Out of Control Policy Blog

Bill Dunkelberg's Notes on the Economy

Bill Dunkelberg is a professor of economics at Temple University, and writes a series of commentaries on the economy for the Wynnewood Institute that are well worth a read. His most recent article has several useful nuggets, including

A decade ago in these commentaries I predicted the demise of General Motors and the big three. In the tradition of good forecasting, I did not provide a date. But it has come to pass. GM has been liquidating itself for years now. It sold 51 percent of its best assets, General Motors Acceptance Corp and gave the proceeds to its unions, failing to use the funds to improve its car designs or its factories. Ford and Chrysler have done much the same.

He also notes that the natural rate of increase in demand for homes in the US (based on new household formation, migration, etc.) is 1.3 million units. Last year, the housing industry was producing about 700,000 new units (down from an obviously unsustainable rate of 2 million per year in 2006).

So, the 700,000 figure is bad news for today's economy since it means fewer construction jobs and lower economic growth. But it's good news for the future since we are producing fewer houses than fundamental demand requires, so we can get rid of some of those excess house that are currently depressing home prices. The faster we get rid of the over-supply, the sooner we can get back to building.

In other words, the housing industry will rebound, but only after the market recalibrates.

Good stuff.

Samuel Staley is Research Fellow


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