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Home Publications Blogs Beat the Press Economists Who Could not See an $8 Trillion Housing Bubble Say that We Need $4 Trillion in Deficit Reduction

Economists Who Could not See an $8 Trillion Housing Bubble Say that We Need $4 Trillion in Deficit Reduction

Wednesday, 13 February 2013 05:52

In his State of the Union Address last night President Obama told the country that unspecified economists say that we need to reduce the deficit over the next decade by $4 trillion from the levels projected in 2010. It would have been worth noting that almost all of the economists who say this completely missed the $8 trillion housing bubble whose collapse sank the economy. There is no reason to believe that their understanding of the economy has improved in the last 5 or 6 years.

It would be helpful to remind listeners that President Obama is apparently having his economic policy dictated by economists who do not seem to know how the economy works.

Comments (7)Add Comment
written by watermelonpunch, February 13, 2013 6:40
I've spent a lot of time reading about what caused the 2008 financial crisis that tanked the economy. I've watched all the government hearings.

But why did I spend all that time and why did the government?
When now it seems that we're all supposed to pretend that none of that ever happened, and instead believe our current situation was caused by things that never did happen!!
same economists who were correct on "stimulus"
written by pete, February 13, 2013 9:43
Most stimulus was transfers, either tax reductions or payments. The transfer "multiplier" is weak at best, hence Obama's team had to lobby economists to support the stiumuls as a way out of the recession. Of course they balked, since transfers don't do much.

Regarding the bubble, it was a rational bubble, meaning everyone could make money during rise of the bubble. Knowing there is a bubble and deciding that it is about to burst are too entirely different things. Shiller said there was a stock market bubble in 1996. Well, 4 years later it burst. Buying puts fro 4 years would probably have broken most folks. Same thing in housing. Thus, knowing there is a bubble, and acting on the bubble, i.e., assuming a correction is imminent, are two entirely different things.

And of course efforts to reign in the main perps, Fannie and Freddie, and their comrades on WS, were succesfully fought off by their lobbiests.
In other news...
written by Dan Nile, February 13, 2013 10:48
Other economists who missed the $8T housing bubble now say we should increase deficit spending to create inflation, because somebody needs to make sure the bankers who created all of this debt get paid.
written by urban legend, February 13, 2013 3:32
Name some, Dan Nile.
written by urban legend, February 13, 2013 3:40
Petey refuses to read any of the refutations that completely destroy his Fannie and Freddy talking points, so he doesn't know how stupid he sounds. I suppose he buys into the fraudulent CRA notion, too -- that law which had been in place for 30 years and then, suddenly, during a conservative Republican administration, terrified national banks too big to fail into encouraging loans that should have been made. Indeed, the too-big-to-fail banks were so terrified of the Bush administration that they encouraged loan originators to hand out no-income, no-job mortgages like candy. The fact that the originators could be paid immediately by purchasers who could bundle them into extraordinarily profitable derivatives is irrelevant. There's nothing there, so don't look.
written by Jay, February 13, 2013 8:50
It is interesting how our press rejects economic stimulus in the US. However, they simultaneously report how Goldman Sachs is excited about Japan engaging in stimulus spending to increase GDP and lowering the yen to increase exports. Then again the CEO of Goldman goes on a fix the debt campaign in his own back yard after the housing bubble collapsed. This type of stuff is incredible.
Urban: Major changes in 1995..beginning of the bubble...sorry...follow the money
written by pete, February 14, 2013 9:11
Many heartfelt folks have great ideas. Homeownership, and the end of racist redlining policies by banks was another. Fannie and Freddie used these great ideas to their great advantage. There's were the prime lobby dollars, fending off regulatory scrutiny. Wall Street played along, for sure, paying for the swaps exemption and the end of Glass Steagal. The federal government just did what the lobbying dollars paid for, as it typically does. Fannie and Freddie lobbying dollars were concentrated in low income congressional districts. Lots of Fannie and Freddie employees made great sums of money during the bubble.


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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.