Housing is the Business Cycle

Connor Dougherty, a New York Times economics journalist, does a good job analyzing the role housing has played in past recessions and why it may not be so crucial in the next.  He writes that housing declines presaged all but two of the last eleven recessions.  

Housing starts are one of our best leading indicators.  Even in one of his two exceptions (the recessions of 1953-54 and 2001), housing starts did a credible job of predicting one, 1953-54, leaving only only 2001 as a real anomaly.  Starts led the 1953-54 recession by nine months and fell 11.3% peak to trough.  In 2001 housing starts peaked a month after the economy and led by a month at the trough.  Peak to trough they fell a mere 6.6%.

The "Greenspan put" did not save Dot.Com investors or IT workers, but did provide a soft landing for housing in 2001.   An Austrian might argue that simply made the ultimate housing bust worse six years later. 

Dougherty bases his anlysis on contributions to GDP from the the work of Edward Leamer.  The latter's prescient 2007 Jackson Hole address, "Housing is the Business Cycle," which emphasizes the importance of housing in recessions. 

Joplin: If All Else Fails, Try the Market

To anyone around here, when you mention the name, "Joplin," they think of that day of wrath when tornadoes ripped through the midwest and one, seemingly released from hell, devastated Joplin, Missouri.   One doesn't have to reach far among one's neighbors and friends to learn of someone who was touched by the disaster.  I heard of one mother who, lacking a tornado shelter, hid with her two children in a clothes closet.  When the Angel of Death had past over, she opened the door to find the closet the only thing left standing.

Many in Kansas, no stranger to tornadoes, helped as the community worked to rebuild itself. They "did and maybe asked permission later!" with typical midwestern get-it-doneness. The speed with which churches and religious organizations mobilized would put the Pentagon to shame! To rephrase Archbishop Dolan, they did not help because those in need were Christian, they helped because they were Christian.

An economics professor at Troy University, Daniel J. Smith, studied how this spontaneous action accomplished wonders. The story is the more poignant as we watch the Japanese bureaucracies in government and "private" utilities obscure reality and stand in the way of recovering from Fukushima Daichi.  Fortunately for Joplin, it was blessed with lax regulation and not plagued with crony capitalism.

Here is what professor Smith found:

Do You Care a Rap About the Business Cycle?

John Maynard Keynes was perhaps the most imposing economist of the Twentieth Century.  He is the father of macroeconomics (John Hicks might be called the midwife: indeed Hicks is probably the most influential, although his influence across the board in modern economic theory is so pervasive he is seldom cited.)

Friedrich von Hayek developed the ideas of Wicksell and the Austrian School theory of capital based on Boehm-Bawerk and von Mises into a coherent theory of the business cycle which does much to explain the mess we are in.

Keynesian economics justifies the use of stimulus programs such as are being used around the world to revive the world economy.  Nations around the world are following President Richard Nixon when he said, "We are all Keynesians now."

One should not assume Keynes would approve of current economic policy.  At a meeting of American economists shortly before he died, Keynes remarked "Perhaps I am the only non-Keynesian in the room." (as quoted in Bran Domitrovic's Econonoclasts: the History of the Supply-Side Revolution.)





Many thanks to both Ryan Pendleton and the Kansas Policy Institute who alerted me to this.

Do the Austrians help Understand History?

Here is Thomas E. Woods, Jr. with a perspective on history based on Austrian Business Cycle Theory:



You can also read his "What Austrian Economics Can Teach Historians" on the Ludwig von Mises Institute website.