Government Policy, Tech Bubble, Housing Bubble, the Difference

FiveThirtyEight explains it at link below (excerpt follows):

Why the Housing Bubble Tanked the Economy And the Tech Bubble Didn’t | FiveThirtyEight: "... Despite seeing similar nominal dollar losses, the housing crash led to the Great Recession, while the dot-com crash led to a mild recession. Part of this difference can be seen in consumer spending. The housing crash killed retail spending, which collapsed 8 percent from 2007 to 2009, one of the largest two-year drops in recorded American history. The bursting of the tech bubble, on the other hand, had almost no effect at all; retail spending from 2000 to 2002 actually increased by 5 percent. What explains these different outcomes? In our forthcoming book, “House of Debt,” we argue that it was the distribution of losses that made the housing crash so much more severe than the dot-com crash. The sharp decline in home prices starting in 2007 concentrated losses on people with the least capacity to bear them, disproportionately affecting poor homeowners who then stopped spending. What about the tech crash? In 2001, stocks were held almost exclusively by the rich. The tech crash concentrated losses on the rich, but the rich had almost no debt and didn’t need to cut back their spending...." (read more at link above)

The unintended consequences of government policies encouraging consumers to borrow money at cheap interest rates to buy houses, flip houses, take out equity loans on houses, etc., led to the housing bubble that led to the crash. The problem is that unlike rich people, most people do not have the reserves to withstand such losses, hence, the Great Recession.

The government, directly and indirectly through housing policies, tax policies, Fannie Mae, the Federal Reserve, etc., had everything to do with the Housing Bubble and subsequent crash, but had very little to do with the Tech Bubble. Whenever government gets involved with the economy, it always ends badly.

Tweet    Follow @johnmpoole

Incomes Flat in Recovery, but Not for the 1%

Another reason we need comprehensive tax reform--

Incomes Flat in Recovery, but Not for the 1% - NYTimes.com: "Incomes rose more than 11 percent for the top 1 percent of earners during the economic recovery, but not at all for everybody else, according to new data. The numbers, produced by Emmanuel Saez, an economist at the University of California, Berkeley, show overall income growing by just 1.7 percent over the period. But there was a wide gap between the top 1 percent, whose earnings rose by 11.2 percent, and the other 99 percent, whose earnings declined by 0.4 percent. Mr. Saez, a winner of the John Bates Clark Medal, an economic laurel considered second only to the Nobel, concluded that “the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s.” The disparity between top earners and everybody else can be attributed, in part, to differences in how the two groups make their money. The wealthy have benefited from a four-year boom in the stock market, while high rates of unemployment have continued to hold down the income of wage earners. . . ."

The Bernanke-Federal Reserve and Obama-Washington policy has been geared for the past four years to boost the stock market (and hence increase the income and wealth of the 1%), while destroying incentives to save and devaluing the US dollar. What kind of policy is that?

Tweet    Follow @johnmpoole