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Home Publications Blogs Beat the Press Wow, the Wall Street Journal Still Has Not Heard About the Housing Bubble!

Wow, the Wall Street Journal Still Has Not Heard About the Housing Bubble!

Tuesday, 25 June 2013 20:27

The Wall Street Journal seems to have completely missed the story of the housing bubble and the resulting economic collapse. It begins an article telling readers:

"After a slow start early in the economic recovery, consumer spending has begun to pick up. The question is whether Americans are ready to open their wallets more widely."

It is just mind-boggling to see this in the country's leading business newspaper. Umm, no actually wallets have been pretty wide open for a long time. The way that economists determine the width of the opening is by looking at the saving rate. In the good old days before the stock and housing bubbles, savings out of disposable income averaged more than 8.0 percent.

The savings rate began to fall in the late 1980s in the response to the beginnings of the stock bubble. It fell further in the late 1990s as the bubble peaked. The savings rate bottomed out at just over 2.0 percent in 2000. It rose again after the bubble burst but then fell back to 2.0 percent as a result of the wealth created by the housing bubble. (Actually the saving rate fell to near zero by some measures.)

Predictably, the saving rate rose again following the collapse of the housing bubble and the loss of $8 trillion in housing wealth. However it has remained unusually low, at less than 4.0 percent in recent quarters. This means that consumers are actually spending quite freely. It is not clear what data the piece is referring to when it complains that consumers have been reluctant to spend. Clearly the opposite is true.

Comments (3)Add Comment
written by Last Mover, June 25, 2013 9:31
Funny how that works. The WSJ doesn't seem to have any problem using percentages as a relative measure in other areas like the 90% threshold of debt to GDP from Rogoff and Reinhart beyond which growth is claimed to slow.

Yet when it comes to something like using the savings rate to explain the lack of consumption demand, suddenly the baseline converts to absolute numbers or some other irrelevant measure.

Why not be consistent and say since the R-R ratio is meaningless as well, the question is whether the government is ready to open up its wallet and spend enough to achieve full employment?
written by Ryan, June 26, 2013 8:30
No no no! People are supposed to be spending as they were in 2005. You and your "contexts," it totally gets in the way of a great storyline.

On a serious note, while the quote does imply that wallets are not open wide enough, it doesn't explicitly state that. I'd classify this as misleading and stupid, but malice might be questionable. Obviously, I don't think much of the intelligence of a great many reporters.
written by watermelonpunch, June 26, 2013 10:16
How about American corporations open their wallets a bit & actually pay a living wage? That could help with consumer spending I bet!

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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.