Bill Watkins & Dan Hamilton

On January 26th, the blogger named Effective Demand commented on our January 25-th entry “Targeting Nominal GDP, Purchasing Homes, and Economic Recovery”. We thank you for your comment. We agree with you that too many people own homes, hard choices need to be made, and short sales or foreclosures must go on. Further, government programs to keep someone in their home who will eventually default anyhow are short-sighted.

You make the statement that the houses that exist are built in the wrong places, too far from job-centers. We agree with this, and purchasing homes in these markets would be a way to foster the re-equilibration process that, even with this plan, will take some time. The owners, we suggested local-area housing authorities, could rent them or use them to satisfy affordable-housing mandates.

You conclude by saying that we should “fix the economy and housing takes care of itself”. This recession is different. The problems started in housing, and were so deep and so lasting, the rest of the economy was pulled pretty far off its growth pedestal. Perhaps in “normal” recessions this conclusion makes sense, but perhaps not in this recession. We expect the economy will experience economic growth below its potential until the housing markets are repaired.