Intrinsic Value

In the seminal book "The Rise and Fall of the Great Powers", Paul Kennedy asserts that empires eventually return to an equilibrium consistent with their original geography as a percentage of world resources. This is an example of the concept of intrinsic value, which, for nation states, must be viewed over a long historical period. In the current economic crisis, one of the values that has influenced markets negatively is American residential real estate. A bubble was constructed upon the perceived value of a single-family home that was dramatically inconsistent with its intrinsic value. Just as great power empires flourish during optimum conditions and then prove to be not sustainable when those conditions change, energy intensive, consumer intensive family housing must also reach an equilibrium consistent with its intrinsic economic value in the larger context of its existence.

What's lacking in the discussion of our economy presently is recognition that this allocation of resources and debt is no longer appropriate to global conditions. Just as one can very cheaply acquire large displacement American luxury automobiles of a few years vintage because the intrinsic value of the car is transportation, and transportation requires fuel but does not require a luxurious, planned obsolete vehicle, the financial system is now foreclosing and holding title to large quantities of the shelter equivalent of an American gas guzzling rolling boat. Houses offer the illusion of the life of a potentate: swimming pools and vast grounds tended by servants, tens of thousands of square feet of air conditioned and heated rooms to house just a few people, and ample storage for mountains of Chinese consumer goods, machinery, sports equipment, multimedia rooms, and multiple trucks, cars, motorcycles, and other fuel intensive, and depreciating machinery bought on credit.

A look in Trade Express is all that is necessary to understand the value of an Oldsmobile in a world in which Prius is the desired vehicle. When downsizing of space and energy use for shelter is the priority, the same phenomenon of instant, drastic devaluation applies to these bloated, "gas guzzling" American houses.