Friday, August 12, 2005

The Housing Bubble Economy (More from Krugman)

Paul Krugman has more to say in today's New York Times about how housing mania is fueling our economy (leaving us on potentially very shaky grounds when things inevitably cool off):

"I used to live next door to a Russian émigré. One day he asked me to explain something that puzzled him about his new country. 'This place seems very rich,' he said, 'but I never see anyone making anything. How does the country earn its money?'

The answer, these days, is that we make a living by selling each other houses. . . .

The housing boom has created jobs in two ways. Many jobs have been created, directly and indirectly, by a surge in housing construction. And rising home values have fueled a simultaneous surge in consumer spending.
. . .
Then there's the jump in house prices. Over the past five years housing prices have grown much faster than the overall cost of living, adding about $5 trillion to the public's wealth.
. . .
Beyond that, there's the disturbing point that we're paying for the housing boom (and the military buildup and tax cuts) with money borrowed from foreigners. . . . In other words, a fuller answer to my former neighbor would be that these days, Americans make a living selling each other houses, paid for with money borrowed from the Chinese. Somehow, that doesn't seem like a sustainable lifestyle."

Full op-ed piece:

Safe As Houses

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