Feroli, Harris, Sufi and West on Housing and the Transmission of Monetary Policy

I will share a link when I find one.  Let me pull out a couple of paragraphs from the executive summary:

In this report, we focus on weakness in housing. Our analysis makes two broad points. First, weakness in housing and residential investment is a main impediment to a robust recovery. Second, problems related to housing have affected the transmission of monetary policy. More specifically, the unprecedented decline in house prices and residential investment has introduced headwinds that may require a more aggressive monetary response than in normal downturns. Further, problems related to housing markets may reduce the sensitivity of real economic activity to the interest rates that monetary policy can affect. Or in the parlance of textbook intermediate macroeconomics, housing problems have likely shifted the IS curve leftwards and steepened the slope of the curve by introducing a gap between policy rates and effective rates. For both of these reasons, problems related to housing introduce significant challenges to monetary policy-making.
There are six steps in our analysis:
1. We begin by placing housing in the context of the broader economic recovery. The overall recovery in GDP has been one of the weakest in the postwar period even though the recession was the largest in the postwar period. Residential investment has been a particularly dismal performer. Further, the other weakest components of GDP--consumption of services and state and local government expenditures--can also be closely linked to weakness in housing markets. Focusing just on the direct impact of housing—home construction and housing service consumption—the sector accounts for about a third of the shortfall of growth relative to a typical recovery. Obviously the full impact of the housing crisis is bigger if we include indirect impacts on local governments and consumption of housing-related durables. We also show evidence from other countries that a collapse in housing is associated with subsequently weak recoveries....

If one looks at business cycle histories (see here, here and here), it is hard to imagine full recovery without housing market recovery.  Warren Buffet this morning said it was time for one.  I hope he is right.

Still playing consumers for suckers

So I am having a lazy Saturday watching ESPN, and see an ad where the husband says, "I need the TV," and the wife says, "We can't afford more credit card debt," and the announcer says--"you can have your TV and not take on credit card debt--by renting."

Of course, by renting, consumers are paying an implicit interest rates to RAC, the company peddling the scheme.  The price of renting a Sony 55" television is $29.99 a week.  The cost of a Sony 55" is $1899 on Amazon.  Let's say the expected life of a Sony is four years (it is probably longer).  That is an implicit IRR of 1.51 percent per week, or 117 percent per year.  There used to be a word for this kind of thing, and the word was usury.

This is different from legitimate rental businesses, that rent out equipment for short periods and that have to keep inventory that often sits idle.  But to suggest to consumers that they are better off not using their 24 percent APR credit cards for this scheme--it is disgraceful.

Matthew Yglesias says low income people face lower inflation

More specifically, he writes:

At the same time, it’s worth noting that stagnating real working-class wages are calculated by using a meaningless overall average rate of price inflation. Some things—college tuition, apartments in Manhattan, health care—have gotten more expensive much faster than average. This means that people who buy a below-average amount of those things are better off than the statistics show.

So I repeated an exercise I did a few years back--I looked at expenditure shares for different goods for each income quintile, and then looked at price dynamics for each expenditure category in the CPI (the matches between the CES and CPI are not perfect, but they are close.  I am not sure what to do with the expenditure categories "cash contributions" and "pension contributions.").

In any event, I find that the effective CPI for each income category is pretty much the same for 2009-2010: the CPI increase for the lowest quintile was 1.6, for the second lowest was 1.4, for the third 1.7, the fourth 1.8 and the highest 1.7.  These differences look like noise to me.

I will try to figure out something using longer term data, but since expenditure shares change over time, it will be harder to glean meaning from differences in CPIs.

 

What do these two places have in common?

Cudahy, California

New York, NY

What they have in common is that Cudahy's population density, at 21,684 per square mile, is not dissimilar to New York's 26,402 per square mile.  I can't be positive, but I am pretty sure no building in Cudahy is more than three floors tall.  New York is the 5th densest municipality in the US, while Cudahy's is 10th.  If one visits Cudahy, one won't feel particularly crowded either.  But there is no wasted space.

3quarksdaily: Learning Urdu

3quarksdaily: Learning Urdu

Professor Judith Green reminds me of the meaning of "begging the question"

Fowler defines "begging the question" as the "fallacy of
founding a conclusion on a basis that as much needs to be proved as
the conclusion itself."

I learned this in high school, and just forgot (or just got sloppy). It is a good phrase with a specific meaning--we should keep it.

Paul Krugman essentially invites the question: should California secede?

In his column this morning, Paul Krugman discusses a recent Times article that shows that the reddest states receive more of their personal income from government programs than blue states. An implication of this is that places such as California would be better off fiscally by seceding from the union (my colleague Lisa Schweitzer shows that California gets less than its fair share of the gasoline tax as well).

So as someone who lives in California (and who plans to remain here until I no longer have any say about where I live), I should support secession, or at minimum, a substantial reduction in federal taxes and spending, which could then be replaced with state taxes and spending. But I care about the elderly and the poor in Oklahoma, so I guess I am stuck; yet the average voter in Oklahoma seems not to care at all about the elderly and poor in California. This leaves us stuck again.