As Goes Housing, So Goes the Economy

Jan. 24, 2010 3:35 AM ETIYR, XHB41 Comments
Kimball Corson profile picture
Kimball Corson

There is a significant misconception afoot. It is that our unemployment problem has arisen largely out of the manufacturing sector of the US economy. To be sure, there have been changes there, but the real story is what has happened to employment in the housing and housing related markets which more recently employed about one out of every six employees in the private employment sector.

From 2001 to mid 2005, 43.0% of all new private sector jobs created in the U.S. were in housing or housing related markets. That's astonishing, when you think about it, especially considering the Greenspan Krugman housing bubble developed largely thereafter. But it also explains why, with the housing market in so bad a slump and house prices unable to hold their own, current unemployment remains so high.

As Eric Fisher and Peter Rupert, both of the Federal Reserve Bank of Cleveland, explain in their paper, The Decline of Manufacturing Employment in the United States:

Manufacturing’s share of employment in the United States has been falling for at least 50 years. The share of manufacturing employment in 1950 was about 35% and in 2004, it was about 13% . . . There were 103 million workers in manufacturing and services in the United States in 2001; if the historical relationships from 1986 had held, then there ought to have been 25.4 million manufacturing workers. Instead there were 7.7 million [or 30%] fewer workers.

The authors go on to explain “relatively rapid technological progress in manufacturing had a very strong effect on the decline of employment in manufacturing.” That is machines replaced people. High and rising productivity created much unemployment in manufacturing and where manufacturing employment was not tied to significant technological progress, we simply lost the employment to more competitive workers in other countries.

But the

This article was written by

Kimball Corson profile picture
I am both an economist (three year M.A., Univ. of Chicago, 1968, in economics PhD program) and a lawyer (J.D., Univ. of Chicago, 1971). I had a Woodrow Wilson National Fellowship in economics and the good fortune to study at Chicago under seven Nobel Laureates in economics (received before or after -- Milton Friedman, Robert Mundell, Theodore Schultz, George Stigler, Ronald Coase, Robert Fogel and Gary Becker). I only left economics and the PhD program after finshing the course work and core prelims and contrary to the wishes and advice of Milton Friedman, because having decent grades out of a top law school had much more remunerative prospects then than being an economist. I wanted to return later at some point and finish up, but the opportunity cost was too high. I practiced law, mostly in a large firm, doing large scale jury litigation all over the country in a broad range of areas for notable and not so notable clients. I also handled appeals. I carefully kept out of politics because my observation has been good trial lawyers make poor politicians, and politicians who return to law are usually not good lawyers -- good lobbyists and influence peddlers perhaps -- but never good trial lawyers. Their concepts of honesty and truth have been debased along with their work ethic. I believe seriously in economics and have somewhat kept track of the field, although I do not believe all I read. I do not seriously believe in law, although I practiced it quite successfully for thirty years and created significant new law, all the way to the U.S. Supreme Court. I have been investing since the early sixties when gains on airline bonds substantially helped put me through college. I have appeared in past volumes of Marquis, Who’s Who in the World, Who’s Who in America, Who’s Who in American Law, Who’s Who in Finance and Industry and others. I retired early and have been circumnavigating the world on my own sailboat for the last several years. I survived the tsunami in Pago Pago, American Samoa where my boat suffered minor damage and 112 people died within two miles of me including some friends and left there for New Zealand for repairs but then my electronic autopilot failed in route and I had to hand steer to Neiafu, Vava'u, Tonga. In Tonga then I was directly hit by Cyclone Rene (= hurricane in northern hemisphere) with 95 knot sustained winds and 115 knot gusts, but I was prepared and sustained no damage. I was sheltered in the harbor bay from bad seas but not the winds. I stayed in Tonga for the cyclone season in the South Pacific last year and will spend this cyclone season in American Samoa. I am busily engaged in boat improvements/repairs, basking in the sun, sightseeing on bicycle, writing a bit and I am enjoying photography, too.

Recommended For You

Comments (41)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.