9/9/12: Rhetoric and Reality – A Look at the History of Economic Policy

As the U.S. presidential elections rapidly approach, there’s a lot of talk about economics and economic policy.  You probably noticed.

At their convention, the Democrats invoked the spirit (and oration) of ex-President Bill Clinton.  The GOP conjures up wistful visions of Reagonomics.  Dire predictions of fiscal cliffs, debt-ceilings, defaults, hyper-inflation, depression, civil unrest and other calamities pepper the debate.

It seems that EVERYONE has an opinion about what the future holds.  But what does history say?

To find out, we sit down with another big brain (one you’ve probably never heard of) in sunny Las Vegas, Nevada.

Tossing their own rhetoric into the radio ring for this episode of The Real Estate Guys™ Radio Show:

  • Your who-would-you-rather-have (rhetorically speaking) host, Robert Helms
  • Your his-mom-wanted-him-to-be-a-reality-TV-star (not really) co-host, Russell Gray
  • Special guest, Associate Professor of History and Economics at San Jose State University, Dr. Jeffrey Hummel

In our likely never to be written book, “It’s Not Obama’s Fault”, we’d put forth the idea that Mr. Obama, like every President before him, are victims or beneficiaries of “the economic cycle”, or what Jeffrey Hummel calls “the business cycle”.

Now we’re not picking sides here (life is too short for that). And if you’re into blaming Presidents for economic conditions, then Bush and Obama are both well deserving.  And if Romney wins, we’re sure he’ll have his turn in the barrel too.

But rather than try to find consensus on theories and concepts, Jeff persuades us that it’s useful to take a look at the history of the business cycle.  Everyone might disagree about what might happen if this or if that.  But since history has already happened, there’s less to argue about – and more to learn.

So why should real estate investors care?  Yes, you guessed it, it’s a somewhat rhetorical question. 😉

Obviously (we hope), the ups and downs (cycles) of the economy affect jobs, incomes, interest rates, asset values and the confidence of consumers, builders, lenders, employers, buyers and tenants.   And ALL of those things affect real estate and therefore provide important context to our investing decisions.

For example, some pundits have expressed grave concerns about the possibility of debt-burdened states defaulting.  But did you know that way back in 1840 there were four states that repudiated their debt and four more that defaulted?  Like today, they turned to Uncle Sam for help, but then-President Martin van Buren blocked the bailouts.  OMG!  What’s going to happen?

Oh, wait.  It already happened.  So we don’t have to guess.  We can look at history and find out.  But if you don’t know, then you’ll have to listen to this episode and hear what Professor Hummel tells us.

What we like about looking at history is that it helps us calm down.  When we are so focused on the now, we sometimes forget that markets have been cycling for a lot longer than we’ve been around.  We’re guessing they’ll still be cycling long after we’ve gone.

So even though there are many very real things to be concerned about, sometimes talking a giant step back and a few deep breaths can give us enough perspective to press forward when everyone else is running scared.

When we look at today’s real estate market, we keep coming back to the same thing.  Properties are selling below replacement costs, interest rates are at historic lows, there’s a growing renter population and still not enough new product coming on the market to meet the population growth.  Put all that in a blender and it looks pretty good for investors.

Add to this the notion that even though this down cycle has lasted longer than most, history teaches us that sooner or later the cycle will take the economy back up – and when it does, those investors who are actively acquiring bargains today, while properties are on sale, are going to come out the big winners…no matter who wins in November.

So listen in to our extremely interesting interview with Professor Jeffrey Hummel – and consider what your personal history will look like 20 years from now, depending on what you choose to do (or not do) today.

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed. Visit our Feedback page and tell us what you think!

 

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