October 29, 2011

IT'S AS EASY AS LIFTING IMMIGRATION QUOTAS TO GOOGLEPLEX:

To Create Jobs, It's the Housing, Stupid: Small fixes can help make jobs, but Washington may need to better address housing to spur real recovery (Danielle Kurtzleben, October 28, 2011, WSJ)

Growth in home construction has in the past been a sure route to recovery. "[Residential construction] grows usually the first quarter that the recovery begins, sometimes at double digits. Job growth begins to pick up very quickly in that sector. ... This is a very, very labor-intensive and huge job-generating segment." And while construction perhaps cannot itself drive recovery, the jobs it produces--in manufacturing, lumber, and all the other areas related to home-building--usually can help kickstart a recovery. Indeed, one reason that the public sector has been hemorrhaging jobs, particularly at the local level, is a reduction in property tax revenue. Though it would be a slow process, boosting the housing market--moving homes through the foreclosure process and boosting home values--would eventually help government again add the jobs it has shed.

Creating that recovery, of course, is the rub. The low interest rates that helped boost housing and the U.S. economy after the early-2000s recession (and eventually created the bubble that caused the Great Recession) have been ineffective this time around. "If you look back at, say, for example, recoveries that were more robust--following the recessions in the mid-1970s, the early 1980s--those were recoveries that were a lot more responsive to monetary ease," says Conrad DeQuadros, senior economist at RDQ Economics. When the housing market recovered after the 1980s recession, he says, that spurred a "very significant pickup in job growth."

With the federal funds rate at near-zero for nearly three years now, not to mention historically low mortgage rates, the Federal Reserve has been scrambling to find ways to fix the economy from the monetary side, providing monetary easing and altering its balance sheet. However, such policy is proving ineffective. "[A monetary fix is] not going to happen this time," says DeQuadros. "It's not the level of mortgage rates--that's not what's holding back housing market. It's the excess supply of homes, the backlog of foreclosures. Those aren't issues that can be addressed with monetary policy."

This leaves the president and lawmakers to fix the problem.

Do what Reagan did: pass amnesty.

Posted by at October 29, 2011 6:20 PM
  

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