The Forgotten Years

Here’s another one for the housing boom files. Compare the timing of the residential investment bust with the timing of the unemployment boom. If the bust causes the boom, then they should both start at the same time. Instead we see this:

It certainly seems to be the case based on this chart that it’s possible for residential investment to fall without creating mass unemployment. After all, lots of people are quitting jobs or getting laid off all the time. What separates a boom from a bust isn’t that nobody loses a job in a boom, it’s that people get new jobs. If residential investment falls, then proper demand management ensures that something else grows. And in 2006 and 2007 that was evidently happening. Then in 2008 and 2009, it didn’t. But in telling the history of the current malaise, much of the conventional wisdom seems to have forgotten those early years in which macrostabilization policy was working fine.