Federal Reserve chairman Ben Bernanke is looking hard for demand. Without a “more-rapid expansion of production and demand from producers and consumers,” the Fed chairman does not see the recent employment gains as “sustainable.” That’s an understatement.
Harken back a week further, to Apple’s decision to reduce its cash holdings, estimated to be approximately $100 billion, and we have the other side of the coin: with record high corporate cash holdings and a general savings glut around the world, there are no good long-term investments in the United States. Indeed, with the effective long-term interest rate on U.S. and U.K. bonds at 0.00, one might fairly conclude that there are not enough good long-term investments anywhere on the planet.
Sound monetary policy and pent-up cash are clearly not sufficient to restore American competitiveness and restart our moribund economy. As Bernanke said, we need to find a big pot of demand—and fast. Our analysis is showing that the United States and, in a very real way, the rest of the world, is sitting atop a trio of demand reservoirs trapped by 60 years of Cold War-era industrial policy in housing, resources, and food.
Demand in the housing sector seems counterintuitive, with the painfully diminishing demand for housing on the suburban fringe of nearly every American city. Yet few have noticed where it went. According to the National Association of Realtors, 56 percent of Americans prefer something other than suburbia. They don’t want to live way out in splendid, car-dependent isolation. They want their next housing purchase to be a smaller home in a walkable, service-rich, transit-oriented community. In percentage terms, that’s nearly three times our estimate of the demand for housing after World War II, demand that Washington channeled into the suburbs in the first place.
To continue reading this paper, click here.