever increasing
interference in the economy by the state. This has two effects – the
economy runs at less than optimum and an expensive bureaucracy burdens the
citizens. Perhaps because playing with production becomes the target of a
controlled economy, producers become more important than consumers to the
economic controllers and for that matter to the politicians. The controllers of the economy become entranced with policies that
protect the producer from competition -- such as import restrictions of every
kind, proliferating patents, subsidies to producers, and the ever present
awards of government contracts to "favorite sons". They also search
for ways to increase consumer spending – not because that might be good
for citizens, but because it helps producers to move their goods (that’s
how they got the SUVs to sell). Yet, in a natural economy -- that is to say the free market -- the
consumer is king. Wages, the return to labor, are the reason for production.
Indeed, without wages there would be no production. The continually rising
quality and falling prices of the free market are equivalent of raising the
consumers’ wages – and we are all consumers. At another level, the matter of the trade balance puts this into some
kind of hysterical focus. Sensibly, what is important is not what you send out,
but what you get back. The goods you send out cost you exertion and time. The goods you get
back are your wages. Because you're sensible, you want to spend as little time
in exertion as you can in "work". Similarly, because you're sensible,
you want to get as much back for your work as you can -- the higher the wage
you receive the better off you are. (If that sound like the “least exertion” assumption –
it should.) Yet, such are the mysteries of this arcane game that used to be
economic science, that we have completely reversed common sense and we struggle
to find work for people when we should be "struggling" to find wages.
In my ignorance, I would have thought that the only time you need worry about
finding a job is when everybody has everything and no jobs are necessary. But then – why worry? When all of us have everything we want from the latest cell phone to a
complete health service, we won't need jobs. But, that's not the case. There
are enormous deficiencies in all our lives that need to be filled. That we
accept involuntary unemployment as ‘natural’ is beyond belief. The major difference between now and 1929 is that currently the economy
has become a fairly rigid structure. The looser economic structure of the great
depression without the economy to plunge to the bottom. According to Classical theory,
when land prices hit bottom it becomes possible for production to begin again
-- and it does. Of course, in the 30’s the New Deal did everything wrong out of
ignorance rather than evil intent. Governmental mistakes kept the economy
stagnant for much of the 30s. Unemployment began to increase again in 1938 and
perhaps only the European war saved the Today's controlled economy may not allow such a crash to the bottom (politically
could not allow it). So, the economy may hang -- in a position where land
prices have not fallen low enough to allow a rapid resumption of work (and a
movement up toward the next crash). So for the last dozen years, the Japanese economy has hung, twisting in
the wind. Slowly, land prices have been easing down throughout the 12 years.
The neo-Classical controllers of the economy have done everything they could
think of to get the economy moving again, including minus interest, but nothing
works. The economy will pick up when land prices fall enough for production to
resume. The Asian economies crashed as result of land speculation. The official
reason was bank and currency collapse but, reading carefully, you'll note
something like "unwise ventures in real estate" in the record. When
land prices fell the banks were holding collateral worth nothing. And so it goes. And Harry ******************************* of 818 352-4141 ******************************* From:
[EMAIL PROTECTED]
[mailto:[EMAIL PROTECTED] On
Behalf Of Ed Weick From the following, it would seem that
Americans, able to cash in or borrow on rising housing prices, may think they
are living the dream, but they are actually dreaming the life. Given the
role that The results might not be entirely negative.
Americans might be prompted to start manufacturing things again instead of
buying them abroad. And it could put an end to the fiscal nonsense of tax
cuts for the rich and huge fiscal deficits. For the world at large,
it could mean cutting the world's only superpower back down to size. That
would be a good thing. Ed August 12, 2005 Safe
as Houses
By PAUL KRUGMAN I used to
live next door to a Russian émigré. One day he asked me to explain something
that puzzled him about his new country. "This place seems very rich,"
he said, "but I never see anyone making anything. How does the country
earn its money?" The
answer, these days, is that we make a living by selling each other houses.
Since December 2000 employment in The
housing boom has created jobs in two ways. Many jobs have been created,
directly and indirectly, by a surge in housing construction. And rising home
values have fueled a simultaneous surge in consumer spending. Let's
start with home building. Between 1980 and 2000, which was before the housing
boom, spending on the construction of new homes averaged 4.25 percent of G.D.P.
In the most recent quarter, however, the figure was 5.98 percent. That
difference is equivalent to about $200 billion a year in additional spending,
generating roughly two million extra jobs. Then
there's the jump in house prices. Over the past five years housing prices have
grown much faster than the overall cost of living, adding about $5 trillion to
the public's wealth. Typical estimates say that each additional dollar of
housing wealth adds about 3 cents to annual consumer spending, as families
reduce their savings and borrow against their newly valuable homes. So we're
talking about an additional $150 billion in spending, and roughly 1.5 million
more jobs. Does
anything else in the And, yes,
there are the Bush tax cuts, which the administration insists are the source of
everything good in the economy. And it's true that some portion of the tax
cuts, which amounted to $225 billion this year, must have been spent in ways
that created jobs. Given reasonable estimates of the effect of tax cuts on
spending, however, they were probably a smaller force for job creation than the
military buildup, and dwarfed by the housing boom. So it's an
economy driven by real estate. What's wrong with that? One
answer is that it has been a pretty disappointing recovery. Two new reports,
one from the Center on Budget and Policy Priorities and one from the
Congressional Budget Office, compare the current economic expansion with other
postwar recoveries. By any measure except corporate profits, which have done
very well, this one comes up short. Even the
good months would have been considered subpar in the past: the administration
hailed last month's job growth as something wondrous to behold, yet there were
68 months during the Still,
the economy is expanding. But because that expansion depends so much on real
estate - without the housing boom, the economic picture would look dismal
indeed - you have to wonder how much to trust it. I've
written before about the reasons to believe that current house prices in much
of the country represent a bubble. When that bubble begins to deflate, so will
housing-related employment. Beyond
that, there's the disturbing point that we're paying for the housing boom (and
the military buildup and tax cuts) with money borrowed from foreigners. Now, any
economics textbook will tell you that it's fine to borrow from abroad if the money
is used to expand the economy's productive capacity. When 19th-century In other
words, a fuller answer to my former neighbor would be that these days,
Americans make a living selling each other houses, paid for with money borrowed
from the Chinese. Somehow, that doesn't seem like a sustainable lifestyle. How
solid, then, is |
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