Those who are not fans of Keynesianism like to point out generically how the task of trying to boost “aggregate demand” (economic term for consumption by consumers, business, & government – basically the whole economy) actually creates artificial demand which is usually followed by a relapse. This is what is happening with real estate prices right now post first time home buyer tax credit expiration.
For those of you cheering your home value last month, you might want to sit down and have a stiff drink before reading this month’s (and next month’s for that matter) report on housing prices. Due out in a little while, there is little doubt (what am I saying I mean NO doubt) in my mind that prices will fall from the recent levels propped up by home buyer tax credits. As I wrote about multiple times in the past year regarding the tax credits (including my post on How About a $38,000 Tax Credit and my advice last fall to consider buying a home after the FIRST tax credit expired), they would only provide a short pop to artificial demand and then prices would likely resume their downward trend as we still deflate from our Federal Reserve induced housing/economic bubble of the 2000’s.
In a note of fairness to Keynes, I must say that policymakers miss a few vital points of John Maynard Keynes’ recommendations. First, countries are supposed to save in the good times so they have reserves to spend in the bad times (think ant & the grasshopper) and furthermore, I am not sure Keynes would be fan of inducing monetary stimulus to the measures we are taking now (I could be wrong). I do know that with republican spending during Bush and democratic spending now with Obama, we have spent through both the good times and bad – which is why I’d call recent politicians’ use of “Keynesian” techniques as “neo-Keynesian.” Nonetheless, I expect more pain to come to those who do not prepare financially.
For more reading on how to cut expenses and shape up financially, try these past articles: