Friday, February 3, 2012

Household Formation: Divorces, Births Correlated with Unemployment Across States

From the Simpsons episode where Milhouse’s parents get divorced:

Kirk van Houten: “Singles life is great, Homer; I can do whatever I want. Today I drank a beer in the bathroom.”
Homer Simpson: “The one down the hall.”
Kirk van Houten: “Yeah, and another great thing, you get your own bed. I sleep in a racing car, do you?”
Homer Simpson: “I sleep in a big bed with my wife.”

Kirk is not only employing someone who makes race car beds, he’s also taking up another unit of housing. Kirk van Houten is engaged in the messy business economists refer to as household formation, creating another unit of demand for housing (as well as boosting aggregate demand for things like race car beds in weak economic times). If you haven’t seen it already, there’s several arguments that a wave of household formations will start, taking pressure off the housing market and boosting overall aggregate demand. See Yglesias here, Krugman here and Karl Smith here. Read more....

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