``It used to be said that the business of America was business,'' Phelps says. ``Now the business of America is homeownership.'' To grow optimally, he says, America needs to get beyond its house passion.
Like an apartment building, the Phelps argument works on multiple levels. The first is obvious. The federal government allocates too many resources to housing. Back in 2005, when the troubles of Fannie Mae and Freddie Mac weren't yet commanding the front page so regularly, the government was already spending about $41 billion to subsidize housing directly.
More than triple that amount, or $147 billion, was foregone on indirect tax subsidies to homeowners. That chunk of change might have been used for any number of government projects that would appeal to everyone from Laura Bush to Dennis Kucinich: pounding percentages into fifth-graders' heads, lowering the capital-gains tax, declaring summer gas holidays -- you name it. There's a certain laziness to the national campaign for homeownership, and it has cost the country a lot.
The real estate obsession is also a private-sector problem. The most important component of U.S. growth is productivity. To put it in schoolbook terms, if Americans find new ways to make more widgets in less time, that translates into higher wages.
Such productivity gains do occur in housing. But larger gains are usually to be had elsewhere: Silicon Valley, for example. Yet those tax incentives suck private funds into the less-efficient housing industry.
I'd add that the ownership society has created the illusion that people don't need to save for retirement because rising house prices will make them rich. That worked for the last generation, but baby boomers and post-boomers are about to get a rude awakening...