Housing Bubble Week: Can We Predict Housing Bubbles? — Dean Baker [Audio]

Dean is widely regarded as one of the first economists to have discovered the existence of the US housing bubble. I learn what indicators led him to make that call and what lessons his experience holds for future bubble-seers.

Topics discussed

– What problem is Dean working at the moment that excites him the most? [3:20]

– The story of Dean selling his house in 2004. [6:11]

– What was Dean’s probability in 2004 for whether the US housing bubble would burst? [8:40]

– When did Dean form the view that the housing market was in a bubble? [10:51]

– What metrics did Dean rely on to ascertain the existence of the bubble? [14:36]

– Dean also correctly predicted the bursting of the bubble would lead to a recession. What did he see that most economists missed? [18:34]

– Did Dean predict the housing crash or was he just lucky? How would we know either way? [22:50]

– What in neoclassical models made them blind to the housing bubble? [29:38]

– Why do retirees put downward pressure on house prices? [33:23]

– Why did price falls lead to defaults in the US? [34:58]

– What is the ‘wealth effect’ and how do economists calculate its impact? [38:07]

– Are rising interest rates necessary for pricking housing bubbles? [40:27]

– What is the most dangerous type of asset bubble? [44:17]

– In economics, why do the “historians” seem to do better at predicting than the “mathematicians”? [47:46]

– Has Dean heard what’s happening in the Australian housing market? [55:27]