The fear of falling is innate. Newborns have it.
The fear of falling prices is different.
What? Who fears falling prices?
Politicians and investors and the big boys in big business, that’s who. When all sorts of prices fall, it means that their plans for ever-upward growth hit the hard rocks of economic reality. And these downturns sure can hurt. A lot.
Yet there’s an awful lot of evidence that you just have to weather these periods. You shouldn’t panic. And you definitely should not try to “prop things up.”
But that is exactly what politicians generally try to do in an economic downturn — they try to prevent some set of prices from falling.
Post-Great War depression in Britain, and America’s own beginning of the Great Depression … in both downturns there were huge political forces at work, trying to prevent a sector of prices from hitting their natural floors. In those cases, it was mainly wages that got propped up.
The effect? Massive unemployment.
I’m no economic historian, so I hate to tread these waters. But I’m not going to play Santayana’s fool, forgetting history and then forced to repeat it like Sisyphus’s rock-and-roll classic on permanent skip-repeat/skip-repeat.
So remember: Propping up prices in the past didn’t work. They won’t work now with housing.
This is Common Sense. I’m Paul Jacob.