Housing construction uncertain
Schenk: Speaking of unemployment benefits, let’s talk about all of those unemployed construction workers and electricians. There has been a massive drop in housing construction during the past three years.
The government needs to step in and support housing because the industry is still contracting and losing jobs. There are millions of unemployed carpenters.
Rick: Not so fast. Government intervention just changes the timing of home purchases, not the amount of purchases. So intervention wouldn’t stimulate more purchases, it would just pull them forward.
Plus, too much capital was invested in home building and appliances, and we need to correct for that. The markets have self-correcting mechanisms for this. The housing market is showing signs of moving forward (“Housing market risks and strengths,” p. 36).
Recent government programs such as Cash for Clunkers and the appliance rebates just delay the ultimate day of reckoning. Why do you think General Motors and Chrysler went bankrupt?
From 2003 to 2007 the auto industry sold 16 million to 17 million cars per year. That led to overinvestment in the auto sector. When they went from annual sales of 16 million to nine million in 2009, they couldn’t survive.
This is the restructuring that must take place as we reduce the number of workers and factories in the auto sector.
Schenk: Your empathy is overwhelming. We should help these unemployed auto workers by extending unemployment benefits, increasing training, and moving them to other fields.
Next: ‘Animal spirits’