What if the headline read "Food Recovery Stalls" or "Microwave Oven Recovery Stalls" and the article bemoaned the fact that food prices or microwave oven prices had decreased? When prices go down, doesn't that make us richer? Isn't that a cause for celebration since we can buy more food, ovens, and houses with the same amount of work? I'll repeat what I wrote in a previous post, "Houses are Not Investments":
As Dr. Reisman has pointed out in Capitalism and in his recent post, houses should not be regarded as investments. (I'm referring to houses purchased to live in, not to rent to others.) Houses are depreciating consumer goods although the rate of depreciation is slower than many consumer goods. So why do people regard houses as investments and often see equity in their home as a primary savings vehicle? Quoting Dr. Reisman:
Only decades of inflation and credit expansion could make it possible for people to think of the houses they occupy as an investment. In reality, a house is a consumers’ good, just like an automobile or a refrigerator. The only difference is that it depreciates more slowly than they do. Only a long string of years in which inflation took place more rapidly than houses depreciated enabled their prices to rise every year and people to come to regard them as a source of financial gain. If not for inflation and the rise in prices that it produces, it would be very clear that housing is a wasting asset, a slowly wasting asset to be sure, but a wasting asset nonetheless.In fact, housing price declines should be seen as the recovery. Housing price declines reflect liquidations of a massive misallocation of capital that took place during the preceeding boom, viz., investment in the expansion of housing. Only when this misallocated capital gets liquidated, can a true recovery take place. To the extent the government props up housing prices through inflation of the money supply, subsidies to homeowners and the like, actual recovery will be delayed and we will once again divert critical capital to a superinflated supply of housing that no one actually needs or desires.