Housing Multiplier Effect

"Revenue-Positive" Fiscal Stimulus

Give a too-big-to-fail financial institution $1 of taxpayer money, and what do they do with it?

As best I can tell, one of two things: 1) lend it back to the government for (risk-free) interest; or 2) borrow $10 more against it, then bet all $11 in the credit derivatives market.

Of course, that's after paying themselves $3 in compensation.

(You'll notice that there is no third choice, i.e., lend it out to creditworthy businesses and individuals.)

Housing Multiplier

By contrast, give $1 in taxpayer subsidies to a prospective home Buyer, and what do they do?

Buy a home.

Then, often times . . . buy new carpet, furniture, and appliances; hire a painter; get new landscaping, etc.

Add up all the foregoing, and you get something like $6 in downstream spending for every $1 of housing subsidy. That's what economists and accountant-types call a "revenue-positive" fiscal stimulus -- and a whale of a multiplier effect.

No wonder Wall Street doesn't understand it . . .

Cisco for General Motors

Economic Watersheds & Financial Footprints

If you follow the Dow Jones Average, you know that General Motors was recently dropped for Cisco Systems (and Citigroup for Travelers).

Locally, there is an echo of this "changing of the guard": the old Ford Motor dealership in St. Louis Park, near 36th St. and Highway 100, is out, and a new LA Fitness is on the way in (hard bodies for car bodies??).

Leaving aside what happened to Detroit and why, there is an obvious economic difference between a manufacturer like Ford, and a service business like a health club.

Think of it this way: each car sale creates demand for car parts, steel manufacturing, repair services, auto insurance, banking and finance, etc. Economists call this a multiplier effect.

By comparison, what you might call the "financial footprint" of a health club is much smaller.

On the plus side, at least it can't be outsourced . . .