The economy today lives in suspense, not free-fall , Vernon L. Smith suggests:
Not all markets, however, are born equal. Laboratory experiments for goods that cannot be re-traded easily converge to their predicted supply-and-demand equilibrium under conditions of strictly private dispersed information. Their counterpart in the economy, markets for nondurable consumer goods, are a rock of stability. Moreover, these markets are very large, constituting 75% of private product (gross domestic product less government expenditures).
In sharp contrast, laboratory studies of asset markets persistently yield price bubbles in environments with perfect information on fundamental value. Moreover, experiments prove that this propensity to bubble is precisely and only because the items are re-tradable. These studies helped us to understand why all market economic instability arises from durable goods markets, especially housing-mortgage markets, as we have seen in the Great Recession and in the Depression when house prices fell against mortgage debt, plunging households into negative equity. Homeowners, living in houses worth less than what they owe the bank do not feel buoyantly prosperous. The experiments also helped us to understand why security markets are so volatile, but are not a fundamental source of instability, like housing, because securities market loans are short-term callable loans, investor balance sheets are marked steadily to market as prices decline, and there is no build-up of negative equity to dampen long-term expectations.
I believe the economy today lives in suspense, not free-fall. The pandemic will pass; public health institutions have been a model of forthright dissemination of information on the spread of this disease and sanitary procedures to minimize its impact. It’s the citizenry that has been unruly for a time. Supply chains will refill and stabilize quickly, as the pandemic passes, securities markets will recover, and growth will continue to reduce poverty everywhere. Homes are more valuable than ever as a haven of safe and secure living. Provided that we continue to buy them with some of our own money, homes will be part of a secure future.
Homes in non-vibrant neighborhoods within a two-hour drive of good jobs are more valuable that ever because any time our elites locate a healthy non-elite community, they Section-8 it all to shit. In some metro areas, “safe and secure” starts at one million dollars. For a tear-down.
If you don’t stand to inherit one of these homes, you can always move to the Philippines. If you still need to work, convert a cargo van to an RV for a few thousand bucks and live in that.
“public health institutions have been a model of forthright dissemination of information on the spread of this disease and sanitary procedures to minimize its impact“
You mean the WHO telling everyone there was no human-to-human transmission and that masks don’t work but we need them for healthcare workers because actually they do work?
Dave,
America, land of the free.
Imagine having a government that exerted itself to serve the citizenry, however imperfectly.
Before there was Section 8, there was <a href=something else.
Hope and change.
*Before there was Section 8, there was something else.