Employment Scars of the Housing Bust

The central argument we make in our book is that the housing bust in combination with excessive household debt burdens were the key drivers of the economic downturn. Failure to more adequately address the housing disaster was the greatest policy mistake made in the Great Recession.

One way to see the scars of the housing bust is to look at the unemployment rate today in counties that saw the biggest decline in house prices. As we argue in the book, such an approach actually significantly underestimates the impact of the house price-driven spending collapse. This is because even people living in areas that were not hit by housing lost their jobs when people living in areas where house prices crashed stopped buying goods. But even with this under-estimation, here is the picture we get:



The unemployment rate in counties hit hardest by the housing crash is more than 3% higher in 2013 relative to 2006. The rise in the unemployment rate is twice as high as the rise in counties with the smallest decline in house prices. The housing crash has led to a large and persistent increase in unemployment. The evidence is undeniable.

This patterns is supported by evidence presented today by Steve Matthews and Jeanna Smialek of Bloomberg, who write:

“Residents of the U.S. states that suffered the steepest home price declines and record foreclosures face labor markets that remain impaired five years after the most severe recession since the 1930s ended.”

You can look at this pattern and make a number of arguments. Perhaps these counties were artificially inflated in 2006 by the housing bubble. Perhaps these counties will never return to their pre-crash employment levels. Perhaps government policy is keeping people from moving out of these counties when people need to relocate.

But the chart above forces you to recognize the centrality of housing in thinking about the employment problems we have today.

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4 Responses to Employment Scars of the Housing Bust

  1. theyenguy on May 22, 2014 at 4:53 pmi

    You write, The central argument we make in our book is that the housing bust in combination with excessive household debt burdens were the key drivers of the economic downturn. Failure to more adequately address the housing disaster was the greatest policy mistake made in the Great Recession.

    I respond, the apostle Paul presents the concept in Ephesians 1:10, that Jesus Christ has been tasked with the economy of God, to mature and perfect all things in every age, bringing them to maturity and perfection, much like a ship’s captain completes the manifest before setting sail.

    It was Christ who acted to complete the age of currencies which was fathered by Milton Friedman with his Free To Choose Manifesto, and to perfect the age of credit which was fathered by Ben Bernanke with his QEs, Mario Draghi with his LTRO1, 2, and OMT, and Hiroki Kuroda, with this Abenomics.

    Each of economic geniuses, Bernanke, Draghi, and Kuroda, provided his own credit stimulus for trust in risk on investing; these birthed and defined the investor as the centerpiece of economic activity.

    It was by God’s design from eternity past, and ongoing fulfillment of His will that the central bank leaders’ provision of currencies and credit provided seigniorage, that is moneyness, for investment gain, and very little stimulus for economic recovery since the Great Recession. There was was no fluke, error, or failure of policy, whereby employment and recovery were given little regard.

    The sovereign’s monetary policies defined investment choice and established both the confidence and the platform for risk-on investing, and resulted in peak equity wealth on May 13, 2014, and peak credit wealth, on May 15, 2014, thus establishing peak moral hazard.

    On Tuesday, May 13, 2014, the see saw destruction of fiat wealth commenced in the Eurozone on the failure of credit. specifically the failure of trust in the world central banks to continue to stimulate investment gains as well as global growth. With the trade lower in Italy’s Sovereign Debt, ITLY, and Italy, EWI, the world has passed through an inflection point: the world has pivoted from the age of credit into the age of debt servitude.

    Sovereign monies, that is Major World Currencies, DBV, such as the Euro, FXE, are now trading lower. This loss of seigniorage communicates a dwindling of sovereign authority.

    Having created the perfect moral hazard peak wealth on Tuesday May 13, 2014, with the chart of the S&P 500, SPY, manifesting a blow off market top, seen as TheWaveTrading Safehaven reports SPX: A Major Top, Jesus Christ has closed the chapter on the book of economic life, which reads the age of gilded wealth, and has set sail on a new mission, that is the destruction of all fiat money and fiat wealth.

    Beginning the week ending May 16, 2014, an unwinding of the Euro Yen Currency Carry Trade, that is EURJPY in nation investment in Ireland, EIRL, Greece, GREK, Italy, EWI, and Eurozone Stocks, EZU, as well as a derisking out of the European Financials Debt Trade, EUFN, introduced a see saw destruction of fiat wealth, and the age of debt servitude, and terminated all liberal things worthy of trust, such as a university education, home buying, and fiat wealth investing.

    Out of soon coming economic chaos, people will come to trust in new sovereign authority and monetary and economic policies of regional economic governance and schemes of debt servitude to establish regional security, stability, and sustainability, where the debt serf is the centerpiece of economic activity.

    Under liberalism bankers, corporations, government, entrepreneurs, and citizens of democracies were the legislators of economic value and the legislators of economic life that shape one’s means and one’s ends. Now, under authoritarianism, currency traders, bond vigilantes, and regional fascist leaders working in public private partnerships and in regional governance, are the legislators of economic value and are the legislators that shape one’s means and one’s ends.

  2. The Bogan on May 23, 2014 at 12:21 ami

    Interesting, as this validates what Steve Keen has been saying for the last 7 or 8 years.

    • Saundra Raynor on May 25, 2014 at 7:48 pmi

      A little esoteric but profound writing, thinking and analysis.

      I’m just a near-poor widow paying half my income for housing (less than $40,000 yearly)to wealthy investors who won’t give me a break by lowering the interest rate. Maybe the next book will be titled House of Hope (for homeowners who have been struggling for almost a decade).

  3. Maria Negreponti-Delivani on May 23, 2014 at 12:17 pmi

    A very interesting and original analysis of high unemployment and late econonomic recovery, applied not only in the case of the US but also in Europe.