Claim: Housing Bubbles GOOD for the Economy?

At last month's ULI (Urban Land Institute) Fall Meeting, Newsweek & Slate columnist Daniel Gross gave a keynote address entitled -- improbably enough -- "Pop! Why Bubbles are Good for the Economy."

Is this man insane? Oh, sure, he's got a great resume, but when so many other business writers and economists are predicting nothing by doom and destruction, he comes up with this:

"The upside comes with the way Americans deal with these issues. When you look back through history, after the bust comes, the consolidators come in and create a system that works efficiently. The other positive thing is that the infrastructure built during the bubble stays up. New ownership comes in with a lower cost basis. And, the mental infrastructure remains. During bubbles, promotion companies spend a lot of money on hype and marketing, trying to get consumers to adapt to new ways of doing business. The mental infrastructure – which gives people with new mindset of how to do business – remains (after the bubbles pop). And the combination of these two infrastructures creates a new platform for businesses, and we have new industries not even imagined during the bubble."

So is he just plugging his new book, or is he on to something? According to his ULI address, the U.S. is a different place today due to three main trends: (1) Going 'luxe' (i.e., the top 1% of U.S. households control 20% of the wealth and so are less sensitive to credit tightening; (2) Going global (U.S. GDP is now 27% of worldwide GDP, down from 31% in 200); and (3) Going green (i.e., energy-efficient products, alternative energies, new homes with their own solar and other energy plants sending power back to the grid, etc.).

Interesting stuff, although it's also important to note that his audience was a bunch of ULI folks probably in the mood for some good news. Yet given his credentials, maybe a longer-term perspective was needed...