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April 12, 2010


Mad Jack

Once again TM, thank you for reading Krugman so we don't have to!


Your analysis is spot on. The idea of Flatland vs. Zoned Zone is empirically and theoretically correct, but it has nothing to do with bubbles the way Krugman seems to think.

The best popular article on the subject (pre-crash), in my only slightly prejudiced opinion:


(I'm using Safari, so I don't think all that LUN stuff will work for me.)



Melinda Romanoff


Might you compare the overbuild of twisted copper leads from the 1910's on out to the fiber optic, in ground, install going on today?

I think it's money well spent on a long vision project. Unless you have a faster way to provide data to end points than those laying the fiber, this is a fully recoverable system if impacted by an EMP. Not as fast as the old, rotary switch, self powered, twisted pair, copper system (that still exists, BTW, thanks NORAD!), but a few swap out modules and the lasers are up and running. Cheap lasers too.


with Bill Gross dumping treasuries for German debt and numerous hints of inflation. It's Katie bar the door. We'll be lucky if it is as moderate as during the Carter years.

Just as Obumble jawbones the Cinese into revaluing the RMB, we gonna get double/triple whammied. Krugman should be tarred and feathered for his nonsense.

Melinda, that overbuild is now being sucked up by streaming video and other bandwidth greedy media. It will get interesting when the Indians start getting internet disruptions.

"Is your computer turned on?" may get a lot more expensive.


What Krugman misses is that some of the worst of the zoned zone has actually continued to appreciate. In San Francisco proper, real estate has gone UP since 2007.

On the other hand, developers constructed housing on former farmland in Galt and similar towns in the central valley. Those houses have dropped by two-thirds in some cases.

As I understand the issue in LA and San Diego, the steepest drops in prices happened in those areas far from the center* where building restrictions were lax. I wouldn't speak for CT, but in StL, we have seen only minimal drops in fully built-out areas (housing stock 100-150 years old), but we have seen your graph in action in what used to be productive pastures.

* Yeah, I know. For LA let's just use Malibu and Venice Beach for their restrictive zoning.


Enough of this Krugman stuff. How are we going to entice him here to play poker with us?

Dave (in MA)

I tried to get through the article but I zoned out.

Melinda Romanoff


The fiber "pipe" isn't even being tested to its simplest capabilities. The iterations are endless, the frequencies for the digital combinations might approach complication, but the pipeline is way bigger than you can imagine. Calcuble, but way bigger than estimated demand.

At least these devices won't be "taxed-upon-entry" like new medical devices will.

Melinda Romanoff


One other point, and I hope you have forty-nine minutes for the most interesting debate between the two most diametrically opposed economic thinkers today, Jim Grant and David Rosenberg.

Pay particular attention to David's assertions on deflationary aspects of the current economy.

You will not be disappointed. And you won't by Jim Grant either, by the way.

Frau Steueramt

"At least these devices won't be "taxed-upon-entry" like new medical devices will."

They will *now*, Mel; you've spilled the beans.

Rick Ballard


You have it in one. The Riverside County explosion is the SoCal equivalent of Galt. There is also a non-neglible variable that we might call Mozilla Fraud, having to do with pumping unqualified buyers into houses they couldn't afford in order to feed the Wall Street MBS pimping operation.

A close study of the mortgage broker, realtor, appraiser fraud network and its very tight ties to the larger Wall Street hogs would generate a much clearer picture of how to blow [up] a bubble than toying with Krugmans ZonedZone/Flatlander cartoon. That one is strictly for consumption by North-easterners cramped in their cocoons.


my Wall Street buddies are struck by the same conumdrum, Melinda, but Gross is more often correct. When we have so many factors at odds, it is a very uncertain outlook. The debt bombs plus printing presses running wild are uncharted territory. It's a perfect environment for sharks such as Goldman.

As to the interweb pipe, the key factor seems to be the ability to multiplex, but nevertheless with the huge demands of gaming, streaming video, and other apps, I still stand by my statement. There may be a Moore's Law, but I tend to think that we will hit a wall sooner rather than later.

Stephanie says Obama sux

From Krugman re Atlanta:

Basically, prices rose sharply only where zoning restrictions and other factors limited the construction of new houses.

What a crock of shite!

The median value of prices in the ATL soared over the last ten years due to Blue hell flight. These folks came in and instead of paying cash for a $300k 3,500 sf home (cash which they had in abundance due to the difference in home prices in blue hells v the south and the attendant LTV cash out upon selling their blue hellholes) and instead constructed nifty new $1.1 million 4,000 sf homes with a new 80% mortgage (all cash from sale reinvested or used to furnish said bluehellhole).

Now those suckers are carrying debt on homes that are not marketable and for which they can no longer afford the payments thanks to the downsizing of their jobs, balloon payments and ARMS.

The neighborhoods in crisis in ATL are at two very different ends of the real estate ladder - those that were "first home" neighborhoods that were flooded with new homeowners thanks to Fred/Fan's no money down, no doc mortgages to illegals, toe-holders and former renters who had no business buying homes (speculators were rampant in these hoods, too, BTW) which was endemic in all areas of the country AND the blue prog spec home neighborhoods built to accomodate the "nouveau riche" blue flighters who didn't have the common sense God gave to Moses to move into existing neighborhoods of upper middle class homes and have little to no mortgage and instead wanted a showplace and a honking big mtge to go with it. That additional 1K SF and a few fancy upgrades came at the expense of doubling the purchase price, but purchase they did.

The neighborhoods that are in fine shape in the ATL are the established neighborhoods (which are still building out) with residents that didn't feel the need to move into "BLING" city to establish their cred. These areas experienced a 40 to 60% increase in appreciation thanks to their proximity to the blue hellholes and have only fallen back by about 15%. Foreclosures are minimal and the houses still sell at 30 days or less. Many of these home were upgraded but within reason so the homes have the bling but not the size of the bluehellholes and are usually on much larger lots.

The builders have wised up and now the $1.1 million neighborhoods are being built out (after 12-18 mos of no new starts) with $400K homes, and those are just now starting to sell. The existing $1.1 behemoths, not so much. And the new "Mutt and Jeff" neighborhood aesthetics are amusing...

BTW, ATL real estate agents call this bluehellhole phenomenon the "second coming of the carpetbaggers."

John Thacker

Florida, Nevada and Arizona are in the Zoned Zone with limited land? .. And let's pick on Las Vegas - in 2000, they had 559,799 housing units; by 2009 that had increased by 46% to 819,600. Does that sound like the Zoned Zone, where supply is inelastic?

You can't compare just absolute levels of supply. It's supply relative to demand. Population and housing demand soared even faster than housing in Las Vegas and Nevada.

What makes Nevada unusual is that so much of the land is owned by the Federal Government, and government land sales slowed.

Some areas with extremely limited housing supply have house prices that have continued to go up, because they're simply targeting themselves at the wealthiest in the country.

Ed Glaeser's papers and recent book, as well as this study suggests that Florida and Arizona did adopt growth-management methods that slowed down house building.

It's not just the amount of housing that's built. It's also the amount of added supply relative to demand, and how long it takes for the permitting and planning process to proceed. If it takes years to get a house built, a bubble will proceed while everyone's waiting for the housing to get built.


Of all your great writing, I love the Krugman take-downs best of all (by the way, Andrew Ross Sorkin may be calling you later today, looking for a little help). Anyway, if Krugman thinks more regulation will help in containing market bubbles he must mean "other than in real estate".


Sorry, bad html. Here is the attack on Sorkin.


Krugman has unexpectedly backed over himself. In other news, job growth was unexpectedly low last week and Iran unexpectedly moved forward in it's effort to develop a nuclear weapon.

Mark Michael

You needed to follow up on the restrictive branch banking law differences between the various states and how it negatively impacted the banking solvency. You mentioned that 5 other states had more banks than Georgia - several had more population, but at least 2 did not: Minnesota & Iowa.

America's banking system has had a fragility since the days of Andrew Jackson when he went to war against the bank of the U.S. We've had restrictions on branch banks within states - thanks to the political clout of bankers. We never followed the Constitution and its forbidding of states' blocking interstate commerce, which banking seems to me to be.

In fact, we've had runs on banks, bank panics, etc. in hard times while our neighbor to the north, Canada, has not. That's because they didn't have the tangle of restrictive banking laws we did and were able to develop large, well-balanced national banks. They did not even have FDIC like insurance until the 1960s - but no runs on their banks in the 1930s like we did.

Will Collier

I was going to share my side-splitting laughter at Krugman's assertion that Atlanta didn't have a real estate price bubble... but Stephanie did it for me. Nice job.


I live in the middle of nowhere, NY. Farm country. (Yes, NY has plenty of it.) My 3,000 sq ft house (on 8 acres) ran me $90,000 in 1997. Less than the then price of building it. I could sell it today for- maybe $90,000 if I got lucky. Population near here is going down- houses sit vacant and abandoned.

No housing bubble here, but still, prices-especially adjusted for inflation, are going down.

In most real rural areas, far from a city, prices are stable or down, because population is stable or down. If you build a house in the middle of nowhere, you build what you want, and count on living in it. You're not going to recover your cost on a sale.


I get a few national real estate classifieds and am always amazed at the low prices in upstate New York, even lakeside stuff.
Comparable to scrubby Great Basin desert land.

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