On page 13 of yesterday’s Financial Times (FT UK Edition), in the “Comments” section, 2 sets of views of are juxtaposed : Martin Feldstein, a professor of economics at Harvard University, writes on “How to shore up America’s crumbling housing market”; and Dmitry Medvedev, President of the Russian Federation explains “Why I had to recognise Georgia’s breakaway regions”. By way of background, Russia’s economy has been strong, as has that of the Geogian Republic, until recently anyway, whilst the economy of the United States has been “crumbling”.
Indeed, as Professor Feldstein points out : “The risk of a downward spiral in house prices is the primary danger facing the American economy”. His erudite article goes on to explain that :
“The current decline in house prices is the natural result of a bubble that by 2006 had raised house prices to 60% above their long term trend. The sharp decline since then means that today’s prices are about 15% above the trend level. But while a further 15% decline may be inevitable, there is nothing to stop prices declining even further.”
The Professor then goes on propose measures for stablising house prices. However, nowhere does he refer to America’s (ie the United States) planning system which has facilitated an over-supply of land for development over a long period. To do so would, of course, go against the grain of the US’s growth ideology.
President Medvedev’s somewhat rhetorical article, on the other hand, recognises the centrality of the land issue, as he states :
“After the collapse of communism, Russia reconciled itself to the “loss” of 14 former Soviet republics, which became states in their own right, even though some 25 million Russians were left standed in countries no longer their own. Some of those nations were unable to treat their minorities with the respect they deserved. Georgia immediately stripped its “autonomous” regions of Abkhazia and South Ossetia of their autonomy”
The article then goes on to refer to recent events in the Caucusus :
“We restored the peace but could not calm the fears and aspirations of of the South Ossetian and Abkazian peoples – not when Mr Saakashvili continued (with the complicity and encouragement of the US and some other NATO members) to talk of re-arming his forces and reclaiming “Georgian territory”.
Now amidst all this conflict, the FT – very sensibly in my view – has been the leading advocate for economic common sense to prevail in the case of the Caucasus. “Investors pull out of Russia amidst crisis” was the headline in Friday 23 August’s edition, with “veteran” (albeit she’s quite a young North American woman !) Russian correspondent Chrystia Freeland recommending that the “West should target oligarchs to influence Russia”.
So what does all this presage for the American housing market you might ask ? My recommendation is that the United States needs to look much more closely at some of its own prevalent (and more subterranean) ideologies in both domestic and Geo-politics. As with the relationship between land supply and housing markets, my guess is that there’s a lack of peripheral vision and a lot of selective memory amongst the ruling elites “over there”, and “over here” for that matter. As for the Russian Federation and independent former Soviet republics, they also need to reminds themselves : “It’s the Economy, Stupid !”.
Oh yes, and Jaw-Jaw is better than War-War !
