Slow recovery

Economist Dean Baker criticizes both FED vice-chairman Stanley Fisher and the New York Times‘s coverage of his recent speech, wherein he expressed befuddlement over the slow pace of the economy. Baker believes that the principal reason for the economic sputtering is the collapse of the housing bubble, which should have been obvious to both Fisher and the newspaper. He writes:

When the housing bubble collapsed, there was a massive loss of demand. Spending on residential construction fell back by more than 4.0 percentage points of GDP. With the loss of $8 trillion in housing wealth, consumption fell back by close to 3.0 percentage points of GDP. This created a total gap of 7 percentage points of GDP, which is close to $1.2 trillion in today’s economy.

I’ve created the following chart from data collected by the St. Louis FED. It shows annual housing starts and U.S. population.

housing starts and population

Where will the people live?

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