How To Destroy Your Ability To Understand Economic Reality: Get A Phd In Economics
Turmoil in the housing market has led to fears that home prices will drop precipitously….. But the projected losses have been wildly exaggerated. Most Americans have not experienced any significant declines in the value of their homes – nor are they likely to.
Fears of a huge loss in home values for most homeowners … across the United States, and fears of the devastating losses by financial institutions that would accompany them, are greatly overblown.
– “Housing Collapse Ahead? Not According To The Data”, The Washington Post, Monday August 4, by Charles Calomiris (Henry Kaufman Professor of Financial Institutions, Columbia University), Stanley Longhofer (Director, Center for Real Estate at Wichita State University’s Business School) and William Miles (Associate Professor of Economics, Wichita State)
“Fears that home prices WILL drop precipitously”???? Uhhh….. they HAVE ALREADY dropped precipitously. That’s already happened. It’s not fear about what might happen. Hello????
“FEARS OF devastating losses by financial institutions are greatly overblown”???? Fears of devastating losses by financial institutions? Did anybody tell these guys that Merrill Lynch has already taken writedowns in excess of $40 billion? Do they know about what happened to Bear Stearns, Countrywide and IndyMac? Fears of? It’s reality. It’s happened already. Hello???? Anybody home????
Where do these guys get this stuff?
Their whole argument depends on the claim that the housing index of the Office of Federal Housing Enterprise Oversight (OFHEO) is the best gauge of home prices. They disparage S&P’s Case/Schiller Index which showed a 14.1% nationwide drop in the year ending March 31, 2008 because, according to them, it emphasizes the most speculative markets and is price weighted.
Of course, the OFHEO index doesn’t include homes bought with jumbo or subprime mortgages. Hello!!!!???? I don’t know what the overall numbers are, but out here in California jumbo and subprime mortgages make up almost all the mortgages. Same for most of the wealthy and economically significant areas in this country.
They think it’s okay to exclude these because good old middle class folks don’t take out these kinds of mortgages. That might be true around Wichita St. University, where two of the professor authors of the article teach. But is it representative of the entire US? And this certainly isn’t true of the area around Columbia University, where the other professor author teaches.
What is the meaning of this kind of idiocy?
I bet OFHEO has a lot of really great numbers that the economists can run their statistical analyses and regressions on, more so than the other indexes. Economists these days like to have a whole bunch of numbers that measure reality and set up clean, precise mathematical models. The fact that the data is no good or that the phenomena can’t be measured are simply tossed aside. Basically, they’re fascist geeks who are good at math and try to make economic reality conform to what is most agreeable to them.
It’s annoying, I agree. But just let the geeks in their ivory towers play around with their spreadsheets and do regressions and publish esoteric articles in the economic journals that nobody of any consequence, or sense, reads. Really: Who cares?