It’s a fascinating list put together by Economics of Contempt. Perhaps it is biased but I note the number of free-market thinkers here, people with a supply-side bias who do not have the Austrian theory of the business cycle figured into their intellectual apparatus.
At the same time, let’s say that you didn’t entirely understand that Fannie and Freddie were considered too big too fail, and let’s say you didn’t entirely understand that the housing sector was vulnerable to absorbing the vast quantities of new money that the banking system was creating during these years. Under these conditions, I can see underestimating the housing-bubble reality. What actually matters is what you make of the problem now, not then. The Austrian theory has achieved remarkable gains in the last two years.
{ 25 comments }
“Perhaps it is biased but I note the number of free-market thinkers here, people with a supply-side bias who do not have the Austrian theory of the business cycle figured into their intellectual apparatus.”
But seriously – when don’t you guys think we’re in a bubble?
I’m just kidding
I don’t think ABCT explains as much as you think it does, but I do take it seriously.
You should check out Tyler Cowen’s hilarious 2005 piece: If I believed in Austrian business cycle theory
Tyler Cowen is a tool.
Not to mention his “critiques” have been dismantled.
All true, but the funny thing is that this “ad absurdum” piece was written 2005, so it actually achieved two things:
1. It accidently confirms ABCT
2. Mr. Cowen missed an investment opportunity
They left Krugman off the list. He may not have failed to predict it, but he did advocate in favor of creating it, on the grounds that it was the only way, as he saw it, out of the dot-com-bust recession.
I think that being a bubble supporter is even worse than being a bubble sympathizer or a bubble denier.
http://blog.mises.org/10153/krugman-did-cause-the-housing-bubble/
Amen!
Timing is everything. In the trough following the dot-com bubble, lowering interest rates to promote the housing industry and deal with a depressed job market would be seen by most as being a sensible idea. But as in everything, you can go too far. I don’t see that he was still waving the flag for lowered interest rates once the bubble was fully forming. (Although you can certainly offer columns from Krugman himself as rebuttal, if you can find them.)
Meanwhile he was among the first to announce the dangers of the fully forming bubble, well before it had begun to pop. Here he is in September, 2006:
http://www.youtube.com/watch?v=qo4ExWEAl_k
List of Austrian leaning pundits who got it right? (and not just on the bubble, but also, for bonus points, on the timing….)
I’ll start with two easy ones..
-Jim Rogers
-Peter Schiff
…..
Add Marc Faber to the list.
Type in housing bubble in the search field and you’ll find a large number of them from before 2007.
Let us also not forget Ben Bernanke.
Besides him, MANY were missed: The following economists concluded:
“Housing valuations: no bubble apparent” :http://www.bis.org/publ/bppdf/bispap21.pdf
List of meeting participants
Reserve Bank of Australia Keith Hall
Head of System Stability
Institute of Applied Economic Research,
Brazil
Ana Luiza Neves de Holanda Barbosa
Statistics Canada Marc Prud’Homme
Senior Economic Statistician
Czech National Bank Ivan Matalik
European Central Bank Henning Ahnert
Principal Economist Statistician
Centre de Recherche en Économie et
Statistique (CREST-INSEE),
France
Anne Laferrère
Département de la Recherche
Hong Kong Monetary Authority Wensheng Peng
Economic Research
Bank of Japan Shigenori Shiratsuka
Institute for Monetary and Economic Studies
International Valuation Standards
Committee,
Malaysia
Elvin Fernandez
Vice Chairman
Banco de México Javier Salas
Director of Prices, Wages and Productivity
State Bank of Pakistan Naseer Ahmad
Joint Director, Statistics Department
National Statistical Coordination Board,
The Philippines
Estrella Domingo
Assistant Secretary General
Sveriges Riksbank Martin Andersson
Head of Financial Stability Department
Bank of England Robert Wood
Economist, Structural Economic Analysis Division
Office for National Statistics,
London
David Fenwick
Director, Consumer Prices and General Inflation
Division
Board of Governors of the Federal
Reserve System
Bradford Case
Economist
Bureau of Economic Analysis,
Washington D.C.
J Steven Landefeld
Director
Bruce Grimm
Economist, Office of the Director
U.S. Office of Federal Housing Enterprise
Oversight
Anthony Pennington-Cross
Senior Economist
ABSA Group,
South Africa
Christo Luüs
Chief Economist
CapitaLand Limited,
Singapore
Boaz Boon
Vice President of Research
Cowles Foundation,
Yale University
Robert J Shiller
Professor of Economics
vi BIS Papers No 21
Credit Suisse First Boston,
New York
Kathleen Stephansen
Director of Global Economics
Fitch Ratings,
New York
Mary O’Rourke
Senior Director, Head of CMBS Research
Investment Property Databank,
London
Rupert Nabarro
Chairman
Kelley School of Business,
Indiana University
Jeffrey D Fisher
Director, Center for Real Estate Studies
Ohio State University Donald R Haurin
Professor of Economics and Finance
Torto Wheaton Research,
Boston
Jon Southard
Chief Economist
Universidade Federal do Rio de Janeiro,
Brazil
Luís Otávio Reiff
Department of Economics
The Wharton School,
The University of Pennsylvania
Susan Wachter
Professor of Real Estate and Finance
Bank for International Settlements Stephan Arthur
Monetary and Economic Department
Gert Schnabel
Monetary and Economic Department
Paul Van den Bergh
Monetary and Economic Department
Haibin Zhu
Monetary and Economic Department
International Monetary Fund Horst Köhler
Managing Director
Carol S Carson
Statistics Department
Charles Enoch
Statistics Department
Robert Heath
Statistics Department
Thomas Helbling
Research Department
Paul Hilbers
Monetary and Financial Systems Department
Russell Krueger
Statistics Department
Armida San José
Statistics Department
Subramanian S Sriram
Statistics Department
Jeffrey: What is more to the point was that you saw this bubble coming years before anyone else. Austrian Economics forecast what was about to occur when the fed initially dropped rates to 1%. You also forecast that the bailouts and the stimulus packages would also fail. Keynesians are still trying understand why, even after the fact – they are still not ready to accept that their policies were doomed to failure.
I remember someone here (or maybe LRC) saying that an unmistakable sign of the bubble’s imminent collapse was when the 2005 Playboy Playmate of the Year resigned her title in order to work in real estate sales. A red flag if there ever was one.
Remember that “getting it wrong” has been very rewarding in terms of money and power accruing to those who recruited and paid the above economists and analysts. Just like getting the Japanese government’s intentions wrong in 1941 led to far more – almost infinitely more – power and money coming to those associated with the White House, Pentagon, State Department and nearly other branch of the US government and all of their family and cronies. Ditto the people who misunderstood (or rather pretended to misunderstand) the intentions of Osama bin Laden.
Do you see the pattern? Only in the most extreme cases – a successful revolution or a successful invasion by foreigners – is government incompetence punished. Every failure short of those situations is a “win” for those in government. You can point out the stupidity and incompetence of economists all you want, but instead of asking “How stupid are they?”, ask instead, “Cui bono?”
Keynesianism is about politics, not economics. Keynesians should be labeled politicians, not economists.
Precisely.
Standing ovation.
I was writing about the housing bubble as an Austrian artificial boom — and directing people to read Garrison — beginning in 2004.
Friend and family will tell you I was talking about it all the time.
Of course, it helps that I was reading the Mises blog and Calculated Risk at the time — and Was livingmthe housing bubble in California.
The Austrian who should get the most credit for nailing it is William White, formerly chief economist of the BIS, who explained to Greenspan and the rest of them what was happening in _2003_, and in a series of reports across the rest of most of the decade.
There were some great housing bubble blog started in 2005 and 2006 — google “housing bubble blog” for some links.
Only an idiot could have read those blogs and not known that a train wreck was coming.
I especially liked the “Irvine Housing Blog” which is still alive and well and tracking housing bust in Orange County.
The Orange County Register also did a great job tracking the housing boom and bust, and the insane mortgage business that went with it.
Bernanke quoted in The Australian:
Commission members pressed Mr Bernanke on the Fed’s role in contributing to the run-up in the housing market, which helped play a role in the credit market tumult.
Mr Bernanke said it would’ve been “questionable” for the central bank to have raised interest rates in 2003 or 2004 — before housing became overheated — and said monetary policy is not the central bank’s preferred tool for dealing with asset bubbles.
“We should use supervision and regulation to approach bubbles. We didn’t do that. Going forward we need to be able to do that,” Mr Bernanke said.
*Shudder*
Gold, anyone?
My gold portfolio is up 18% just this year alone.
A friend who is a retired professor of economics (Chicago school) listened indulgently as I tried to explain the Austrian case for an eventual crack-up in real estate, which would likely bring down many banks in the USA and elsewhere. He didn’t really say much to contradict me (he’s not what you would call a really lively or argumentative chap), but later on he lent me a periodical which he received from the NY Federal Reserve. This was about 2003 or 2004. The journal had a long article whose gist was that yes, the banks are pretty highly exposed to real estate if it was to fall in value. The punchline was, but don’t worry – banks have unloaded most of the risk onto insurance companies. They didn’t name any insurance companies and I couldn’t imagine which company would be chump enough to take real estate risk out of the banks’ hands … but by now everyone has heard of AIG.
The NY Fed was virtually ground zero for the creation of the bubble and also for the big payoff that followed the bust of AIG et al. I can only conclude that the little “don’t worry be happy” bit from their journal was no less than a statement of the party line, mailed out to thousands of dutiful economists and analysts in America and around the world. That’s essentially what the prof said when he handed me the thing – you’re always talking about an impending crash and another great depression but look at these guys, they say that everything is fine.
I’ll bet that 100% of the names on the “Housing valuations: no bubble apparent” list quoted above were also on the subscription list for that NY Fed fishwrap, and obviously they took it to heart.
Many people saw this coming in the States but failed to make enough noise to get the attention it deserved. At the time the money was just too good!
Nice to see someone calling some of these “genuises” out. Well, at least if you bought into the bubble, you’ll get a free lawyer from the Government.
Mark my words: the US will continue to pay for this bubble for far longer than many think…
Comments on this entry are closed.