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Home Publications Blogs Beat the Press Conventional Economic Wisdom from People Who Couldn't See an $8 Trillion Housing Bubble is of Little Value

Conventional Economic Wisdom from People Who Couldn't See an $8 Trillion Housing Bubble is of Little Value

Tuesday, 01 June 2010 04:36

The Washington Post notes the conventional wisdom of the Washington elite that there should be a run on U.S. bonds because of the size of the country's debt and deficits. It then points out that the markets seem to be contradicting the conventional wisdom. It is worth noting that nearly all of the purveyors of this conventional wisdom completely missed the $8 trillion housing bubble, the collapse of which wrecked the economy. Missing a bubble of this enormous size suggests that this convention wisdom is not grounded in a serious understanding of the economy. It would have been worth noting this point in discussing the conventional wisdom.

The article also asserts that: "the mix of spending cuts and tax increases that could close the gap [the budget deficit] are wildly unpopular." This is not true. During a period of extraordinarily high unemployment, like the present, there is no reason that the Fed could not simply buy and hold the debt being issued in order to prevent future interest burdens from increasing. To reduce future health care expenditures the government could publicly finance clinical trials for prescription drugs, thereby allowing all new drugs to be sold as generics for a few dollars per prescription. It could also allow Medicare beneficiaries to buy into the lower cost health systems in other countries, sharing the huge savings with the beneficiaries. The government could also roll back defense spending to the levels projected before the wars in Afghanistan and Iraq. And, to raise revenue the government could impose a financial speculation tax like the one that currently exists in the UK.

There is no evidence to suggest that any of these measures are wildly unpopular although powerful interest groups may object to them.

Comments (5)Add Comment
practice what u preach
written by frankenduf, June 01, 2010 9:12
watch it Dean- ur post passes on pentagon propaganda- the term "defense spending" is straight out of hitler's propaganda trove- all of our $billions going to bombing various poor brown people in countries that don't have enough fire power to take over podunk county in guam is exactly the opposite of military defense- these brown peopled countries are functionally defenceless against our 'defensive' advancements into their sovereign territories
written by izzatzo, June 01, 2010 9:16
Is the Pope Catholic? Does a bear crap in the woods? Not anymore, the Pope could be a pedophile and the bear could be crapping in urban trash cans.

So goes the conventional wisdom of the Washington elite. Is there a bubble? No. Was there a bubble? Apparently so, but who could have known, and what's that got to do with a $1.5T deficit projected to be $5T over the next decade? Ummmm. Duh.

If the socialists don't wake up and accept the reality of zero sum trade-offs designed to give them more at the expense of others getting less, we're all going down the crapper of an immoral cesspool.

Like pedophiles, these criminals who benefit from deficits and debt should be tracked with ankle collars and not allowed to live within a mile of any Keynesian.

Stupid liberals.
What do the polls say?
written by skeptonomist, June 01, 2010 9:38
I don't recall seeing poll results on questions like:

Should income tax rates be increased for people who earn a great deal above the average or median?

Should the income limit on payroll taxes be abolished?

Should capital gains and dividend income be subject to taxation for Social Security and other entitlements?

Should the income tax rates be the same for capital gains and dividends as for wage income, that is should all income be treated the same?

Politicians and pundits act as if they know that the answers are all negative. If I have just missed seeing the polls which provide answers to such questions, maybe they should be compiled somewhere. If polls are not asking such questions, we should ask why they aren't. Could it be that the politicians and media companies that sponsor polls don't want to know the answers, or don't publicize them?

Also, how about polls to determine how many people even understand these issues?
written by eric, June 01, 2010 4:51
For related BS, check out Dave Leonhardt's piece about underestimating risk, in which he says the next thing that we might be underestimating is the risk that because of big deficits "lenders" will eventually become leery about lending to Washington. Of course, if a weathervane like Dave sees this risk on the horizon, we can be pretty sure it won't be the next black swan... (the piece is at: http://www.nytimes.com/2010/06...-t.html?hp)
written by Stephen, June 01, 2010 5:47
Dean! So... Henry Blodget is claiming that US debt as a percentage of GDP is where it has never been before. He claims that WWII was different because consumers weren't in so much debt then, only the government was.


This seems wrong to me, and besides- Henry Blodget is a scumbag crook who was a criminal back when he was an "internet analyst".

So... response.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.