Wednesday, October 5, 2011

We could have declining living standards

Karl Smith looks at the vehicle data and concludes that people will HAVE to start buying cars soon. Similar argument is made with respect to new housing. It's a version of a mean reversion argument that basically says that the data point to an upside down bubble and it's not sustainable. I am sympathetic to this line of reasoning and would like nothing more than for things to play out the way Karl sees it. But living standards can actually decline! More specifically, it's possible that a poor and a less employed nation will buy fewer cars, houses, refrigerators and other stuff per capita than before. Not forever, probably, but for a really long time. Longer than me or Karl would be comfortable with.

No comments:

Post a Comment