Canada is also stagnating
I’ve been blogging long enough to know that people will defend almost any proposition, no matter how outlandish. So it’s no surprise that a few commenters wished to defend Peter Thiel’s claim that America is stagnating today because of a housing bubble that burst 10 years ago.
Here’s Canada’s housing prices:
Canada has also had very weak GDP growth since 2007, especially per capita:
The graph only goes up to 2015, but 2016 is expected to be another sluggish year for Canada. I’m not certain, but I believe that 2016 Canadian per capita real GDP will be only about 3.5% above 2007 levels. Can someone confirm? America’s RGDP/person is up about 4.1% over the past 9 years. Places like Europe and Japan are also growing very slowly, even though they mostly avoided housing crashes (with a few exceptions like Spain and Ireland.)
So no, it’s not about bursting housing bubbles; the causes go much deeper.
When I started doing EMH posts back in 2010, I pointed out that housing “bubbles” in Canada and Australia had not burst (as in the US). Commenters told me “you just wait”. I’m still waiting, and both countries have prices well above 201o levels, So even if there were a 20% crash tomorrow, the Canadian bubble-mongers would have been wrong in 2010. Prices were not too high at that time.
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4. November 2016 at 05:44
Excellent blogging.
The fact the economic slowdown is global suggests something ubiquitous.
I suspect too-tight monetary policies.
4. November 2016 at 06:00
How could monetary policy get any looser? ZLB
4. November 2016 at 08:33
I remember earlier you said US housing prices weren’t a bubble because we’ve now exceeded the prior peak. But the data above for 2016 looks lower than the peak, so perhaps years from now we’ll exceed it.
4. November 2016 at 09:42
What about housing construction?
Interesting and good post.
4. November 2016 at 09:44
Decimal, What do interest rates have to do with monetary policy? Monetary policy is not “loose”, unless you think 100% interest rates during hyperinflation mean it’s “tight”.
Wonks, Your memory has failed you there. Housing has not reached the previous peaks nationally–perhaps I said that about a local market like New York or LA?
I follow housing prices pretty closely, so I can’t imagine making that claim.
4. November 2016 at 09:50
Not sure why Sumner thinks the US housing bubble crash had no effect worldwide. Let me dumb down the logic so even a simpleton can understand: 1) the vast majority of bank loans these days are for houses in the USA 2) housing loans went bad in 2008 3) financial crashes caused by bad loans take 20 years on average to ‘work their way through the system’ (Rogoff et al., ‘This Time is Different’), 4), 2008 + 20 = 2028, 12 years from now 5) the USA is the ‘locomotive’ for most of the developing world, viz, China, the Asian Tigers, Mexico, even Canada.
Logically then, a financial debt overhang crisis in the USA, caused by rampant debt growth since 1980 (Google this) will cause a 20 year worldwide funk. Makes sense? Not to our host. You can lead a horse to water…
4. November 2016 at 09:57
That chart also highlights nicely that “fundamentals” like house price to incomes are a good bit less important than one might expect.
4. November 2016 at 09:59
This is about Carney, but also covers his time in Canada. His successor “improved” on the mess!
http://ngdpadvisers.co.uk/2016/11/02/mark-carney-special-one/
4. November 2016 at 10:23
There would seem to be a tipping point in any national economy where debt created to fund unproductive spending will fail and that failure will disrupt the entire national economy.
Is there a point where debt created to purchase housing is unproductive? Unless we assume people are in aggregate wise this certainly seems possible. Who here is going to argue that in aggregate people are wise?
4. November 2016 at 10:32
We probably should make a distinction between a housing *construction* boom and a housing *price* boom.
In a housing construction, prices are rising alongside supply. When prices fall the world is left with a ton of vacant/half finished projects. This is what befell Ireland and Spain.
In a house price boom, people bid up the price of existing units because there’s no supply response. When prices fall, a bunch of people lose money but there aren’t a lot of unfinished projects. This is what happened in San Francisco in 2008-2009.
Is Canada, I’m not seeing a lot of evidence to suggest a Spanish-style building boom. http://www.statcan.gc.ca/pub/11-630-x/11-630-x2015007-eng.htm
4. November 2016 at 14:45
Cooper, Good point. The US also didn’t see much excess construction during the boom period, indeed housing construction in the US since 2000 has been far below normal, so growth is not being held back by any sort of overhang of housing.
4. November 2016 at 16:16
Wrong on both counts again. The standard of reference for whether there is a partial relative overproduction of a good is NOT the historical trend of production of that good. It is not the historical trend because the very same history could also be in a partial relative overproduction. It is like saying today someone is not with any abnormal fever because yesterday and the day before their temperature was only slightly lower than today.
The correct standard of reference is the free market. And no, just because you cannot observe it that does not logically justify promoting “whatever happens” as the standard. You are not improving your analysis in this way.
Housing construction can be, and in the US it almost certainly very well was, on an unsustainable trend of partial relative overproduction even with the levels during the late 2000s being onoy slightly greater than levels in say the 5 or 10 years leading up to it. This is the case if those 5-10 years were ALSO on an unsustainable trend.
Contrary to your self-serving faith based belief that real production in the division of labor subject to centralized socialist money can eventually assimilate the socialist money and even out, made stable, etc, the truth is that they are like oil and water. They cannot assimilate with each other. There has been, and there always will be, an antagonism. Violence and misinformation cannot ever assimilate with peace and information.
You moan about construction being low since 2000, totally oblivious to the fact that the solution is not more inflation.
4. November 2016 at 18:11
It’s hilarious that Canada, a country with about 100 acres of timber per capita, has managed to have a shortage of houses. It reminds me of Milton Friedman ‘ s quip about putting the federal government in charge of the Sahara Desert.
4. November 2016 at 18:14
Kevin, Australia too!