David Post: No one really controls nation's economy

Sometimes you get lucky. Sometimes you pray. Either way, if it works, you’re a star, and if not, you’re a flop. Good luck is often a major contributor to success.

At the same time, bad luck can be unforgiving. In the mid-1980s, the fax machine virtually eliminated Western Union’s primary business, telegrams.

Amazon is alive today because it got lucky. Dotcoms were riding high in January 2000. Amazon raised $2 billion in February 2000. In March 2000, the dotcom bubble burst and years passed before dotcom companies could raise money on Wall Street. Without that $2 billion, Amazon would be a distant memory, and Borders might still be thriving. Remember e-Toys? It was doing to toys what Amazon did to books and growing like a weed, had gone to Wall Street twice and needed money a third time, but after March 2000, Wall Street closed its wallet, and e-Toys died.

Similarly, presidents get lucky.

Jimmy Carter had his problems, but he was also unlucky. Both Apple and Microsoft were founded in the 1970s by teenagers. Only after he left office did those two companies change the economic landscape, creating tens of thousands of jobs directly and millions of jobs indirectly through supporting industries.

From 1980 until 2000, taxes went up and down, recessions came and went, regulations came and went, different parties controlled the White House and the Congress, but the economy grew as never before.

Fortunately, as teenagers and 20-somethings, Steve Jobs and Bill Gates weren’t motivated by tax rates or government regulations. They were motivated by their dreams. Presidents Reagan and Clinton were popular, but they were also lucky. Both were standing in the path of the Apples and Microsofts, the economic tsunami that created 35 million new jobs.

Luck and prayer are driving this year’s presidential election. If the economy continues to tick upward, the Republicans lose their best case. If the economy ticks down, Obama is toast. Regrettably, neither party can do much because ultimately, the economy is connected at the hip to home building and its recovery is years away.

Home building is the largest piece of the construction industry and carries other industries with it, such as lumber, concrete, glass, furniture, insulation, appliances, plumbing and electrical supplies, landscaping, roads, utilities and the list goes on as long as the eye can see.

For decades, the U.S. homeownership rate was 64 percent. Because of easy money and virtually no lending standards, homeownership climbed to 69 percent by 2005. Since then, it has declined to almost 66 percent. (Each percentage point equals approximately 1 million homes.)

This overbuilding has caused a long-term economic hangover. From 1990 until 2005, the country had approximately 2.2 million vacant homes in inventory for sale. By 2008, the vacant inventory had climbed to 3.8 million vacant homes and is now about 3.2 million homes.

Bad loans and excess inventory caused huge declines in home values and so many foreclosures that neither the banks nor the courts can handle them. Even so, more than 35 percent of sales for the past few years have been foreclosures.

On top of that, banks have a huge “shadow” inventory of bad loans and foreclosures not on the market. For years, that number stood at 500,000 homes. Today, different estimates place this “shadow” inventory between 2 million and 4 million, with some estimates as high as 10 million. Dumping that many more houses on the market would push values down more.

At the same time, many banks are underwater just like the houses they are holding.

For example, Bank of America has a market value of $85 billion, but its equity — that is, what its shareholders have invested — is $225 billion. When a bank sells a foreclosed house for less than its loan, its equity goes down just like when you sell your house for less than you paid for it. Banks are required by law to have minimum amounts of equity. If they don’t have enough equity, the government takes over (derisively called a “bailout”) to protect your money. With values falling, banks are afraid to make more loans.

Here’s the skinny: the national housing stock has at least 5 million additional houses. Banks are scared to loan. Buying and fixing up is cheaper than building new. Housing and construction cannot recover until this excess inventory is absorbed and banks recover. Economists estimate that normalcy will return between 2018 and 2023.

What can a presidential candidate really do this year? Pray. This time luck isn’t going to work.

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David Post is a co-owner of the Salisbury Pharmacy and an adjunct professor at Georgetown University.