Economic growth from 1940 to 2008 was increasingly fueled by consumer expenditures, and consumer expenditures were increasingly fueled by the costs associated with home ownership and the use of consumer debt to fund discretionary spending.
In the midst of our current Great Contraction, two things are clear: Home ownership is highly unlikely to return to the high of 69% in 2007; and the absolute capacity for consumer debt has been reached as well.
Thus, all of the stimulus packages, bank recovery programs and housing stabilization plans have one purpose: to bridge us to the next epoch of the U.S. economy, which has yet to be invented.
If we’ve reached reached the capacity of consumer consumption for our current population, our future growth will be slower and will come largely from population expansion and immigration. For the economy to grow at a pace faster than the growth of the population, we’re going to have to find other economic opportunities. It seems like those are going to have to be primarily export-based, given the relatively small purchasing flexibility of the American consumer.
This is the big question that is hanging out there while we try to survive this current correction with the minimal amount of pain and disruption.
But what does that mean for the current state of housing, and the goal to help as many people as possible keep their homes?
In the March Atlantic, Richard Florida has a very compelling article about economic geography that argues that creating new economic opportunity will depend on innovation and mobility in the workforce. The geography of the country will inevitably shift to places that are centers of energy and innovation, says Florida, and people will need to be able to relocate to these centers to take advantage of the opportunity.
That conclusion puts a stark light on the recent data released about American migration within its borders.
The Economist puts faces to the trend in an article in their March 19th issue.
The recession seems to have slowed internal migration. Only 11.9% of Americans moved house between 2007 and 2008—the most sluggish pace since records began in the 1940s.
In December, 20% of homeowners owed more on their house than the house was worth, and with prices likely to continue to dive, that number is only going to grow. Selling a home at a loss is a tough nut to swallow, and most people just aren’t willing to do it unless forced by economic circumstances. The Economist further points out that access to health care keeps many people in jobs that they would otherwise leave — the cost of personally paying for health care is prohibitive for most people.
The bank and auto bailouts are all well and good, but the bigger question facing our economy is how we’re going to create jobs for the 5+ million people who have seen their positions eliminated since this recession began. We can’t count on all the jobs being created in the same general area that they were eliminated. So, people have to be able to move. Right now, more people than ever before don’t feel like that is possible, and to fully pursue employment they will likely have to make an economic decision that will batter their self-confidence, their self-esteem and their financial profile.
That’s the bailout we need to sort through.