Demand Destruction

Wednesday, August 25, 2010

Sales of existing homes are occurring at their lowest rate in fifteen years and employers aren't hiring. Why? Because making such big financial commitments when one has no rational basis for expecting to meet the obligations that come with them makes no sense.

The housing market is ... being hampered by the weakening economic recovery [sic]. Unemployment remains stuck at 9.5 percent and many potential buyers worry they might not have a job to pay the mortgage.
On top of that, there's concern that the financial outlay associated with a home purchase made today will prove unrealistically high tomorrow.
One reason the market is hurting is that buyers and sellers are in a standoff over prices. Many sellers are reluctant to lower their prices. And buyers are hesitating because they think home prices haven't bottomed out.
This situation parallels the one employers face when considering whether to buy the services of a new employee, as outlined by John Stossel.
The problem today is that the economy is not being left alone. Instead, it is haunted by uncertainty on a hundred fronts. When rules are unintelligible and unpredictable, when new workers are potential threats because of Labor Department regulations, businesses have little confidence to hire. President Obama's vaunted legislative record not only left entrepreneurs with the burden of bigger government, it also makes it impossible for them to accurately estimate the new burden.
With myriad new regulations which will affect the price of labor and "no fewer than 243 new formal rule-makings by 11 different federal agencies" hanging over the financial sector, employers are hesitant to buy and their willing, potential new hires sit around unused. The only difference here is that the direction the buyer fears his price will go.

We really need to start shrinking the size of the welfare state, but even just maintaining the status quo (if that were even possible) for some time would be an improvement over our current situation in one sense: It would allow businessmen to figure out what the hell is going on.

An economist made headlines yesterday, not so much for laying all this out, but for calling a spade a spade: He said that our economy is in a depression. I completely agree.

If, as the saying goes, "Admitting the problem is half the battle," this is the best news about the economy I've heard in years.

-- CAV


: Minor edits.


Vigilis said...

Gus, in my opinion the devestation of middle-class wealth (realty holdings) we are witnessing is part and parcel of a plan to further socialize America.

PREDICTION: The current chaos in real estate will usher in new (and evolving) regulations on home energy efficiency.

The existing inventory of homes could not be resold until brought up to new homebuilding codes, which in most cases would be prohibitively expensive for current owners and heirs.

Local zoning laws would eventually condemn such 'relics of capitalist excess' and affordable housing will be offered in high-tax metro areas.

Once migration back to cities has been significanty accomplished, suburban sprawl will be reversed with restoration of land reserves, government farms, parks, nature habitats and, of course, the gratuitous autonymous areas for Muslim/Mexican immigrants.

Who would have thought the U.S. could be turned into a socialist utopia in just 20 years?

The only problems with the state-owned utopia would be the death of human liberty, and the choices and incentives it has brought with it.

Oh well, serfs can't have anything worthwhile and this will prove neither do they deserve it.

Have voters lost their minds?

Inspector said...

From what I understand of the Great Depression, the uncertainty of future government intervention was a major cause of sustained economic woe back then, too.

Gus Van Horn said...


"[T]he devestation of middle-class wealth (realty holdings) we are witnessing is part and parcel of a plan to further socialize America."

There are opportunist politicians who want to do this, but this destruction would occur regardless of why various welfare state measures are passed.

"Have voters lost their minds?"

Many of the ones that have them have had them rendered moot by the idea that there is such a thing as a free lunch.




Andrew Dalton said...

"... not only left entrepreneurs with the burden of bigger government, it also makes it impossible for them to accurately estimate the new burden."

The key point that gets left out of the media chatter about "uncertainty" is the unambiguous direction that we're moving. In this political climate, the already heavily regulated status quo is the best scenario that businesses will face; more likely, there will be a slew of new taxes, mandates, subsidies, and ad hoc cash transfers.

Gus Van Horn said...

True. Leave it to Obama to make straightforward regulation look good by comparison.

Snedcat said...

Yo, Gus, when I first read the title of this post I was scared you'd gone nihilist on us.

Gus Van Horn said...

In pointing out the accidental pun, you happened to remind me of the parking lot fight in The Big Lebowski, where the "nihilists" did succeed in getting destruction.

Funny movie, if you haven't seen it.

Michael said...

Be pragmatic. You gotta go with what works Gus

Gus Van Horn said...