Foros de la Plataforma por una Vivienda Digna

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Recession or soft landing, something’s up

By PAUL KRUGMAN
Columnist

These are the dog days of summer, but there’s a chill in the air. Suddenly — really just in the last few weeks — people have starting talking seriously about a possible recession.

And it’s not just economists who seem worried. Goldman Sachs recently reported that the confidence of chief executives has plunged. On the face of it, this loss of faith seems strange. Recent growth and jobs numbers have been disappointing, but not disastrous.

But economic numbers always have to be interpreted as part of a story. And the latest numbers, while not that bad taken out of context, seem inconsistent with the stories optimists were telling about the U.S. economy.

The key point is that the forces that caused a recession five years ago never went away. Business spending hasn’t really recovered from the slump it went into after the technology bubble burst. Also, the trade deficit has doubled since 2000, diverting a lot of demand away from goods produced in the United States.

Nonetheless, the economy grew fairly fast over the last three years, mainly thanks to a gigantic housing boom.

Even optimists generally concede that the housing boom must eventually end. But the conventional wisdom was that housing would have a “soft landing.” You might say that the theory was that investment and exports would stand up as housing stood down.

The latest numbers suggest, however, that this theory isn’t working much better on the economic front than it is in Baghdad. Now, for the first time, problems in the housing market are starting to seriously reduce economic growth. The latest data show real residential investment falling at an accelerating pace, falling employment in home construction, and falling retail employment, suggesting that consumer spending is running out of steam. (Gas at $3 a gallon doesn’t help.)

Now maybe we’ll still manage that soft landing. But based on what we know now, there’s an economic slowdown coming.

And what will policymakers do about a slump, if it happens? A snarky but accurate description of monetary policy over the past five years is that the Federal Reserve successfully replaced the technology bubble with a housing bubble. But where will the Fed find another bubble?

One last thing: The real wages of most workers fell during the “Bush boom” of the last three years. If that boom, such as it was, is already over, workers have every right to ask, “Is that it?”


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Paul Krugman writes for The New York Times. His column appears on Fridays

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