Wednesday, August 17, 2005

Housing Insincerity

"Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults. " Former NY Times Public Editor Daniel Okrent

"Let's start with home building. Between 1980 and 2000, which was before the housing boom, spending on the construction of new homes averaged 4.25 percent of G.D.P. In the most recent quarter, however, the figure was 5.98 percent. That difference is equivalent to about $200 billion a year in additional spending, generating roughly two million extra jobs."

Paul Krugman

Is it really this much of a difference though, or is he just selectively slicing numbers? Why for example does he compare a 20 year period with a 1 year period? Well, let's go to the BEA and find out.

In billions of dollars
2000 QII Gross domestic product 9,822.8
Residential Investment 448.8
Percentage 4.57%

2005 QII Gross domestic product 12,376.2
Residential Investment 740.1
Percentage 5.98%

For a total increase of percent of GDP of 1.41%, about $175 billion. A substantial number for sure, but considering we are in the biggest housing boom in several generations is this really enough to threaten the future of the nation?

And what happens if we look back more than 20 years, to an era that he has praised before for its higher growth and more security for American workers.

So, is this a house of cards as he claims, or just a return to the good old days?