Paul Krugman is telling it like it is on his specialised subject of exchange rates and trade. My main topics of conversation these days are babies and house prices, however, so I think I can help him out on this one:
There have been many stories about the decline of the birth rate in 2008, with almost all attributing it to the recession. But James Trussell raises an interesting point: doesn’t it take nine months from conception to birth? Abortion aside, to reduce births in the first three quarters of 2008 in response to a recession that started in Dec. 2007 would have taken pretty impressive rational expectations.
What are we missing?
Basically, two things, both related to the difference between the overall cycle of output and the situation of the average American consumer.
1. You don't in general start a family unless you are securely established in a house which will be suitable to put the family in. As house prices rose, fewer people were in this situation. As foreclosures rose, even fewer people were in this situation.
2. And foreclosures were a leading indicator of the crisis and recession: as The Australian correctly notes, those of us for whom the share price of HSBC was a big deal were aware that something was going very wrong in California in late 2006/early 2007.
In any case, it's not exactly unknown that consumer confidence is a leading indicator; that's why it's so assiduously surveyed. The same lack of confidence that had people postponing family events in Q1 07 was part of the causal process that put the economy into recession in Q1 08.
The lack of affordable housing being, apparently, a major reason for the low birth rate in Italy.
ReplyDeleteHasn't there been something of a baby boom in the UK, though? Can that all be down to immigration?
Child tax credits must have helped.
ReplyDeleteThe lack of affordable housing being, apparently, a major reason for the low birth rate in Italy.
ReplyDeletemore to do with the lack of affordable mortgages, which in turn is a result of the fact that it's more or less impossible to repossess a house in Italy.
Well the broad point remains, its the lack of access to entry level housing.
ReplyDeleteNeil. I'm not sure I buy that. Tax credits don't even begin to make up for the expenses from having kids, and they certainly don't increase security. Living in rented accommodation with kids is pretty grim.
Do remember, 'rented accommodation' includes very nice 3-or-4 bed private rentals in the suburbs - not grim in the least. Over Brizzle way, I reckon your tax credits for two kids covers a good few months of the rent. That's got to help.
ReplyDeleteThat said, I think the main reason for the UK baby boom is because it's become fashionable again.
"the main reason for the UK baby boom is because it's become fashionable again."
ReplyDeletewhat's become fashionable again?
Baby booming, I guess.
ReplyDeleteSexual intercourse. It went right out for a couple of years when people got into those little metal scooters instead, but it's back, according to the sunday supplements.
ReplyDelete