Minsky-Jones Answers Tyler Cowen

"If it had been up to me, I would have put in place policies to accelerate getting people out of houses where they don't belong. I would have given subsidies to underwater borrowers to move, and I would have given them bonuses for leaving houses in good condition. I think that if we had a housing market with a reasonable relationship between where people live and what they can afford, then the economy would be humming by now."

That is an awful lot of government intervention. Surprising from you.

Steve

steve,

That is a lot of gov't intervention. But compared to the actual gov't intervention we are getting, Kling's proposition would hardly register.

Garrett Jones would be right. Another possible reason profits are particularly high now is that during the downturn, many customers "held their breath" and put off buying durables. Once it was clear that an apocalypse was avoided, these customers came back to refresh their aging equipment on top of the run rate demand. This run rate demand might actually be lower than it was, but the extra refresh demand has helped push revenues to new highs in some cases. Check back in a couple of quarters when this refresh has completely died out.

What Scott said. Also, since we are going to GET gov't intervention, no matter what, you want that intervention to be as sound as possible. Gov't intervention might be bad, but some interevention is worse than others.

A better question:
If profits are so high, then why is the stock market taking such a beating?

Because people buying stocks are investing in the future of the companies. If the companies are damaging future capacity to shore up current profits, then a decline in stock price is the appropriate response.

Here's a hurdle for your employment theory to overcome.

Profits are high only in the extremely limited number of corporations that are coming out on top, i.e. the ones that are getting all the attention. The small businesses that would normally hire are not doing so good.

Also, as to housing? Get locales to allow people, once again, to build at less than 1000 square feet. That would help an awful lot of people. Get rid of the plumbers union requirements that stop people from adding factory manufactured efficient and highly reasonable plumbing systems in their homes. That would be a start. This is some affordable housing that would get government out of the way. Plus, local jobs in plumbing module manufacturing wouldn't hurt, either. People can still use housing. They just don't need McMansions.

"I still think we will get rapid hiring growth at some point."

Absolutely, and that point is Shenzhen (or maybe Bangalore).

All kidding aside, profits are high because cost cutting has been almost half as much as is warranted, but demand has not followed suit - yet. Americans are optimists. It takes more than a single beating to stop them walking in the park after dark.

"I would have given subsidies to underwater borrowers to move, and I would have given them bonuses for leaving houses in good condition."

Are you sure you would have proposed subsidies? I think if any government proposed this, you would complain at the details of their implementation if not the whole idea.

Can someone explain to me how forclosing on home and subsidizing people to move out their houses will increase aggregate demand? Not trying to be snarky--I just really don't see the logic.