Let Krugman spend his money

By Felix Salmon
August 13, 2009
Ryan, I'm perfectly happy to take Paul Krugman's purchase of a new apartment at face value. Does it mean that Krugman thinks home prices aren't going to fall? No, of course not. Is it a bullish indicator? Similarly, no. A home is not an investment. It's a place to live.

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Contra Ryan, I’m perfectly happy to take Paul Krugman’s purchase of a new apartment at face value. Does it mean that Krugman thinks home prices aren’t going to fall? No, of course not. Is it a bullish indicator? Similarly, no. A home is not an investment. It’s a place to live.

Krugman wanted an extra bedroom and a washer-dryer. He had $1.4 million from his Nobel prize burning a hole in his pocket. Why not spend it on something which will make your life more pleasant? The alternative is to save/invest, which is essentially delayed gratification for no particularly good reason. So good for Paul, that he thinks of money as a means to an end — something you spend to get what you want — rather than always as something to be invested and grown.

Update: Ryan responds by saying that Krugman could just have rented. But for a busy professional like Krugman, the pain-and-suffering costs of moving house are huge, and so there’s real value to locking in the option never to have to move again if you don’t want to. Plus there’s inflation risk if you rent — the rent could rise quite a lot, even as your cash loses purchasing power. And where’s Krugman meant to park his $1.4 million in the meantime, while he’s renting? In many ways, it’s much easier to buy, if you have the money just lying around. After all, there’s no downside at all if you consider that you’ve just bought somewhere to live, as opposed to an investment.

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