The Human Consequences Of The Bust
Daily life in these developments seems a bit post-cataclysmic. Children play on elaborate but empty playgrounds. They walk their dogs past rows of shiny houses that have never been lived in. Voices echo up and down the block. Unfinished houses and vacant lots strewn with construction debris clutter the horizon.
‘As far as working on my yard and saying, ‘Hey, neighbor, want a beer?’, that’s not going to happen,’ says [Robert] Waltenspiel, an account manager for Hewlett Packard [who lives in an unfinished subdivision in Auburn Hills, Mich].
Mr. Waltenspiel’s kids have no one in the subdivision to play with, so he has to take them to a nearby park for social interaction. His 4-year-old ‘will walk up to strange girls in the park and say, ‘Hey, will you be my friend?’ he says. ‘A, it’s adorable. B, it’s sad.’
– From “After The Bubble, Ghost Towns Across America” (subscription required), The Wall Street Journal, A1, Saturday August 2
The Wall Street Journal ran a great piece this weekend on the ghost towns that have sprung up across America as a consequence of the housing bust. Rows and rows of new houses, all for sale and never lived in. It’s a sight to see. If you drive through Rocklin and Lincoln it’s just “For Sale” sign after “For Sale” sign. Tons of new 3 bedroom homes with granite countertops and sparkling new appliances.
If anybody ever doubted that politics and ideas mattered, here’s the proof. All these ghost towns, all these construction workers and realtors and mortgage brokers and loan officers losing their jobs, all these real estate speculators going belly up, all these empty new homes way in excess of real demand, this entire massive economic dislocation is the doing of the United States Federal Reserve and its disastrous easy money policies. The great Austrian economist Ludwig von Mises laid it all bare almost a century ago in his The Theory of Money and Credit (1912).
On this blog and Wall Street we’re focused on the economic costs: the bank failures, the writedowns, the lost jobs, the collapsing value of single family homes, etc… But there’s also a human cost. People made decisions during the boom, to switch jobs into a real estate related career, to buy a new home, to take out a risky mortgage, that are now taking a toll on their lives. Johny Cutter, and thousands like him, lost his down payment and his home. People are losing their jobs, their equity in their homes, and they’re scared because they don’t know when it will end or understand why it’s all happening.
Believe it or not, it doesn’t have to be this way. The boom and bust cycle is entirely a function of the easy money policies of our central bank. For most of human history, the precious metals served as money precisely because their supply in nature was limited and their inherent scarcity and value made them suitable as mediums of exchange. A central bank couldn’t just print paper and use it as money. People actually had to find metal deposits and mine them. But in the modern world it’s a paper money system. Why this is is a fascinating intellectual and political history.
It doesn’t have to be this way, though. It shouldn’t be this way. But what can we do? A few of us know better, understand how it really works. But we have no power. The people in power benefit from having control of the money, even if the human and economic costs to the average man are disastrous: “[Life] is a tale told by an idiot, full of sound and fury, signifying nothing” – Shakespeare, Macbeth, Act V, Scene V.
What a spectacle. It’s happened before. And it will continue to happen. Again and again and again: “Those who do not understand history are doomed to repeat it” – George Santayana.