The American Money Laundromat

 

'Supply-and-Demand' is not simply a 'macro' concept.  It also works at the 'micro' level.  Indeed, any economic concept that doesn't work in both macroeconomics and microeconomics is automatically suspect of being flawed in ways that may not be intuitively obvious.

The other salient concept for any functioning money laundromat is that one can't sell an asset unless there is also a buyer.  A seller prospects for buyers by adjusting the price to meet the available demand.  This is how a 'Dutch auction' works, and is the method I always suggest for anxious home sellers.  An anxious seller wants to maximize their revenue, so offering prices start high and decline, perhaps precipitously and predictably.

These related concepts can help us understand what's happening in cities all across our nation as well as across the globe.  When flawed governmental policies — is that an oxymoron? — cause property values to decline, rational businesses tend to 'cut their losses' by dumping their failing assets onto the market.  When the offering price becomes low enough, buyers with available cash — and the flexibility to ride out the current bad times — can pick up assets whose value may, sometime in the future, be worth more than their book value.

This is what we're seeing in places like San Francisco, Seattle, and Maui.  Counter-productive policies and incentives drive the value — and the offering prices — of real estate down, and flush investors snap up the formerly-valuable properties at bargain-basement prices.

If this scenario is accidental and/or unforeseen, our elected officials can be forgiven — maybe.  What if it's deliberate?  We know our foreign aid structure is designed to launder taxpayer money back into the pockets of Washington insiders.  Have our state and local governments decided to get into the laundromat business, too?