Tuesday, May 11, 2010

The State of Housing and Irrational Economics


The blog site, Decline of the Empire (above) has a good article on the condition of the housing market. It is not pretty.

Housing is represented as critical to economic recovery. This truism points to the fundamental irrationality of our US economic system.

Housing growth primarily eats up the outer-rings of metropolitan areas. Thus, the sustainability of expanded housing is predicated upon cheap oil. Herein lies the crux of the problem.

Cheap oil is going away fast. The recession has dampened demand but growth in emerging economies will take up slack even if the US demand stagnates or declines.

Indeed, there is no such thing as cheap oil when externalities (pollution, health costs, military costs, etc.) are factored in. The absolute and ongoing disaster in the Gulf of Mexico dramatizes that point so well.

Rather than trying to prop up a fundamentally flawed economic growth model, the US government ought to be funneling funds into alternative energy forms, jobs, and sustainable agriculture and urban infrastructures.

Fiscal conservatives' concerns can be addressed by halting bailouts to AIG and the banks, while revenue can be generated on a substantial--say 1%--Tobin tax on stock market transactions. This tax will raise revenue while also conveniently impinging against the profitability of the destructive and market distorting high frequency trading algorithms that are capable of destroying pension funds and main street investors' savings.

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