One Nation, Two National Economies
It is hard to make sense of economic news in the best of times. These are not the best of times. Much of the "good" news pertains to a relatively small cross section of the US. Much of the "bad" news involves reporting on widely suffered pain. Housing market numbers perfectly illustrate this. We have been told for 4 months that we have/are turning the corner. Asset markets have been soaring. Spirits have clearly been lifted for many. The problem remains that improvement has been heavily concentrated in the upper tiers of the economy. These folks are over-represented in the media and public consciousness. Our celebrity worship, athlete obsession and overwhelming disinterest in real people's material conditions all speak to this. The bottom 80% of Americans are suffering, their children are suffering. People's lives and conditions are not getting better. Sooner or later, this produces disaster. The divergence of fortunes was a significant cause of the great crash from 2007-2009.
On Friday 21 August 2009, The National Association of Realtors (NAR) released July existing home sales numbers. Existing home sales rose 5% over their July 2008 levels. This increase was led by condo and co-op purchases. Almost 1 of every 3 homes sold was sold out of foreclosure or deep distress. The average home price declined by a massive 15% from $210,000 to $178,000. On this news stock prices soared. Major US indexes added to their recent gains with surges of over 1.25% across Friday 21 August 2009. Foreclosure rates soared 32% between July 2008 and July 2009. 1 in every 154 homes in Florida is in the foreclosure process. 1 in every 123 homes in California is in the foreclosure process. 1 in every 56 homes in Nevada is in foreclosure. 361,000 households received foreclosure notices in July 2009. As of May 2009, nearly 35 million Americans were receiving food stamps, a record. Much of this pain is driven by the dismal employment situation.
Fifteen states and the District of Columbia reported jobless rates of at least 10.0 percent in July. Michigan continued to have the highest unemployment rate among the states, 15.0 percent. Rhode Island recorded the next highest rate, 12.7 percent, followed by Nevada, 12.5 percent; California and Oregon, 11.9 percent each; and South Carolina, 11.8 percent. The rates in California, Nevada, and Rhode Island set new series highs, along with the rate in Georgia(10.3 percent). Bureau of Labor Statistics, 21 August 2009.
Yes, we saw great success in the cash for clunkers program. Americans are flocking to buy new cars and some new condos, homes and co-ops with low interest rates and government discounts. No, this does not address the problems of the mass of unemployed people in the country. We are seeing those with decent credit, employment and faith take advantage of historically cheap interest rates and tax payer assisted low prices. These programs leave out tens of thousands for every American they include. The poorest Americans and the mass of Americans get little benefit. If you still own a house, plunging prices and 9.4 months of unsold homes in inventory are bad news. A recently released study from Bankrate (Bankrate.com, Families and Finance) reveals that more than 1 in 4 Americans owe more on their home than it is worth. Falling prices are terrible news for tens of millions of families. A falling rate of unemployment growth is cold comfort for the 247,000 newly unemployed Americans in July. Discounts on new cars and homes don't help those with low credit scores, no jobs and foreclosure notices. These millions can't buy new homes or cars.
Between July 02, 2009 and August 21, 2009 the S& P500 increased by 111 points, 12.4%. The S& P500 is the broadest and most widely used measure of overall US stock performance. Thus, wealth has begun to recover from the devastation of last year. The wisdom and sustainability of the recent global market run is another issue for another column. Rapidly slowing declines in the macro economy and huge doses of help have led more affluent Americans to feel better. Those feeling better are concentrated in the higher income and wealth reaches. Middle income families have one significant asset, the home. The average American now owns only 41.4% of their home. These bank owned homes have been tumbling in value. As the value falls, the debt remains and middle class Americans see their wealth decline. Lower income Americans own nothing. Lower and middle income Americans live on income from jobs and wages. We have 9.4% national unemployment and real wages were flat last month.
The trend toward greater inequality has grown through the last 4 months of the downturn. This is creating a growing disconnect between optimistic news stories and the realities in American homes. This also challenges belief in a sustainable recovery. From September 2008 through March 2009 wealth, assets and our financial system were battered. Many felt they were not directly vulnerable. They were wrong. Between March and today, wealth and assets have rallied as millions suffer. Those who think this can continue are wrong. Neither is sustainable without broad improvement. This year we will deficit spend more than $1.5 trillion. We will likely see positive GDP numbers for a quarter or two. That won't put folks back to work or make home payments affordable. We need structural economic reform to help sustainably grow and bridge the yawning gap between the two national economies forming inside America.
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(please read my two previous comments in posting order first)
There are many ways to move in that direction and I personally favor a single buyer system similar to what some lucky European cities have, where the city owns most of the apartments and they rent it to their citizens at a fixed price. The system should be adjusted for an ownership culture though: families should be able to buy a home instead of renting it, but if they want to sell it again they should be required to sell it back to the government.
Obviously citizens who want to move to a fashionable neighborhood will have the choice to either wait for a longer time or buy in the speculative market, at their own risk.
Cheers,
Francesc Romà i Frigolé
Also in this article you say "Falling prices are terrible news for tens of millions of families". Why should that be? It definitely should worry the people who have invested in real state, but why should it worry families that own only one house? If their economy is good and they plan to live on the same house they shouldn't care about it's market value. If they plan to relocate, then they should be happy because they can sell the house and buy an equivalent house in their new location, and they should save on taxes and fees which are proportional to the values of the houses. And if they have to use their house as an insurance, i.e. sell it and rent another place, they shouldn't be very concerned either as the rents evolve roughly like the real state.
I'm afraid this view of household = investment encourages speculation. And excuse me, but encouraging speculation on basic human needs (housing, food, water, etc.) is irresponsible. A more responsible attitude would be to encourage policies to make the price of houses as close as possible to the actual cost of building them (minus amortization if they are not new) and keeps the price of rents also proportional the the construction cost. This would mean stability on prices and more spending power for families.
TO BE CONTINUED
Max,
I saw your excellent interview at Democracy Now. There is one sentence you said though that worried me. "Middle class families have one asset: their home". I worry that promoting this view encourages "trickle down" subsidies and policies to keep the prices of houses artificially inflated instead of focusing energies in actually solving real structural problems.
Please point me to references if you disagree, but in my view if you own two houses you own one asset: one house that you can sell or rent.
Owning only your own home is like having an insurance: if you get into trouble you can sell your home which will give you enough money to rent a home and pay your living expenses for a few years, hopefully enough time for you to get back on track.
Having a mortgage on your own home is like owning a lottery ticket to an insurance: if the real state market goes up you get the "home owner" insurance as described above, otherwise you loose.
TO BE CONTINUED
Francesc Romà i Frigolé and others,
Thanks for your comment and engagement. I do think we need to see houses as the key asset for most families. However, I do not support expensive and likely to fail plans to push house prices up. This is on the public record and has created some serious anger at me. I think the answers must include jobs that pay fair wages, savings and public goods.
Best,
Max
More of his (more explicitly Marxist) writing can be found at http://www
What would we do without labels? We might actually listen to what the guy has to say and it might be more insightful than the bobble heads on Wall Street. I saw his interview on "Democracy Now" - he's bright, articulate and knowledgeable - gosh, do you think we could use more of guys like him - all labels aside?
Not for the faint of heart...so
Florida Unemployment Situation in Heat Map form:
here is a map of Florida Unemployment in June 2009 (BLS data)
http://www
versus Florida Unemployment Levels 1 year ago
http://www
Michigan Unemployment Situation in Heat Map form:
here is a map of Michigan Unemployment in June 2009 (BLS data)
http://www
versus Michigan Unemployment Levels 1 year ago
http://www
Perhaps if companies stop outsourcing jobs would help!
But, that would be an incursion into what a neo-marxist economist like Max might call, "the logic of capital(is
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