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December 8, 2008

Nouriel Roubini vs. Andrew Zimbalist: housing construction doesn't increase labor productivity

Atlantic Yards Report

Nouriel Roubini, Professor of Economics at the Stern School of Business at New York University, is known as a prescient and pessimistic analyst of the national and international economy.

Whether or not his predictions are accurate, his criticism of the housing market makes a solid basic point: building housing is not the solution for economic growth and increasing local tax revenues.

That's another nail in the coffin of the misguided, misleading report produced by sports economist Andrew Zimbalist for Forest City Ratner, claiming, astoundingly, that the Atlantic Yards project would bring $6 billion in new revenues mainly because of an increase in housing, not jobs.

And it's another reason Zimbalist's report--along with other economic claims for Atlantic Yards--deserves serious analysis, rather than, as the New York Times did , giving Zimbalist the last word.
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Here's the crux:
...The reality is that the U.S. has invested too much – especially in the last eight years – in building its stock of wasteful housing capital (whose effect on the productivity of labor is zero) and has not invested enough in the accumulation of productive physical capital (equipment, machinery, etc.) that leads to an increase in the productivity of labor and increases long run economic growth. This financial crisis is a crisis of accumulation of too much debt – by the household sector, the government and the country – to finance the accumulation of the most useless and unproductive form of capital, housing, that provides only housing services to consumers and has zippo effect on the productivity of labor. So enough of subsidizing the accumulation of even bigger MacMansions through the tax system and the GSEs.

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NoLandGrab: Roubini's predictions about the housing bubble and economic woes have been very accurate — unfortunately — so his critique of huge investments in housing at the expense of other more productive investments must be taken seriously.

Posted by eric at December 8, 2008 12:10 PM