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In the zone?

Money | Employment and real estate markets will likely feed or starve recovery

Issue: "Who will vote?," April 21, 2012

Initial claims for state unemployment benefits have fallen to their lowest levels since early 2008. "We're beginning to enter a zone of normalcy for jobless claims," said Bob Brusca, chief economist of Fact and Opinion Economics, "and that's good news."

Yet the unemployment rate is stuck at 8.3 percent. That's still well outside the "zone of normalcy." Whether job growth continues or stalls could depend on the housing market. February new home construction slowed to an annualized rate of 698,000 homes. That's 1.1 percent slower than January, less than economists expected, and far short of the numbers of a healthy economy.

Further, Zillow, the real estate website, said the United States still has at least two years of excess housing supply, so home prices will fall another 0.7 percent in 2012. The only good news in these numbers, according to Zillow's chief economist Stan Humphries, is that affordability is "insanely low." So if you have a job and a down payment, and you don't already have a house you can't sell, this is the best time to buy in at least 30 years.

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But such buyers are few. Because real estate contributes about 10 percent to the U.S. gross domestic product, underperformance in that sector impacts the economy overall, especially at the low end of the labor market, where the needle has been the toughest to move.

The bottom line is this: The summer building season approaches. During the summer, as construction goes, so goes the labor market. "Discouraged workers," the unemployed who had stopped looking for work but who are now re-entering the job market, tend to make drops in the unemployment rate stubbornly slow. But if these discouraged workers and construction tradespeople get re-absorbed quickly, we could see the unemployment rate continue to fall and the economy continue to grow. If not, the "zone of normalcy" will continue to look abnormal indeed.

'An embarrassment'

Jim Yong Kim/Associated Press photo by Haraz N. Ghanbari

Jim Yong Kim, the U.S. nominee to lead the World Bank, is likely to win confirmation from the international elite: He has an elegant and politically correct resumé, including a long tenure at Harvard before becoming president of Dartmouth College. He's also received a MacArthur Foundation "Genius Grant."

But Kim has had an argumentative relationship with capitalism. An influential book he co-edited, Dying for Growth: Global Inequality and the Health of the Poor, asserts: "The studies in this book present evidence that the quest for growth in GDP and corporate profits has in fact worsened the lives of millions of women and men."

These words are no comfort to those who believe the World Bank's most important job is to stimulate economic growth and capital formation, and that's just about everybody in the mainstream economic development community. Critics also point out that Kim has no background in finance. The most vocal opposition has come from Lant Pritchett, a Harvard and former World Bank economist. "It's an embarrassment to the U.S.," he told Forbes. "You cannot with a straight face say this person is the most qualified to lead the World Bank."

Since the World Bank's founding in 1944 as a result of the Bretton Woods Conference, the United States has nominated the World Bank president, who serves a renewable five-year term. Other nations simply rubber-stamp that nomination. Lately, however, China, India, South Africa, Brazil, and Russia have lobbied for a more open process. They may use the Kim controversy to further their case. But Kim's connections, credentials, and Asian roots (he was born in South Korea) are likely to win the argument-at least this time around. -Warren Cole Smith

Warren Cole Smith
Warren Cole Smith

Warren is vice president of mission advancement for The Chuck Colson Center for Christian Worldview and the host of WORLD Radio’s Listening In. Follow Warren on Twitter @WarrenColeSmith.


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