Traditionally field economists would focus on economics and finance leaving political economy to academics. The crisis is changing that demanding more politically sensitive outlooks that capture the complexity of major socio-economic events of today.
It is the reason why Fannie Mae’s inaugural report for this year is titled, “2012 - Year of the Political Economy,” said the agency’s vice president and chief economist, Doug Duncan, during a meeting with the National Mortgage News staff.
Expectations to see a mere 2.3% growth in 2012 and a 25% chance of a new recession create uncertainty for the future. The European debt crisis and how it affects the U.S. economy will continue to be “the dominant story” this year, Duncan said, along with the effect of the Federal Reserve monetary policy changes, concerns about the estimated $550 billion fiscal impact of expiring tax provisions and new regulation.
Employment and job growth also is affected by politics and policy changes. Since housing is driven by jobs as the precursor for units sold, “baseline forecasts have to take into account all these factors,” he said. “It would be a big mistake” to not include politics in economic forecasts, he added, because it helps “expand the variability of the outcome predictions.”
Political economy, one would expect, is important to politicians. Judging from the rhetoric in the Republican presidential nomination campaign trail it does not seem to be the case.
And many have noticed. Albeit for electivity reasons, observes in her blog executive vice president of business development at Integrated Mortgage Solutions, Houston, Diane Gozza, “Our political candidates are staying as far away from discussing a cure to the housing crisis as they can.”
Mitt Romney, now headed to South Carolina where he will likely win another primary, limits his campaigning rhetoric to job creation. Despite his 15 years of business management experience, at least so far he seems to deliberately avoid observations on the very sensitive topic of housing and foreclosures.
The most recently televised debate of the candidates in New Hampshire showed he is not the only one. Topics addressed included employment, the economy at large, or infrastructure development, not housing.
Everyone has a problem with government intervention in the financial markets, but other than that all these presidential candidates are keeping the debate simple.
However, even if this year and the next miraculously new job creation will enable more delinquent and foreclosure risk homeowners to start paying their mortgage, the debt amassed will not be easy to pay off. For many borrowers already in the queue to enter the foreclosure courtrooms it may be to late—unless someone comes up with a brilliant idea that does not implicate the federal government altogether.
The current reality only reinforces research findings showing that politicians are not well versed in economics, basic financial knowledge, or the micro-macro economic implications of the housing crisis. For instance, job creation alone will not make REOs affordable, or stimulate home sales and make the inventory disappear.
Voters would appreciate knowing where elected politicians stand on the issues along with what is their level of financial literacy and comprehension of political economy.
