Re: Shiller on housing bubble

[paul phillips <phillipsp@xxxxxxx>]

My PhD thesis (1967) was a study of the reaction of BC workers to the
economic fluctuations of the interwar period (1st WW  and postwar
inflation, bust and price deflation,  slow and incomplete recovery,
depression).  My conclusion was that inflation tended to radicalize the
workers since it meant a more or less across the board decline in real
wages but that the rise of radical labour and political organizations
after the war succumbed to the sharp post-war depression and political
repressions, plus the rise in real wages for the majority of  workers
that remained employed, particularly the skilled workers organized in
craft unions.  The labour political parties remained but more as a rump
minority.  The impact of the depression was not immediate nor did it
affect all equally.  The real radicalization was most evident among the
single unemployed although the unemployed families who had their water
and electricity cut off or were evicted for not paying rent (most were
in rental housing at that time) responded in a different, more direct
action way -- organizing skilled workers to reconnect electricity,
water, moving people back into their homes, etc.  In any case, the state
responded by providing some relief for the married unemployed.
Interestingly, the workers and the craft union movement (if it could be
called a movement) became more and more conservative as their (still
employed) members' real incomes climbed and they became increasingly
identified with the Liberal (i.e. 'Democratic') Party i.e. very modest
reform, capitalist party.  The labour movement only radicalized and the
socialist and social democratic parties began to strengthen only when
the economy started to improve in the second half of the thirties and
the radicalized former single unemployed became organizers for the new
industrial unions and became active in the growing socialist/social
democratic parties. Nevertheless,  the real explosion in labour
organization and radical politics did not really come until the 2nd WW
when unemployment fell and  workers could go on the offensive (and
increases in wartime prices and rationing threatened the real income of
all workingclass families.)

This would suggest that should the housing bubble burst (as, I believe
it inevitably must) and, as Michael suggests, the economy goes into a
prolonged recession,  we should perhaps see only a radicalization of the
most affected and, if they are the unemployed or the dispossessed, a
fragmented and individualistic response. However, what makes this period
possibly different is the potential for cost-push (energy prices)
inflation threatening the standard of living of all workers/consumers,
whether organized or not.  This could create the conditions for a more
collective and radical response, though only on the basis of  new
organization.  In short, the response will not be immediate but would
follow from the buildup of new  political movements (i.e. you can't
build political movements in anticipation of a 'crisis', only as a
consequence of such a 'crisis').

At least, that is what I concluded in my PhD research.

Paul Phillips


Michael Perelman wrote:

> The aftershocks of the housing bubble could be more important than the bubble itself.  This
> is not a prediction of a speculation.  The Maestro has claimed that the wealth effect of
> the housing bubble is greater than that of the stock bubble.  If so, then the effect on
> aggregate demand could be significant, especially because construction and the spending
> that follows it, such as furniture and appliances, is a significant part of the economy.
>
>
> --
> Michael Perelman
> Economics Department
> California State University
> Chico, CA 95929
>
> Tel. 530-898-5321
> E-Mail michael at ecst.csuchico.edu


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