The bubble was pro-housing, the drag on the recovery is housing

In case you haven’t had a chance yet to read Derek Thompson’s “It’s the Houses, Stupid” do so now, because really he says it better than I can:

The big-government/anti-business recovery has been neither big-government nor anti-business. It’s just been a total disaster for everything that has to do with housing.

He’s basing this judgement on a recent report (pdf) presented at the 2012 US Monetary Policy Forum by a handful of economists who compared several economic factors with past recoveries:

Obviously, just looking at these pictures this recovery is particularly different related to housing and state and local government spending. If fact, state and local government layoffs (mostly in education, I might add) has been the single largest employment drag in an otherwise tentatively positive period of employment growth.

Housing, though, is an interesting story. Most people I know figure there was a housing bubble, it burst, and now we’re back to “the norm”. Yet that isn’t really case, as residential investment has fallen far below what some identify as the beginning of the bubble:

Even private housing starts are depressed further than I would expect if it were simply a case of “righting the ship:”

But maybe I’m wading too much into the weeds. I don’t want to gloss over the effect that empirical analysis and critical thinking has on viewing the past few years. As Thompson says, this recovery hasn’t been about “big government” drag or and “anti-business” drag. The bubble was centered on housing, the biggest drag on the recovery centers on housing and it’s real effects on aggregate demand.

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