Skip to main content
No. of Recommendations: 4
JimLucket has beaten me to the punch, but permit me to agree with his views on several of the shortcomings in Mr. Schiller's piece.

Jim notes: "Productivity enhancements and other positive supply factors result in deflation only if the Fed fails to increase aggregate demand sufficiently to take full advantage of them." With a slight twitch to note the limiting effects of the international economy on the US and the Fed, Jim is correct. To the extent that we do differ (and we may not) it seems clear that there is sufficient underlying long-term demand for improving infrastructures here and abroad to ensure that there will be ample demand for many US goods and services.

<< The Fed responds to politicians. Politicians and the public, like growth and low interest rates. Therefore, I think the Fed will supply enough stimuli to take full advantage of whatever acceleration in productivity growth and other positive supply shocks come our way. >>

Yup. In fact, double yup. We are in complete agreement.

<< Most people don't want to work at home. Some do, and some will be forced to. Mt favorite models for this discussion are Microsoft, AOL and the Motley Fool, all three of which are heavily concentrated in large home offices where the opportunities for personal interaction are maximized. They have some home-based employees (I am one) but most are commuting to a campus of cube farms every day. If you doubt me, pick your favorite recent tech or Internet IPO, and go see your company's HQ. Look around the parking lot and count the BMW's.

<< If you believe the premise of galloping productivity growth and a benign inflation environment, then you have to also expect a very good economy, which has to be good for office and hotel demand. >>

Schiller's premise that teleconferencing will cut down on the need for business travel is one of the least supported pieces of conventional wisdom on the net. Is there ANY evidence for this whatsoever? It's an interesting science fiction idea, but then so is the transporter room on Star Trek. That doesn't mean it cannot happen, but no one I know who has actually used teleconferencing believes it. Maybe they will, but so far they don't seem to.

Anyone who differs is of course cordially invited to disagree, but is there any hard evidence to suggest this will occur or is occurring?

<< "Consumers will ease off their borrowing-and-spending binge" -- no evidence of this starting to happen and no evidence is offered by Schilling in this column as to why we should expect this. If it were to happen, I would expect the Fed to offset it with less monetary restraint. This would lower interest rates, which would lower the international exchange value of the dollar, stimulating net exports. Lower interest rates would also stimulate investment spending. >>

Yup.

<< Building costs will fall? I don't see it… Trees don't grow in cyberspace. From where I sit, in Boston, construction costs have burst through $100 psf for housing and show no signs of abating. Factory built housing is NOT half as expensive for a comparable finished product. Having built my own house with factory-built modules, and having cost out various developments both ways (factory vs stick) it's a marginal difference. >>

Having worked in housing finance for three decades, I have been hearing about the "advantage" of modular housing for three decades. In the 0s, when George Romney was at HUD, they had a program called “Operation Breakthrough” whose intent was to pay extra money to builders of modular units so they could prove they could build cheaper.. Only two problems:

1) They were more expensive.
2) They tended to leak at the seams.
Jim is right again.

Then add in the fact that there is less remaining prime land unbuilt upon, zoning is getting tougher, environmental issues are tougher, etc., etc. it becomes clear that land values will rapidly increase to absorb construction cost savings in most good markets.

<< Baby-boomers have their houses so housing demand will fall. -- If that's true, why is housing demand rising???????? As he says, the boomers have their houses. But housing demand is still rising! >>

Well, of course Jim is right. The point Schiller seems to miss is that the RATE of increase in housing demand will fall, but absolutely no one forecasts that there will be fewer US citizens in the year 2010 than there are today. They may want different things in housing. They may choose to live in different places. But fewer people or fewer households? Bullfeathers.

Do note one interesting dynamic. Recent data indicate that, the Internet is markedly aiding small town, main street retail. Clearly, just as with the coming of the railroads, trolleys, and highways, the net will give many people much more latitude on where they live, work and shop. It will provoke changes. Foe example, in the case of hotels a more efficient auction market will depress room rates a bit. But deeply cut into demand for office, hotel or apartments nationwide?

I really doubt it.
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.