The real estate boom led to a construction boom, which led to a lot of people transitioning into work in the building trades and allied fields. With the real estate crash, we’re now seeing a construction crash. And that’s leading to a lot of unemployment. For a little while, it looked like what might happen is that the value of the dollar would decline, strengthening the position of US manufacturing vis-a-vis foreign competitors. Thus, those left unemployed in the construction sector could transition into export industries or import-substituting ones. Then came the financial crisis which makes it very difficult for even a successful enterprise to expand operations. And then it became clear that Europe and Japan were going to slip into recession and China slow precipitously, making it difficult to boost exports anywhere.
Which brings us back to the building trades as a potential source of employment. The trouble is that we really don’t need much in the way of new construction of buildings — the supply overhang really does need to get soaked up over time. One new CAP proposal from Andrew Jakabovits and Heather Boushey is to put people to work upgrading existing buildings with energy efficiency retrofits. Things like those better-insulating windows. These are activities that require similar skills, tools, and capital goods as we already have a lot of. But investing money in this kind of activity won’t further distort the real estate market. And investments that allow us to use resources more efficiently will have economic benefits over the long run.