Dan Froomkin of Nieman Watchdog writes Monday about the lack of coverage about declining home prices.
Froomkin writes, “Dean Baker, co-director of the liberal Center for Economic and Policy Research, tells me the story isn’t getting nearly as much coverage as it should — if nothing else because ‘as you see a drop in home equity, you also see a drop in consumption.’
“This is due to what Baker and other economists call the ‘wealth effect.’ It reflects the fact that when you are feeling rich, you tend to spend more, and when you are feeling poor, you tend to spend less. So, Baker says, for every $1 of housing wealth lost, consumption can be expected to go down 5 to 7 cents.
“What that means is that another trillion-dollar loss in housing wealth — something that could easily happen by next fall — translates to $50 billion to $70 billion less consumption; sort of an anti-stimulus.
“That, in turn, simply adds to the unemployment problem. And when you realize that you can’t stabilize the housing market without people being gainfully employed, you see the vicious cycle we’re in.”
OLD Media Moves
Where's the coverage of falling house prices?
December 13, 2010
Posted by Chris Roush
Dan Froomkin of Nieman Watchdog writes Monday about the lack of coverage about declining home prices.
Froomkin writes, “Dean Baker, co-director of the liberal Center for Economic and Policy Research, tells me the story isn’t getting nearly as much coverage as it should — if nothing else because ‘as you see a drop in home equity, you also see a drop in consumption.’
“This is due to what Baker and other economists call the ‘wealth effect.’ It reflects the fact that when you are feeling rich, you tend to spend more, and when you are feeling poor, you tend to spend less. So, Baker says, for every $1 of housing wealth lost, consumption can be expected to go down 5 to 7 cents.
“What that means is that another trillion-dollar loss in housing wealth — something that could easily happen by next fall — translates to $50 billion to $70 billion less consumption; sort of an anti-stimulus.
“That, in turn, simply adds to the unemployment problem. And when you realize that you can’t stabilize the housing market without people being gainfully employed, you see the vicious cycle we’re in.”
Read more here.
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