[lbo-talk] Krugman

[Seth Ackerman]

Doug Henwood wrote:

>You could argue that the housing bubble got a new lease on life after  
>the stock bust because people thought "at least real estate is  
>solid!" But it's just tangible. Values can collapse, just like stocks.
>  
>

In the context of this thread, it's important to point out that "the 
housing boom" means two distinct things. One was the bubble in house 
prices, which certainly falls into the category of speculative frenzy 
generating fictitious profits. The other was the boom in house 
*construction*, which doesn't really fall squarely into that category.

The first category is exemplified by the investor who bought an existing 
house and then flipped it for a (fictitious) profit - fictitious in the 
sense that the profit didn't correspond to any actual production, it 
just redistributed money from the guy who bought low and sold high to 
the guy who did the reverse.

But the second type of activity is not purely speculative or fictitious 
because it yielded real, honest-to-god houses that are useful will 
provide shelter for somebody for decades to come. It's true that, 
because of the bubble, the market misallocated resources and built too 
many houses, so for a while there will be a glut (not a general glut, 
just a glut in this sector). But in principle that's no different, 
except in degree, from normal capitalist production, which is always 
"speculative" in the sense that the capitalist cannot know in advance 
with certainty how many people will buy his output, meaning that the 
economy is always in ("temporary") disequilibrium. In this case the 
disequilibrium just happens to be a lot bigger due to the price 
distortions caused by the bubble.

Seth