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    Housing Prices in the U.S. and Abroad

    Jun 2 • Demand, Supply, and Markets, Government, Households, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 428 Views

    We have a double dip in U.S. housing prices. But, is it happening everywhere? A Goldman Sachs research report from mid-May provided an OECD (Organization for Economic Cooperation and Development) summary.

    1. The most troubled: Struggling euro zone countries remain the most distressed. Housing prices in Ireland, Spain, Greece, the Netherlands and Italy have continued to slide.
    2. Moderately declining: The U.S. falls into this category as well as Denmark, Korea, and many euro-area countries.
    3. Rebounding: Canada, Norway, and Australia have experienced double digit increases. Less robust but still rebounding, housing prices in France, Germany, and New Zealand have been going up.
    4. Steadily rising: There actually were countries that sidestepped the housing bubble cataclysm. Switzerland and Belgium have not seen any meaningful drop in prices and now, they continue to rise.

    The Economic Lesson

    How might a supply and demand graph illustrate the U.S. moderate decline in the housing market? The key is our equilibrium price, the point where the demand and supply curves meet.

    What is making this point move downward? Is it a shift in the demand curve because government policy is no longer fueling demand? Or, is it the supply curve sliding downward because of an ever increasing number of houses that people offer to sell each time prices appear to rise?

    An Economic Question: Using this Washington Post graphic of housing prices in 12 cities, create your own story of how the housing bubble popped in different places.

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    The Crawler

    Jun 1 • Businesses, Demand, Supply, and Markets, Economic History, Government, Innovation, Macroeconomic Measurement • 481 Views

    The fuel economy window sticker for this vehicle would say 1 gallon per 32 feet. Called the crawler, it travels on a roadway 3.5 miles long, could carry 18 million pounds, and moves no faster than 2 mph. The crawler takes the space shuttle to its launchpad.

    With the last space shuttle scheduled for July 8, the crawler is at the end of its long life. However, the knowledge it generated will live onward. Similarly, technology targeted for the space program was spun off to private industry. Temper foam? Now in mattresses. Vibration analysis? Used in guitars. Space suit technology? Found in sneakers.

    The Economic Lesson

    As economists, the Crawler takes us to the spillovers and positive externalities of the space program.  With a spillover, others enjoy the benefits of a project originally involving a small group. Similarly, with a positive externality, a transaction between two individuals beneficially affects a third party. A vaccine for example, creates a positive externality. Yes, it benefits the person receiving it. But then, many others also remain healthy.

    Originally involving 2 entities, NASA and its sub contractors, NASA technology will ripple outward to benefit many.

    An Economic Question: From which positive externality might you benefit?

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    Old and Young States

    May 31 • Demand, Supply, and Markets, Economic Debates, Government, Households, Innovation • 466 Views

    Maine is an old state. At 42.7, the median age of Maine’s population is the highest in the U.S. The youngest state is Utah (large families and many children), with a median age of 29.2. Other “young states” include Texas and Alaska. And, while Florida does not have the highest median age, it does have the highest percent of people above 65. In the entire U.S., at 37.2 years, the median age is 5 years higher than it was in 1990.

    This map of the U.S. shows which states are older and which have a younger population.

    The Economic Lesson

    A new Peterson Institute report cites health care for aging populations as a major source of governments’ budget pressures. Financial journalist Gretchen Morgenson discusses the report in Sunday’s NY Times. Also, research indicates that productivity and innovation diminish with age.

    An Economic Question: How might an aging population affect each component of fiscal policy: spending, taxing, and borrowing?

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    Helpful Acronyms

    May 30 • Developing Economies, Economic Humor, Government, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy • 490 Views

    Reading about the potential contagion of Greece’s debt problems, I discovered STUPID in Schott’s Vocab, a NY Times blog about words and phrases. Schott quoted Reuters Breakingviews, “The new acronym on trading floors for possible dominoes if Greece should fall is STUPID (Spain, Turkey, UK, Portugal, Italy, Dubai).

    A second acronym returns us to the Goldman Sachs economist who coined, BRICs (Brazil, Russia, India, China) as the preeminent emerging economies. Now though, he says we should remember MIST (Mexico, Indonesia, South Korea, Turkey). According to the Guardian, MIST countries share, “a large population and market, a big economy at about 1% of global GDP each, and all are members of the G20.”

    Finally, NY Times financial columnist Floyd Norris takes us to CIVETS and JUUGs. A fund for investing in Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa, CIVETS has fared better than a JUGG (Japan, U.S. U.K., Germany) basket of securities.

    This NY Times article and this column from Dave Barry (“Decaf Poopacino”) provide a funny way to learn about the real civet.

    The Economic Lesson

    A handy acronym for remembering different recovery trajectories is LUV. Experienced by struggling economies (Spain and Portugal) an “L” shaped recovery is problematic. The “U” is more auspicious (U.S) and the “V,” the best (BRICs).

    An Economic Question: Which current stats confirm “L,” “U,” and “V” recoveries?

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    Road Building Results

    May 29 • Behavioral Economics, Demand, Supply, and Markets, Environment, Households, International Trade and Finance, Macroeconomic Measurement, Regulation, Thinking Economically • 415 Views

    If extra road mileage is built, would you predict more or less traffic?

    The WSJ tells us that more roads led to additional driving from local residents, commercial traffic and people moving to the area. Public transportation did not influence driving decisions. Roads did. 10% more road mileage meant 10% more driving.

    The Economic Lesson

    Here is where economics enters the picture. This is all about cost. If we want people to do less of something, their cost needs to increase. With roads, the problem was traffic congestion. The solution, more roads, did not work because it did not increase cost. It made driving more attractive. As a result, the authors of this study conclude that the answer is congestion pricing. 

    Similarly, looking at auto emissions and housing, again, cost makes the difference. For emissions, higher gas prices would reduce emissions. For housing, lower prices will increase sales. And yet, hasn’t public policy been the opposite?

    An Economic Question: For auto emissions, assume your goal is diminished gasoline usage. For housing, your goal is more home purchases. Describe what will happen to demand and supply if cost is used to achieve the desired objective.

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