8 ms·

Here's a question: how many "professional" economists sounded the alarm about the last bubble?

jswinghammer 13y ago
Zero unless they are rewriting history to claim they saw it 6 months to a year out when it was obvious to anyone who wasn't drunk on soaring home and equity prices.
- syshax 13y ago
  https://en.wikipedia.org/wiki/Nouriel_Roubini https://en.wikipedia.org/wiki/Nouriel_Roubini
- jayfuerstenberg 13y ago
  http://en.wikipedia.org/wiki/Peter_Schiff http://en.wikipedia.org/wiki/Peter_Schiff He saw it in 2007
  - judk 13y ago
    That was immediately before the crash.
    - dangrossman 13y ago
      The book he wrote about the coming crash was published by Wiley in February 2007, which means he must've been formed the idea some years before to have written it early enough for that publication date. A quick Google search turned up CNBC interviews with him in 2005 and 2006 about the topic.
    - shard972 13y ago
      This has him here as far back as 2006 http://www.youtube.com/watch?v=2I0QN-FYkpw http://www.youtube.com/watch?v=2I0QN-FYkpw
  - jswinghammer 13y ago
    He's an Austrian economist and yes he like all of them saw this coming in 2001 and maybe earlier.
- deleted 13y ago
  [deleted]
vinceguidry 13y ago
How would an economist get information about a bubble? Magic? Until they burst, anything you could say about them is speculative. Everyone talks about how education is the next big one, but education and real estate are such different markets they might as well be on different planets. It's impossible to know what's going to happen until it happens. The housing bubble caught a lot of really smart people off guard. Housing was overpriced, but it's been overpriced for years. You had to have special, insider information about just what sorts of crazy tricks were being pulled behind the scenes, and you had to understand that it wasn't sustainable and what would happen once people started defaulting. Looks easy in hindsight, but you go out there and try to predict what's going to happen in two years.
- 7Figures2Commas 13y ago
  Interesting comment. If I am to understand it correctly, and follow it to its logical conclusion: 1. Economists have no tools for studying the topics that they're supposed to study, such as asset prices. 2. They are unable to make predictions because doing so would be "speculative." 3. Because we can't know what is going to happen until it happens, we might as well do away with professional economists because they can provide no input of practical (read: forward-looking) use. They can only try to explain why what happened happened. As for the requirement that one have "special, insider information" to have predicted the housing bubble, this is simply not true. There were a number of people from a variety of professions who recognized the housing bubble. One, Robert Shiller, to answer my own question, is an economist who also predicted the .com collapse[1]. There were also politicians[2] and market participants who predicted a collapse. Some of the latter, like John Paulson, who made billions betting against subprime, didn't publicly promote their beliefs, but others, like Peter Schiff[3], did. [1] http://www.nytimes.com/2005/08/21/business/yourmoney/21real.html?pagewanted=all http://www.nytimes.com/2005/08/21/business/yourmoney/21real.... [2] http://www.youtube.com/watch?v=mnuoHx9BINc http://www.youtube.com/watch?v=mnuoHx9BINc [3] http://www.youtube.com/watch?v=jj8rMwdQf6k http://www.youtube.com/watch?v=jj8rMwdQf6k
  - natrius 13y ago
    The vast majority of economics is about how to avoid past mistakes, not necessarily how to avoid making new ones. This doesn't mean the science isn't valuable. There are plenty of terrible mistakes I hope we never make again.
jayfuerstenberg 13y ago
The more interesting question is: How many "professional" economists lost their jobs, or at least the esteem of their industry, for not seeing the housing bubble?
rz2k 13y ago
Clearly meant as a rhetorical question, what do you really mean by it? How many auditors caught the problems with Worldcom, Enron or Tyco? Extremely small minorities did, and yet people don't question whether 'accounting works, but they may question the incentives for companies to provide honest books to auditors, and the compensation awarded independent auditors. Let's say that you need someone to think that it will be sunny tomorrow, and you believe that it will be sunny tomorrow. The meteorologist's forecast is for 20% chance of a thunderstorm. You tell your investor that meteorology is not a science. The real probability of a thunderstorm, given the conditions and the most accurate model possible is 18%, or maybe 4% or 93%. What does any of this mean? Have you ever heard someone say that economics is not a science? Unfailingly, it comes from someone who has a bias toward a specific conclusion, and has no method explaining how they arrived at their conclusion other than something like "common sense". There was a renaissance for economic data collection in the wake of the 1929 crash, and the collapse of classical economics (How could the same capital equipment and human capital in 1932 produce about 48% of the industrial output it had in early 1929?). That was when most of the data collection programs were created, and the industrial classifications that were only revised again in the late 90s and early 2000s. It is about as difficult to imagine the world of 7B people without modern economics as it is without integrated circuits or container ships or antibiotics or industrial and agricultural advances of the past 70 years. Often in medicine, advances have met strong resistance from the respected people and overwhelming expert consensus (a very long list including how to prevent Pellagra, Yellow Fever, stomach ulcers, etc), and yet that is not a sane argument for abandoning medical research funding, condemning the practice of medicine as unscientific, or for choosing folk or "traditional" remedies instead. And yet, that is what has happened over the past six years. To understand the value of this proposition regarding inflation requires an understanding of the mechanisms and justifications they describe, and then an attempt to assess the most likely outcomes of a course of action. In other words engagement, not people throwing up their hands and stating that it is impossible to choose any actions as better than any other, as though defeatism and fatalism are wise.
- shard972 13y ago
  > Clearly meant as a rhetorical question, what do you really mean by it? I think he means, out of the establishment economists (eg: Federal reserve members, Columnists, Government economists, etc.)
gruseom 13y ago
Dean Baker called the housing bubble as early as 2002: http://www.cepr.net/index.php/reports/the-run-up-in-home-prices-is-it-real-or-is-it-another-bubble/ http://www.cepr.net/index.php/reports/the-run-up-in-home-pri... By 2004 he even sponsored a $1000 contest for whoever could make a good case that there wasn't a bubble: http://www.nytimes.com/2004/01/18/business/personal-business-diary-a-1000-prize-for-disagreeing.html http://www.nytimes.com/2004/01/18/business/personal-business...
- clarky07 13y ago
  That means he was at least partly if not mostly wrong. As far as markets go, you have to be right in both direction and timing. He was 4-5 years early, and frankly 2002 prices weren't that insane. Especially compared to 2006-2007 prices. He was really early, and if bet against housing at that point, he likely went bankrupt before the crash. That's really neither here nor there though. What's the famous saying, something to the effect of "economists have predicted 10 of the last 3 recessions". Somebody is always calling for a crash, and somebody is always calling for a bull market. After the fact you can always find someone who was right about it, but that doesn't mean they were right about the why, and it doesn't mean they are going to be right about the next thing.
  - gruseom 13y ago
    That means he was at least partly if not mostly wrong. I don't agree. You'd have to look at his reasons for calling it the way he did. Your "betting" objection is a red herring. To identify a bubble does not require predicting exactly when it will pop.
    - clarky07 13y ago
      Look at my comment above. Prices weren't even close to bubble levels. They were lower than anything we've seen post crash. Also I was clearly not talking about "betting" but rather investing. It's just not useful for someone to say something is happening far before it actually is happening. Perhaps he could have said the conditions are right for a bubble to start in the near future. In which case the correct play would be to make a lot of money in housing in 2002. There was no bubble then though. http://us.spindices.com/indices/real-estate/sp-case-shiller-us-national-home-price-index http://us.spindices.com/indices/real-estate/sp-case-shiller-...
elchief 13y ago
Krugman, Schiller, Roubini were the prominent ones.
- hannibal5 13y ago
  There was long main article in the Economist about housing bubble few years before the bubble bursted. I remember reading it and being somewhat worried because arguments were convincing. I then forgot it because it was not in other news. It would be nice to find it again. The issue in question had picture of green? man/gigant weighted down with heavy weights.
gaius 13y ago
Here in the UK, Gordon Brown claims he foresaw it all. Mysteriously tho', as the Chancellor of the Exchequer of the then-4th-largest economy in the world, he did nothing whatsoever about it.
davidw 13y ago
They're journalists more than economists, but the folks at The Economist were talking about a housing bubble in the US and elsewhere. Also, this kind of article adds little to this site: it's basically round 4348388282998271193 of "mainstream economics vs Austrians and other heterodox schools of thought" on the internet. It's all been said.
enoch_r 13y ago
Economics is not about predicting the movements of asset prices. In fact, the unpredictability of asset prices is one of the more fundamental findings of economics. Criticizing economics for not identifying a bubble is a little like complaining that physicists haven't built us a faster-than-light spaceship.
Mikeb85 13y ago
It wouldn't surprise me if many did. Certainly anyone with a little common sense would have known that when housing prices rise so dramatically so quickly, it can't possibly be sustainable (even if in the long run prices return to that level). But as is the case in all bull markets, the naysayers are always drowned out by the crowd. Voicing a contrarian opinion is always frowned upon.
hannibal5 13y ago
Many. Here is multiple lists with sources: http://investorhome.com/predicted.htm http://investorhome.com/predicted.htm

Zero unless they are rewriting history to claim they saw it 6 months to a year out when it was obvious to anyone who wasn't drunk on soaring home and equity prices.

syshax 13y ago
https://en.wikipedia.org/wiki/Nouriel_Roubini https://en.wikipedia.org/wiki/Nouriel_Roubini
jayfuerstenberg 13y ago
http://en.wikipedia.org/wiki/Peter_Schiff http://en.wikipedia.org/wiki/Peter_Schiff He saw it in 2007
- judk 13y ago
  That was immediately before the crash.
  - dangrossman 13y ago
    The book he wrote about the coming crash was published by Wiley in February 2007, which means he must've been formed the idea some years before to have written it early enough for that publication date. A quick Google search turned up CNBC interviews with him in 2005 and 2006 about the topic.
  - shard972 13y ago
    This has him here as far back as 2006 http://www.youtube.com/watch?v=2I0QN-FYkpw http://www.youtube.com/watch?v=2I0QN-FYkpw
- jswinghammer 13y ago
  He's an Austrian economist and yes he like all of them saw this coming in 2001 and maybe earlier.
deleted 13y ago
[deleted]

vinceguidry 13y ago

How would an economist get information about a bubble? Magic? Until they burst, anything you could say about them is speculative. Everyone talks about how education is the next big one, but education and real estate are such different markets they might as well be on different planets. It's impossible to know what's going to happen until it happens. The housing bubble caught a lot of really smart people off guard. Housing was overpriced, but it's been overpriced for years. You had to have special, insider information about just what sorts of crazy tricks were being pulled behind the scenes, and you had to understand that it wasn't sustainable and what would happen once people started defaulting. Looks easy in hindsight, but you go out there and try to predict what's going to happen in two years.

7Figures2Commas 13y ago
Interesting comment. If I am to understand it correctly, and follow it to its logical conclusion: 1. Economists have no tools for studying the topics that they're supposed to study, such as asset prices. 2. They are unable to make predictions because doing so would be "speculative." 3. Because we can't know what is going to happen until it happens, we might as well do away with professional economists because they can provide no input of practical (read: forward-looking) use. They can only try to explain why what happened happened. As for the requirement that one have "special, insider information" to have predicted the housing bubble, this is simply not true. There were a number of people from a variety of professions who recognized the housing bubble. One, Robert Shiller, to answer my own question, is an economist who also predicted the .com collapse[1]. There were also politicians[2] and market participants who predicted a collapse. Some of the latter, like John Paulson, who made billions betting against subprime, didn't publicly promote their beliefs, but others, like Peter Schiff[3], did. [1] http://www.nytimes.com/2005/08/21/business/yourmoney/21real.html?pagewanted=all http://www.nytimes.com/2005/08/21/business/yourmoney/21real.... [2] http://www.youtube.com/watch?v=mnuoHx9BINc http://www.youtube.com/watch?v=mnuoHx9BINc [3] http://www.youtube.com/watch?v=jj8rMwdQf6k http://www.youtube.com/watch?v=jj8rMwdQf6k
- natrius 13y ago
  The vast majority of economics is about how to avoid past mistakes, not necessarily how to avoid making new ones. This doesn't mean the science isn't valuable. There are plenty of terrible mistakes I hope we never make again.

jayfuerstenberg 13y ago

The more interesting question is: How many "professional" economists lost their jobs, or at least the esteem of their industry, for not seeing the housing bubble?

rz2k 13y ago

Clearly meant as a rhetorical question, what do you really mean by it? How many auditors caught the problems with Worldcom, Enron or Tyco? Extremely small minorities did, and yet people don't question whether 'accounting works, but they may question the incentives for companies to provide honest books to auditors, and the compensation awarded independent auditors. Let's say that you need someone to think that it will be sunny tomorrow, and you believe that it will be sunny tomorrow. The meteorologist's forecast is for 20% chance of a thunderstorm. You tell your investor that meteorology is not a science. The real probability of a thunderstorm, given the conditions and the most accurate model possible is 18%, or maybe 4% or 93%. What does any of this mean? Have you ever heard someone say that economics is not a science? Unfailingly, it comes from someone who has a bias toward a specific conclusion, and has no method explaining how they arrived at their conclusion other than something like "common sense". There was a renaissance for economic data collection in the wake of the 1929 crash, and the collapse of classical economics (How could the same capital equipment and human capital in 1932 produce about 48% of the industrial output it had in early 1929?). That was when most of the data collection programs were created, and the industrial classifications that were only revised again in the late 90s and early 2000s. It is about as difficult to imagine the world of 7B people without modern economics as it is without integrated circuits or container ships or antibiotics or industrial and agricultural advances of the past 70 years. Often in medicine, advances have met strong resistance from the respected people and overwhelming expert consensus (a very long list including how to prevent Pellagra, Yellow Fever, stomach ulcers, etc), and yet that is not a sane argument for abandoning medical research funding, condemning the practice of medicine as unscientific, or for choosing folk or "traditional" remedies instead. And yet, that is what has happened over the past six years. To understand the value of this proposition regarding inflation requires an understanding of the mechanisms and justifications they describe, and then an attempt to assess the most likely outcomes of a course of action. In other words engagement, not people throwing up their hands and stating that it is impossible to choose any actions as better than any other, as though defeatism and fatalism are wise.

shard972 13y ago
> Clearly meant as a rhetorical question, what do you really mean by it? I think he means, out of the establishment economists (eg: Federal reserve members, Columnists, Government economists, etc.)

gruseom 13y ago

Dean Baker called the housing bubble as early as 2002: http://www.cepr.net/index.php/reports/the-run-up-in-home-prices-is-it-real-or-is-it-another-bubble/ http://www.cepr.net/index.php/reports/the-run-up-in-home-pri... By 2004 he even sponsored a $1000 contest for whoever could make a good case that there wasn't a bubble: http://www.nytimes.com/2004/01/18/business/personal-business-diary-a-1000-prize-for-disagreeing.html http://www.nytimes.com/2004/01/18/business/personal-business...

clarky07 13y ago
That means he was at least partly if not mostly wrong. As far as markets go, you have to be right in both direction and timing. He was 4-5 years early, and frankly 2002 prices weren't that insane. Especially compared to 2006-2007 prices. He was really early, and if bet against housing at that point, he likely went bankrupt before the crash. That's really neither here nor there though. What's the famous saying, something to the effect of "economists have predicted 10 of the last 3 recessions". Somebody is always calling for a crash, and somebody is always calling for a bull market. After the fact you can always find someone who was right about it, but that doesn't mean they were right about the why, and it doesn't mean they are going to be right about the next thing.
- gruseom 13y ago
  That means he was at least partly if not mostly wrong. I don't agree. You'd have to look at his reasons for calling it the way he did. Your "betting" objection is a red herring. To identify a bubble does not require predicting exactly when it will pop.
  - clarky07 13y ago
    Look at my comment above. Prices weren't even close to bubble levels. They were lower than anything we've seen post crash. Also I was clearly not talking about "betting" but rather investing. It's just not useful for someone to say something is happening far before it actually is happening. Perhaps he could have said the conditions are right for a bubble to start in the near future. In which case the correct play would be to make a lot of money in housing in 2002. There was no bubble then though. http://us.spindices.com/indices/real-estate/sp-case-shiller-us-national-home-price-index http://us.spindices.com/indices/real-estate/sp-case-shiller-...

elchief 13y ago

Krugman, Schiller, Roubini were the prominent ones.

hannibal5 13y ago
There was long main article in the Economist about housing bubble few years before the bubble bursted. I remember reading it and being somewhat worried because arguments were convincing. I then forgot it because it was not in other news. It would be nice to find it again. The issue in question had picture of green? man/gigant weighted down with heavy weights.

gaius 13y ago

Here in the UK, Gordon Brown claims he foresaw it all. Mysteriously tho', as the Chancellor of the Exchequer of the then-4th-largest economy in the world, he did nothing whatsoever about it.

davidw 13y ago

They're journalists more than economists, but the folks at The Economist were talking about a housing bubble in the US and elsewhere. Also, this kind of article adds little to this site: it's basically round 4348388282998271193 of "mainstream economics vs Austrians and other heterodox schools of thought" on the internet. It's all been said.

enoch_r 13y ago

Economics is not about predicting the movements of asset prices. In fact, the unpredictability of asset prices is one of the more fundamental findings of economics. Criticizing economics for not identifying a bubble is a little like complaining that physicists haven't built us a faster-than-light spaceship.

Mikeb85 13y ago

It wouldn't surprise me if many did. Certainly anyone with a little common sense would have known that when housing prices rise so dramatically so quickly, it can't possibly be sustainable (even if in the long run prices return to that level). But as is the case in all bull markets, the naysayers are always drowned out by the crowd. Voicing a contrarian opinion is always frowned upon.

hannibal5 13y ago

Many. Here is multiple lists with sources: http://investorhome.com/predicted.htm http://investorhome.com/predicted.htm