Economics 101

Even with a sheepskin from State U saying I know something about economics, I've held off commenting on the financial market meltdown because I haven't found anything worth saying. The reason for that is I haven't read anything that makes sense about it.

The Antiplanner just changed that. You want a quick overview to what's happening in the housing, money market, manufacturing, and mortgage sectors, go RTWT. Snippets to tempt you:

Imagine the supply curve for housing is horizontal (which economists would call “elastic”). No matter how large the demand for housing, that demand can be accommodated and the price stays the same. This is, basically, the situation in Houston: land is virtually unlimited, there is plenty of labor to build homes, and construction materials cost the same nationwide even if there is an increased demand in Houston.

and

Now imagine that the supply curve is very steep (which economists would call “inelastic”). This means small changes in demand result in large changes in price. This is the situation in California, where urban-growth boundaries have driven up the cost of land and made it very difficult for homebuilders to meet the demand.

In the inelastic case, a small increase in demand caused by, say, a loosening of the credit market results in a large increase in price. But then, a small decrease in demand caused by, say, fears of a recession results in a large decrease in price. In other words, land-use restrictions have made housing prices more volatile.

and what's the best bit of micro-economic sensibility I've heard in years:

Some people, by the way, think we should return to a gold standard. But that just means putting your faith in a bright, shiny metal instead of a piece of paper.

And this is worth reading, too. This Bad Moon's been rising for quite some time, for those who cared to look.