Critics of the Fed being "too easy" during COVID-19 forget what a strange epoch that was. Hindsight is perfect. I criticize central banks, but the C19 era was a doozy.
Macroeconomic policies domestically and globally undulated, while endless business and social restrictions proliferated. Two-week lockdowns instead lasted for months or years. Non-macroeconomic policymakers were making mincemeat out of the huge chunks of the economy and employment.
To moderately err on the side of stimulus is probably one of the Fed's lesser sins.
I wonder if even yet the role of housing in inflation is truly understood.
George Selgin has pointed out if you are in an ag economy, and there is crop bust, and thus inflation, then tightening up monetary policy in response to the price signal results in economic suffocation.
House prices have been ratcheting up for decades in large parts of the country, especially the West Coast. This prints as inflation. The constant ratcheting up--it is like worsening crop busts every year.
Secondarily, who can afford to work in L.A anymore?---wages must go up, even if just secondarily. The other result, much in effect, is for real living standards to go down (even as standard measures shows people having higher incomes).
Here is one only an old guy will know: Office rents in downtown L.A. have hardly budged, in nominal terms, in 30-40 years.
The DTLA office vacancy rate is now 30%, but it has been in double digits forever.
You build enough to meet demand, and then rents get soft.
Given the recent ADP jobs report and recent statements by Powell I'm expecting a 25bp hike at the next meeting--which I think is a mistake. Keeping housing supply on a steady growth path is the only sensible way to reduce housing costs, and by extension cool NGDP growth. Many people can't grasp that higher prices are the eventual cure for higher prices because it feels crazy and counterintuitive. With housing this principle is harder to realize because it takes years--sometimes decades--to resolve a housing crisis.
The clearest sign that the housing crisis will have been solved is when junk architecture starts selling at an appropriate discount. You refer to this as filtering, which is a nice term, because in a healthy and abundant housing market we would see several layers of pricing that reflect fundamental conditions of building quality and location. I think this will start to play out in multifamily eventually as newer projects start competing with legacy properties that were built in the 70's and 80's --the nadir of shelter architecture. There will be some pain for investors who paid a premium for these crapheaps, but that's business.
Well done again.
Critics of the Fed being "too easy" during COVID-19 forget what a strange epoch that was. Hindsight is perfect. I criticize central banks, but the C19 era was a doozy.
Macroeconomic policies domestically and globally undulated, while endless business and social restrictions proliferated. Two-week lockdowns instead lasted for months or years. Non-macroeconomic policymakers were making mincemeat out of the huge chunks of the economy and employment.
To moderately err on the side of stimulus is probably one of the Fed's lesser sins.
I wonder if even yet the role of housing in inflation is truly understood.
George Selgin has pointed out if you are in an ag economy, and there is crop bust, and thus inflation, then tightening up monetary policy in response to the price signal results in economic suffocation.
House prices have been ratcheting up for decades in large parts of the country, especially the West Coast. This prints as inflation. The constant ratcheting up--it is like worsening crop busts every year.
Secondarily, who can afford to work in L.A anymore?---wages must go up, even if just secondarily. The other result, much in effect, is for real living standards to go down (even as standard measures shows people having higher incomes).
Here is one only an old guy will know: Office rents in downtown L.A. have hardly budged, in nominal terms, in 30-40 years.
The DTLA office vacancy rate is now 30%, but it has been in double digits forever.
You build enough to meet demand, and then rents get soft.
Given the recent ADP jobs report and recent statements by Powell I'm expecting a 25bp hike at the next meeting--which I think is a mistake. Keeping housing supply on a steady growth path is the only sensible way to reduce housing costs, and by extension cool NGDP growth. Many people can't grasp that higher prices are the eventual cure for higher prices because it feels crazy and counterintuitive. With housing this principle is harder to realize because it takes years--sometimes decades--to resolve a housing crisis.
The clearest sign that the housing crisis will have been solved is when junk architecture starts selling at an appropriate discount. You refer to this as filtering, which is a nice term, because in a healthy and abundant housing market we would see several layers of pricing that reflect fundamental conditions of building quality and location. I think this will start to play out in multifamily eventually as newer projects start competing with legacy properties that were built in the 70's and 80's --the nadir of shelter architecture. There will be some pain for investors who paid a premium for these crapheaps, but that's business.