Akkam’s Razor

Hale Stewart from BOPNEWS explains why the housing bubble represents such a dire threat to the US economy. By his reckoning, near 40% of job created in the past 5-years are from housing related activities. What happens when increasing supply, overextended consumer debt, and rising interest rates conspire to chill the housing and eventually the national market?

“Here’s why the manufacturing and information service jobs are so important: they are higher-value jobs that diversify the US’ economic base. The US would be very healthy economically if the economy created jobs in diverse economic areas such as real estate, information and goods production. Diversity of assets lowers the risk that a shock to one area of economic activity will negatively impact the whole economy. However, placing all of your proverbial economic eggs in one basket heightens the risk that when that industry slows down the whole economy will experience trouble.

It is the latter point that Krugman is making in his column. The concentration of economic activity in one housing heightens the risk that a slowdown in housing will slow the entire US economy. “

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