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Economics blogger Bill McBride was one of the early people to call the housing bubble, and he warned furiously in the years leading up to the collapse that the epidemic of no-doc loans and boats-in-every-garage would come to a terrible end.But unlike many other “doomsayers” who continued to warn about economic collapse long past 2009 (their names don’t need mentioning… you know who they are), McBride was able to see the leg up, and has remained upbeat since the economy started growing again.
What did he see that so many others missed?
One of the things I really liked hearing from Bill McBride, in my recent interview with him, was his simple way of thinking about the economy, and what makes it tick.
His spot-on assessments of the US economy over the past 9 years haven’t been about fancy models, or big economic theories, but rather very simple, direct observations about what people buy and do, and why.
Housing and cars have been two big turnaround stories for the US, and there’s no magic to why, as McBride told me:
I remember when I wrote a post – I think it was in January of 2009 – you know who David Rosenberg is – he wrote a commentary back when what he wrote wasn’t free – unfortunately – but in January 2009, and I’m pretty sure about the timing, that auto sales were going to collapse a lot further, and he had some arguments on it and I went and looked and thought “auto sales also can’t go too much further, people have to replace their cars.” And so I wrote this article that says look, auto sales are near the bottom – we were at a 9 million annual rate then- I said there’s just no way – we have to be selling 12, 13,14 million because people need new cars every 5-7,8 years.
Paul Krugman eventually picked that one up from me and wrote a piece in the Rolling Stone – where they called me up to fact check, back when they used to fact check. And that’s the same kind of logic that I used on the housing. You just kind of look at it and go, after a while, there’s all this excess supply that was built, then people pulled back and lived with their parents – but people don’t want to live with their parents very long. That supply gets absorbed. When I go out into The Inland Empire I can tell you…If it’s not mostly growing, it’s getting there. Where I live, as soon as foreclosures come on the market there’s people lined up.
Simple stuff. People drive. Cars break down. They need to replace them. They buy new ones. People get born. They get married and have kids. They decide to stop living with their parents.
Normally, perhaps, the economic cycles aren’t that straightforward, but when you’ve collapsed SO much, then really simple observations like that are germane because the demographic lift on its own to counteract the hard cyclical downturn.
And that’s where the Americans should be thankful: Because there is in fact a demographic lift.
Japan is probably the economy whose struggles most resemble ours, and that force is much weaker there.
Here’s a comparison of year-over-year population growth rates for Japan and the US going back to 1960. Growth in Japan (red line) has been much slower for decades.
Same deal if you look at just working-age population.
Japan’s demographic tail wind has been non existent.
With some knowledge about demographics and the need to replace cars, you could look at a chart like this one (which divides motor vehicle sales by population) and ascertain that the lows seen in 2008/2009 were WAY out of whack with anything vaguely historical.
Here’s the same idea but for housing starts.
Some might scoff and say that a thriving economy can’t just be based on people being born, and moving into houses, and that it needs innovation and dynamism and all that. And that’s true, but there’s scant evidence that that’s gone away.
I think things are getting better in general. And there’s reasons for that. There’s good technology, I’m talking to you on a mobile phone today that I couldn’t even imagine when the first cell phone came out. I tend to be positive about the future.
The dynamic aspects of a growing economy are also in place in the United States, as evidenced by progress on a host of fronts.
Even in the realm of domestic infrastructure — an area that’s supposedly being ignored to the point of malpractice — things are happening.
The NYT’s Thomas Friedman had a recent dispatch from Chattanooga Tennessee, where he talked about their blazing fast broadband, which is a result of investments that started about 15 years ago.
How fast is that Chattanooga choo-choo? The majority of Chattanooga homes and businesses get 50 megabits per second, some 100 megabits, a few 250 and those with big needs opt for a full gigabit per second, explained Harold DePriest, the chief executive of EPB, the city’s electric power and telecom provider, which built and operates the network. “The average around the country is 4.5 megabits per second.” So average Internet speed in Chattanooga is 10 times the national average. That doesn’t just mean faster downloads. The fibre grid means 150,000 Chattanooga homes now have smart electric meters to track their energy consumption in real time. More important, said DePriest, on July 5, Chattanooga got hit with an unusual storm that knocked out power to 80,000 homes. Thanks to intelligent power switching on the fibre network, he said, “42,000 homes had their electricity restored in … 2 seconds.” Old days: 17 hours.
As Friedman notes, there’s certainly a lot more that could be done on this front, perhaps with more money from Washington DC.
But the overall point is simple: A demographic lift combined with the same innovation and investment that’s gone on for a long time is why the dreams of the doomsayers, who were riding so high just a few years ago, haven’t come to pass.
One last point: There’s always going to be big stuff to be freaked out about (The Euro crisis, war in the Middle East, growing inequality, gigantic debts, too big to fail banks, the end of clean water, a more politically polarised Washington DC, etc.). But folks who operate on the assumption that big issues will get resolved for the worse — merely because they can’t see a good fix — usually do worse than the people who just blindly hope that things get resolved well. Hope is a strategy.
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