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Which Economists Warned of a Housing Collapse?
The Washington Post has a front page article on Alphonso Jackson's reign as secretary of the Department of Housing and Urban Development. The article begins "in late 2006, as economists warned of an imminent housing market collapse..."
Yes, I and a few other economists were warning of the collapse of the housing bubble, but we were the exceptions, and our views rarely appeared in media outlets like the Washington Post. The vast majority of economists, including people with names like Bernanke and Greenspan, were still saying that everything was just fine in the housing market, even as late as the fall of 2006.
Secretary Jackson's tenure as HUD secretary was a disaster and he deserves to be held accountable for his performance, but it is ridiculous to single him out for ignoring the housing bubble and the fallout from its inevitable collapse. This blame is better directed at the Fed, the economics profession as a whole, and the economic reporters who lacked the ability to independently assess arguments about the existence of a housing bubble.
--Dean Baker
COMMENTS (6)
While I agree with your conclusion, I STRONGLY disagree with your timeline. I can't understand why anyone would trust the reasoning of an Economist who argued in the Spring of 2005 (BEFORE he was annointed FED Head) that our housing prices were driven by FUNDAMENTALS.
Posted by: bailey | April 13, 2008 10:52 AM
The WaPo has a "Fact Checker" to verify candidate statements. How about a "Prediction Checker". I can imagine this evolving into a very useful database----with categories for economists, politicians, pundits. Maybe there could be an annual award show for such things as "biggest fumble in military intelligence", "best prediction in a macroenomics setting"
Posted by: steve | April 13, 2008 12:40 PM
Michael Parenti once quipped that (paraphrasing) "It's amazing how many news stories go from being 'leftist conspiracy theories' which are ignored to 'old news we don't need to rehash' without ever having made it to the front page when they were taking place."
Posted by: El Cid | April 13, 2008 1:31 PM
bailey,
Guess you are talking about Bernanke. Well, the number of economists who were saying there was a housing bubble in spring of 2005 was smaller than it was in late 2006 (I was among those with Dean and Nouriel and Bob Shiller who was saying so back then on maxspeak, no longer accessible, unfortunately, me, me, me, I was among the right!!!).
What is more shocking is that as late as late 2006 when it was increasingly obvious that there was a bubble that was indeed already collapsing to have Bernanke still saying all was OK, and that WaPo was still quoting so many well known economists who were spouting that line and so few who were not. It took a long time for them to finally figure it out.
BTW, for anyone in the Washington metro area who followed real estate markets, it was pretty obvious the jig was up in 2005 when it became clear that a majority of the mortgages in the area were of the "non-traditional" sub-prime, variation on interest-only variety. But, of course, the realtors in the real estate section of WaPo continued to bloviate on about how housing "never goes down" blah blah blah. (Of course, it can also be argued that one might have a bubble in Washington but not nationally, which might have been the view of some of the more sophisticated, such as Bernanke).
Of course, Bernanke may also have known better but was trying to minimize the coming financial collapse through happy talk. Didn't work, obviously.
Posted by: Barkley Rosser | April 14, 2008 4:25 PM
Barkley Rosser, ABSOLUTELY - I agree. The TOOTHLESS NonTradional mtg. guidance the FED signed onto in the FALL of '06 would have been LUDICROUS had it not been for the severity of the problem, especially because The FED saw the results of its latest Bank survey only weeks before!
So, it may be easy for some to excuse BB for his stance on housing in early '05 because he wasn't appointed to Chair the FED until October of that year. But, it's shameful that after 8 months as FED Head he couldn't see the wisdom to directly & deliberately confront the steamrolling housing disaster by 9/29/06.
Nothing he has done since has surprised me, disappointed me - yes, but surprised me -no.
Posted by: bailey | April 14, 2008 5:08 PM
What explains this massive inability on the part of economists to recognize such a looming disaster as the housing collapse? Was it a libertarian bias in favor of free markets, fear of self-fulfilling prophesies, or a failure of character? That is, are economists generally either stupid, conceited, or weak, respectively?
I hesitate to include the possibility that economists are evil since they usually aren't that interesting as people.
Posted by: Jack | April 15, 2008 5:52 PM