Let’s say that housing and equity values fall and suddenly people realize they are less wealthy for the foreseeable future.  The downward shift of demand will bundle together a few factors:

1. A general decline in spending.

2. A disproportionate and permanent demand decline for the more income- and wealth-elastic goods, a category which includes many consumer durables and also luxury goods.  (Kling on Leamer discusses relevant issues.)

3. A disproportionate and temporary demand decline for consumer durables, which will largely be reversed once inventories wear out or maybe when credit constraints are eased.

Those are sometimes more useful distinctions than “AD” vs. “sectoral shocks,” because AD shifts consist of a few distinct elements.

If you see #1 as especially important, you will be relatively optimistic about monetary and fiscal stimulus.  If you see #2 as especially important, you will be relatively pessimistic.  You can call #2 an “AD shift” if you wish, but reflation won’t for the most part bring those jobs back.  People need to be actually wealthier again, in real terms, for those spending patterns to reemerge in a sustainable way.  Stimulus proponents regularly conflate #1 and #2 and cite “declines in demand” as automatic evidence for #1 when they might instead reflect #2.

If you see #3 as especially important, and see capital markets as imperfect in times of crisis, you will consider policies such as the GM bailout to be more effective than fiscal stimulus in its ramp-up forms.

Sectoral shift advocates like to think in terms of #2, but if #3 lurks the shifts view can imply a case for some real economy interventions.  I read Arnold Kling as wanting to dance with #2 but keep his distance from #3.  But if permanent sectoral shifts are important, might not the temporary shifts (we saw the same whipsaw patterns in international trade) be very important too?  Can we embrace #2 without also leaning into #3?

I wish to ask this comparative question without having to also rehearse all of the ideological reasons for and against real economy bailouts.  It gets at why the GM bailout has gone better than the fiscal stimulus, a view which you can hold whether you favor both or oppose both.

Note there also (at least) two versions of the sectoral shift view and probably both are operating.  The first cites #2.  The second claims some other big change is happening, such as the move to an internet-based economy.  If both are happening at the same time, along with some #1 and some #3, that probably makes the recalculation problem especially difficult.

I see another real shock as having been tossed into the mix, namely that liquidity constraints have forced many firms to identify and fire the zero and near-zero marginal productivity workers.

There’s also the epistemic problem of whether we have #2 or #3 and whether we trust politics to tell the difference.

The Germans had lots of #3 (temporary whacks to their export industries) and treated them as such, whether consciously or not, and with good success.  Arguably Singapore falls into that camp as well.  The U.S. faces more serious identification problems, whether at the level of policy or private sector adjustment.  We have not been able to formulate policy simply by assuming that we face a lot of #3.

I would have more trust in current applied policy macroeconomics if we could think through more clearly the relative importances of #1, 2, and 3.  And when I hear the phrase “aggregate demand,” immediately I wonder whether it all will be treated in aggregate fashion; too often it is.

W. Bowman Cutter, Sofia F. Franco, and Autumn DeWoody have a new paper titled "Do Minimum Parking Requirements Force Developers to Provide More Parking than Privately Optimal?" The abstract is this:

Minimum parking requirements are the norm for urban and suburban development in the United States (Davidson and Dolnick (2002)). The justification for parking space requirements is that overflow parking will occupy nearby street or off-street parking. Shoup (1999) and Willson (1995) provides cases where there is reason to believe that parking space requirements have forced parcel developers to place more parking than they would in the absence of parking requirements. If the effect of parking minimums is to significantly increase the land area devoted to parking, then the increase in impervious surfaces would likely cause water quality degradation, increased flooding, and decreased groundwater recharge. However, to our knowledge the existing literature does not test the effect of parking minimums on the amount of lot space devoted to parking beyond a few case studies. This paper tests the hypothesis that parking space requirements cause an oversupply of parking by examining the implicit marginal value of land allocated to parking spaces. This is an indirect test of the effects of parking requirements that is similar to Glaeser and Gyourko (2003). A simple theoretical model shows that the marginal value of additional parking to the sale price should be equal to the cost of land plus the cost of parking construction. We estimate the marginal values of parking and lot area with spatial methods using a large data set from the Los Angeles area non-residential property sales and find that for most of the property types the marginal value of parking is significantly below that of the parcel area. This evidence supports the contention that minimum parking requirements significantly increase the amount of parcel area devoted to parking.

The paper is here.  Here is a related paper, or here.

Arnold isn't convinced:

If we abolished free parking, would parking spaces be scarcer? Keep in mind that if the price of parking went up, this would cause movement along the supply curve as well as along the demand curve. Maybe the total number of parking places would decline (it depends on elasticities), but the one result you can predict with certainty is that the number of unused parking places would go up. Is that necessarily welfare-improving?

The key is not to "abolish" free parking, but to a) abolish minimum parking requirements, and b) put prices or higher prices on congested municipal-owned parking spaces.  Both a) and b) will lower the demand for parking and a) will lower the supply of parking, so why should the number of unused parking spaces necessarily go up?  If you treat something as an appropriately scarce resource, it should be used more effectively.

There are plenty of DC restaurants which don't have their own parking lots, but they use paid valet parking and find ingenious ways to store cars more effectively.  The parking fee means that some people walk there or use the Metro, rather than driving and parking.  No one finds this arrangement especially objectionable and while valet parking is at a discount to market still it is priced.  At lunch time valet parking is less likely but still people pay to park, usually in nearby lots.  No one would suggest that these restaurants be forced to put in minimum parking.  Nor would anyone suggest that mandated minimums would be neutral with respect to parking efficiency.

I'm simply asking for the same switch in reverse, namely to do away with minimum parking requirements.  Very likely, such a change will have a bigger impact on future developments than on past developments (it can be hard to reconfigure a parking lot), although some malls might sell off or rent their now-liberated parking spots to other commercial ventures.

Pricing parking on busy residential streets is just common sense S&D and the price should vary with peak times.

Most of all, I am calling for "parking recalculation," so I am surprised Arnold is skeptical.  Maybe he thinks the recalculation won't bring much change (the Wal-Mart in North Dakota may never charge for parking), but in fact we find a wide variety of parking pricing practices around the world and even around the U.S., as laws and institutions and real net prices vary.

You could argue that politics already pushes us to somewhat efficient outcomes for policy, as indeed NYC does usually (though not always) treat parking spaces as more scarce than does Fargo, North Dakota.  Still, there is an obvious chain for political failure.  Development decisions are very often made on a one-by-one, sequential basis.  Other merchants, or nearby homeowners, fear parking overflow and they lobby as if this private cost were actually a social cost.  At each step of development, lots of parties are pushing for minimum parking requirements.  Some "once-and-for-all" parking policy decisions could limit this political incentive. 

Another simple public choice story is this: minimum parking limits the supply of land and boosts the returns to local homeowners.  It raises retail prices but many of the store's customers are from out of town, so that is a vote-winning strategy at the local level, namely scarcer land and higher prices for stores.

People who drive cars also have disproportionately more political power than people who do not, especially in most suburban areas.

Most of the time, legal quantity minimums have real effects on markets and they are not set efficiently at the political level.

Addendum: Here is Arnold's response to Robin, here is Robin on Arnold.  And yet more from Arnold.  And here is an O'Toole comment; for one thing there is free parking in Manhattan, but for another…I never claimed there was.

From the comments: "A note of clarification about free parking in Manhattan. By law meters are prohibited on residential streets. Only on commercial streets and corners are meters allowed. Residential parking permits are also prohibited by the state. This means that in many parts of the island (mostly above 59th street though also in certain areas of lower Manhattan) there is "free" parking at the curb. In these neighborhoods there is substantial cruising for parking. In addition, all of Manhattan was subject to minimum parking requirements until 1982, and now areas north of Central Park (roughly) are subject to minimum parking requirements, as are the other boroughs."