McCain Wrong, Real Estate Prices Must Devalue

John McCain has hinted that he plans to reveal his economic package soon in an effort to keep pace and perhaps counterbalance the Barack Obama economic proposal. There's one thing that struck me as odd, in this era of evaporating jobs and oncoming Depression. The McCain proposal hints at calls for using $300 billion of the $700 billion financial bailout package to keep Americans in their homes, stop declining housing values, and stabilize the financial markets.

Indeed the decline in real estate has devastated the financial markets and they've already gotten their bailouts in order to keep the credit markets primed with cash to avoid another freeze-up.

But in an era as we've been in the past ten years where, as Ross Perot so bluntly called it, "the great sucking sound" of disappearing jobs has gone from background din to deafening alarm. And McCain has no plan to change that any time soon.

Devaluation of real estate is inevitable. This is a hard pill that America is going to be force-fed, but is nevertheless necessary if we wish to survive in the "flat earth" economy. It's not the only thing that must devalue in price and cost, but it's one of the most critical.

As we've noticed rather clearly, especially during the George W. Bush era where added tax incentives accelerated the pace, business is in love with cheap labor - the cheaper, the better. It initially started with manufacturing and labor-oriented jobs, but has expanded to accounting, computer programming and even financial and service-industry jobs. Everyone wants a bargain, and no one loves it more than business executives and Wall Street investors. Cheaper costs mean more profit.

One of the primary reasons jobs fly overseas is due to this new awareness of a plethora of cheap labor. Even if it doesn't produce as Americans would, or end up as good quality as what we may do domestically, the cost differential more than makes up for it. It's also helped keep what jobs below the executive level that are left in the U.S. more bargain-priced than ever - even in the face of rampant cost-increases in everything.

Yet even with our fixed incomes for most of America, the bottom line is still more attractive by going cheaper and going overseas. We in America cannot compete with that due to our overly high cost of living. While a $9 an hour job in India, Indonesia or China may provide a very attractive standard of living and draw an incented workforce, in America it guarantees the individual will be part of a burgeoning working underclass with shrinking living standards and increased difficulties competing with other countries in this flat-earth economic paradigm.

Housing prices, as with food or utilities are one of those indispensable mandatory costs for the global workforce, no matter which country you live in. It doesn't take a rocket scientist to determine that American real estate is vastly higher than the very countries we now must duel with over diminishing work.

One exacerbating problem during this time of disappearing jobs was that many Americans turned to individual investing - flipping real estate - in the midst of Bush's "Economic Recovery." They made a handsome profit, providing cushion for the economic and employment uncertainty for a time. But like all pyramid schemes, it reached its saturation point. In the wake of this, we've experienced for some time a pricing over-escalation and a painful correction on real estate based on typical American standards and prices.

But once this reaches what were the pricing norms ten or fifteen years ago, the question begs: will there be jobs sufficient and plentiful enough to renew a housing boom? The answer to that will be no.

Until we in America reach cost levels similar to those of China, India or other third-world countries we are now mandated to compete with for jobs, America will face three choices. Either accept job insecurity (which will go where the wages and wage-earner costs are cheapest), acquiesce to a constant stagflated period where wages will be sub-par to bring us to what we've been accustomed to over the past decades, or give up on the globalizing workforce and retain jobs in America with the attendant cost increases. Corporations giving up profit are as likely as crack-heads giving up crack. We will have to look to one of the first two options.

Either American living standards must continue eroding at a shocking pace, or the costs of these living standards must come down accordingly in order to give American workers a chance to compete for jobs.

As things stand, McCain wants to artificially continue propping up real estate prices. This guarantees American jobs with livable American-level wages will never be able to compete with flat-earth, globalized workforces. For American wages to remain the same or deflate, and for jobs to stop evaporating before our eyes, costs must come down. And not just for housing prices, but for all essentials.

Comments

[WASanford]

Well at least a few of us get it. There's nothing wrong with living within one's means. I'll gladly settle for a 1300 square foot house with a double car garage and enough solar panels on the roof so I can be off the grid. The car, or cars, in that garage don't have be gas guzzling SUV's either, something small and thrifty, and also light on the enviroment will do just fine, thank you. And, it would be nice to have a back yard large enough so I can grow my own food.

Get used to this folks, this is your future talking.

[WhyNaught]

I live in the country. About 7 years ago, what used to be a cornfield was bought up by a land company, and now in that place sit a dozen or more houses each costing over a thousand dollars a month. Around here that is wildly over priced. Now, a good many of them sit empty. Some of them were even damaged by hurricane Ike that came through a couple of months ago, yet to be fixed. It's not a good situation.

But, I always thought it was so strange for people to be complaining that house prices were actually become MORE affordable. What kind of world are we living in that a house cheap enough for the average person to buy is a BAD thing!?

Ms Foster is right. Americans are going to have to adjust and begin to live sustainably again. This past few decades has been one of the most wasteful periods in human history. It would in fact take FIVE PLANETS EARTH to supply the whole population of the Earth a living standard comparable to the US. Something's got to give. We need some real leadership in this area, because the massive changes that are needed don't just happen on their own.

[JoshinLA]

You are one of the few main stream media outlets who understands Home pricing needs to come down, even if it will cause short term pain. We just lived through an 8 year housing bubble. It’s time to get back to reality.

[johnpseudo]

There is another choice! We can invest in our middle class and get better jobs. The reason we've been living beyond our means is because our means hasn't kept up with expanding costs. We need to invest in education, infrastructure, health care, and basic science if we're going to maintain or improve upon the standard of living we've become accustomed to over the last few decades. See Robert Reich's blog on this topic: (http://robertreich.blogspot.com/2008/10/post-meltdown-mythologies-i-americans.html)