Latest Housing Report

The latest housing report is out and the news is not good. (See here). I fear we may continue and accelerate the public support and subsidy for housing that helped lead to the crash in 2008.

Industrial Policy

The Economist for this week has several articles related to the question of industrial policy. They observe that industrial policy is being revived in many countries, including the U.S. The also observe that industrial policy can claim as many failures as successes. Another part of the change in policy is that manufacturing is being stressed. From Obama's talk of strategic industries like autos to France's help of a toy manufacture, there is an emphasis on aiding manufacturing. While this is not exactly the same as the beggar-thy-neighbor policies of tariff increases that occurred during the Great Depression, it can generate a similar kind of conflict. Another popular area receiving government support in many countries is "green technology." We can only hope that people soon realize the waste of taxpayers dollars that these policies generate.

Are Interest Rates Too Low?

An interesting op-ed piece in yesterday's Wall Street Journal by John Michaelson. He challenges the conventional wisdom that maintaining low interest rates is necessary to stimulate the economy. This is a conventional wisdom I have been questioning myself for awhile. In a recent post on three books I enjoyed reading, I noted that Rajan points out two negative effects of low interest rates--less income for people who own bonds and a tendency for investors to seek higher returns through leverage.

Michaelson argues that firms make investments based on increased demand much more than on relatively small changes in interest rates. He also argues that we have an example that shows the low-interest rate policy doesn't work--Japan. I find the article stimulating and worthy of consideration.

Housing Again

Gretchen Morgenson has a good article in today's New York Times concerning housing policy. She discusses Fannie and Freddie and also the close relationship that developed between the GSEs and Country Wide, the company that generated so many mortgages that turned out to be bad. But, she also discusses the idea that federal policy toward housing needs to be re-examined. I concur. The tremendous subsidies and policies that promote housing need to be exmained critically. Otherwise, we will eventually end up again with rising debt levels and housing-financed spending. When the time occurs, I am sure that the attitude will again be, "This time is different."