Homes and cars
What are the two most expensive goods you're likely to buy in your lifetime? A home and a car, probably. And the news today on both is an indicator of how screwed up things are.
The Washington Postfigures the country has about one million homes too many. And close to 30,000 of them are in Las Vegas alone. "The solution, local executives say, will come not from Washington policymakers but from the market itself," reports the Post. "When there are too many houses, builders stop building them. That has already happened, and many Vegas home builders have gone out of business."
But of course, that's not going to stop politicians from intervening anyway and trying to prop up home prices — that is, keep them unaffordable. There was Jack Kemp, that paragon of supply-side virtue, stumping in Florida this weekend for John McCain and his $300 billion mortgage bailout. Barack Obama's campaign has lambasted the idea, but by the same token I haven't heard any of his vaunted Chicago-school advisers come out and say housing prices have to come down before some semblance of balance can be restored.
Meanwhile, on the auto front, the big news to my mind is not that Treasury has spurned the idea of forking over money to General Motors for the purpose of buying Chrysler (I guess that sort of arrangement is reserved for banks), but rather the introduction of what's billed as "the lowest priced car in the country." It's a new model of Nissan's budget subcompact, the Versa. MSRP $9990.
Now if you're of a certain age, you probably remember the introduction of the Yugo in the United States — also billed as the lowest-priced new car available at the time — $3990 in 1986. The price was plastered all over the advertising. So what, I wondered, does $3990 then translate to today? The Minneapolis Fed's handy-dandy inflation calculator tells me it's $7547, rather a far cry from the $9990 Versa (destination and handling not included).
I'm sure the wonks at the Bureau of Labor Statistics would tell me I'm not taking into account "quality improvements," better safety features, standard equipment that was once optional, and all their other hedonic calculations that allow them to skew the CPI figures so grotesquely. And I'll concede Nissan builds a better car than the Yugoslavians of 20-odd years ago, teetering in a fragile decade between Tito's death and the breakup of the country. But that's not the point. The point is there's no car, good or bad, available today for the present-day equivalent of $3990 in 1986. End of story.
In any event, housing is getting its bailout, Detroit will get its bailout sooner or later, and at no time does anyone ask where the money for these bailouts will come from.
This can't end well. Prepare accordingly.