Saturday, July 29, 2006

The housing market: The New York Times makes me laugh again

Vikas Bajaj and David Leonhardt have an article in the New York Times, “Housing Slows, Taking Big Toll on the Economy”. It is not a bad article (by NYT’s standards), but it has a few humorous bloopers. Here are a few of them.

The housing slowdown is perhaps the clearest effect of the Federal Reserve’s two-year campaign of raising interest rates in a bid to tap the brakes on the economy and reduce inflation.

The role of overbuilding and excessive speculation, in other words the fact that the housing market has been experiencing a large bubble is, of course, only a minor, ignorable factor. Perhaps Bajaj and Leonhardt should read up on the tulip craze.

The biggest risk, economists say, is that the optimism that fed the real-estate boom will reverse dramatically.

Wait a minute, I thought you just finished blaming interest rates. Was there a real-estate boom or not? If there was, do we need higher interest rates to end it or do bubble markets sometimes just crash on their own?

For much of the last five years, housing — along with health care — was also one of the only reliable generators of jobs. From the start of 2001, when the Fed began cutting its benchmark rate to steady a faltering economy, until early last year, the housing sector added 1.1 million jobs.

The rest of economy lost 1.2 million jobs over the same period, according to an analysis by Moody’s

There are a limited number of workers, hence a limited number of jobs. If demand increases in one sector relative to another and workers move to that sector, wouldn’t jobs in the other sector have to decline? Does that imply that if the first sector’s demand had not increased that the second sector’s jobs would still have decreased?

The situation is somewhat different elsewhere. An official at the International Union of Bricklayers and Allied Craftworkers said housing work was more difficult to find, but most of its members had been able to find work on commercial building sites.

“If something were to happen with both markets, that would affect us — and everybody for that matter,” said Robert A. Fozio, director of the union’s Northern Ohio district.

Yes indeed. Resources could then be devoted to things that are not in relative oversupply. We would be better off.

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