“Congress and the White House have yet to figure out that the economy will not recover until housing recovers.” “Homeowners Need Help,” NYT Editorial, August 22, 2011
To use NYT-like claims of consensus, I would say that “everyone” knows that the recession and financial crisis began with the dramatic overexpansion of housing. We built more houses than people could afford to buy. The housing bubble was made possible by federally-guaranteed loans and federal government pressure to sell to low-income home buyers. The financial sector then kicked in by creating a murky market in toxic mortgages.
The contraction began when we recognized that we had a housing bubble. Housing sales and prices collapsed and so did the financial system.
Now the NYT tells us that we will not have an economic recovery until housing recovers! We do not need a recovery of the overbuilt housing sector. If we build more planes, cars, or TV sets than the market is prepared to buy, we cut back on their production. We should not conduct policy to keep resources in a sector that has become artificially too large.
Only when resources are transferred out of housing into more productive activities will we have a real recovery. There is no reason why construction workers cannot build oil and gas pipelines or work in offshore drilling rigs, if only government restrictions on these industries could be eased. To keep resources frozen in housing by artificial means (such as curbing foreclosures and forcing banks to modify mortgages) does nothing but delay the recovery. (By the way, what bank would lend to new customers after being forced to renegotiate loans in borrowers’ favor?)
I wish the editorial writers of the NYT would rely on some basic economics, not emotion, when they take pen in hand.