Mike & All,
Anyone heard of an economist named Michael Hudson? Well, I sure hadn't until someone dropped his name on Roubini's site(RGEmonitor.com). Anyhow, I think I spent most of the day friday reading his articles/interviews. He attempts to outline why bubbles happen as well as why this bubble happened and what to do about it in this particular interview:
michael-hudson.com
I had no idea, for example, that in 2000, if you took the value of all properties(real estate) in NY City, it would be worth more than all the industrial machinery in the entire country. Whew! I knew we were losing our industrial capacity to real estate, but I didn't realize it was that bad.
If you go to his homepage, you'll find a lot more goodies. Long articles though, for the most part. The link I just posted is his most recent.
Here's a teaser partial paragraph in one of his answers in the interview:
"That’s how the construction industry views it. There’s a tax distortion here too. Buildings can be depreciated as a tax write-off as if the property is losing market price, despite the long-term rise in real estate prices. Buildings can be depreciated again and again, at a higher price each time they change hands. The national income and product accounts (NIPA) show that this depreciation – along with the tax-deductibility of interest – made the real estate sector exempt from having to pay an income tax from about 1945 through 2000. The result has been to divert investment away from industry into real estate – largely to get a tax break while riding the wave of land-price inflation."
craig |
