Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Are Most Economists Naive?

Economics / US Interest Rates Jun 18, 2007 - 07:51 PM GMT

By: Tim_Iacono

Economics

The conclusion that most economists are naive, sometimes dangerously so, is something that has been hinted around at here for years, but now that the Wall Street Journal seems to concur, maybe it's time to stop asking the question and just say it.

Most economists are naive.

Or, maybe they're just too optimistic. Actually, in many cases, the two adjectives describe the same phenomenon - the willingness to suspend belief that something bad is likely to happen (or is already happening) due to a lack of real-world experience.


Merriam-Webster defines the word thusly :

2a: deficient in worldly wisdom or informed judgment; especially : CREDULOUS
2b: not previously subjected to experimentation or a particular situation

The nation's housing market is a perfect example of how this naïveté can be dangerous and, more importantly, expensive. Anyone listening to a raft of predictions last summer or fall regarding the future course of the housing boom, and then taking the plunge after rosy talk of an imminent rebound would be sorely disappointed today.

David Lereah, the recently departed and much-discredited chief economist at the National Association of Realtors, serves as a prime example of this.

There seem to be far too many practitioners of the dismal science who simply look at numbers or charts then err on the side of optimism, failing to consider that the numbers and charts represent real people in the real world with all their real faults and real emotions.

The fact that we now live in a world where speculative bubbles are more the rule than the exception does not make their job any easier.

Two stories in the Saturday edition of the Wall Street Journal make this case rather well. Sadly, both are behind the subscription wall, but it really isn't necessary to do much more than read the headline to understand the message.

Economists See Housing Slump Enduring Longer
Downturn Is Expected To Keep Growth Tepid
By JAMES R. HAGERTY, JONATHAN KARP and MARK WHITEHOUSE

HousingEconomists are giving up on the idea that the U.S. housing slump will be quick and relatively painless.

Instead, more are concluding, the downturn that began nearly two years ago will last at least through the end of 2007, remaining a major drag on the U.S. economy. The culprits: a glut of homes for sale and growing caution among lenders who now regret being so free with their mortgages during the boom.
...
Late last year, some economists were saying the market would start bouncing back by the middle of 2007. That hasn't happened, partly because inventories of unsold houses have continued to grow and a surge in mortgage defaults has made lenders much more reluctant to grant credit to people with spotty payment histories.

David Resler, chief economist at Nomura Securities International Inc. in New York, says he is surprised by the degree to which speculation caused builders to overestimate demand, leaving a glut of houses and condominiums.

Surprised indeed.

All Mr. Resler had to do was talk to a few prospective condo buyers camped out in front of sales offices around the country in 2004 or spend an afternoon observing the goings-on at the office of a subprime mortgage broker to understand what was really happening.

And, speaking of " subprime ", which by now must be a candidate for addition to Merriam Webster in 2008, the world's most famous contemporary economist was in the news again over the weekend.

Did Greenspan Add to Subprime Woes?
Gramlich Says Ex-Colleague Blocked Crackdown On Predatory Lenders Despite Growing Concerns
By GREG IP

GreenspanAlan Greenspan was arguably the country's most powerful financial cop in his 18 years as chairman of the Federal Reserve. But Mr. Greenspan's regulatory record has received far less scrutiny than his management of the economy.

That may be changing. A former colleague says Mr. Greenspan blocked a proposal to increase scrutiny of subprime lenders under the Fed's broad authority. That added scrutiny might have helped curtail questionable lending practices now blamed for soaring defaults by mostly low-income borrowers. Democrats in Congress are now turning up the heat on regulators, especially the Fed, for failing to do more to stamp out those practices, and the Fed appears increasingly likely to overhaul its approach.

Edward Gramlich, who was Fed governor from 1997 to 2005, said he proposed to Mr. Greenspan in or around 2000, when predatory lending was a growing concern, that the Fed use its discretionary authority to send examiners into the offices of consumer-finance lenders that were units of Fed-regulated bank holding companies.

"I would have liked the Fed to be a leader" in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board.

"He was opposed to it, so I didn't really pursue it," says Mr. Gramlich, a Democrat who was one of seven Fed governors.

All of this makes me think that comments by your humble scribe appearing in BusinessWeek last year about economists and wedgies offered an excellent insight into this matter:

Do I Deserve a Wedgie?
By Michael Mandel

Seeing that Mike Mandel and Chris Farrell are two of the authors goes a long way in understanding what it's about.... Both of these guys are so far out of touch with Main Street -- one of these days some laid-off worker is going to give both of them a wedgie. --Tim Iacono, commenting on bigpicture.typepad.com

The topic back then was dark matter - the elusive substance that explains how laid off manufacturing workers shouldn't feel so bad.

Fast-forward to mid-2007 and a case could be made that David Lereah might someday soon become uncomfortable in his nether regions were he to meet up with a truck driver who is now upside down on his late-2006 condo purchase after heeding the economist's advice.

By Tim Iacono
Email : mailto:tim@iaconoresearch.com
http://www.iaconoresearch.com
http://themessthatgreenspanmade.blogspot.com/

Tim Iacano is an engineer by profession, with a keen understanding of human nature, his study of economics and financial markets began in earnest in the late 1990s - this is where it has led. he is self taught and self sufficient - analyst, writer, webmaster, marketer, bill-collector, and bill-payer. This is intended to be a long-term operation where the only items that will ever be offered for sale to the public are subscriptions to his service and books that he plans to write in the years ahead.

Tim Iacono Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

G.
18 Jun 07, 22:35
economists

The naive on here is the author. Anyone who knows anything about economists knows that until recently, most survived on giving biased info; that is, info their boss wanted to be conveyed to the market or clients. It's not that they don't see the reality, it's that they can't admit that they see it publicly. Otherwise, they end up living under a bridge...talking to themselves about how right they were and how no one understood.


Larry Lathrop
19 Jun 07, 01:04
Are Most Economists Naive?

One of the problems with forecasting anything negative that does not have a monetary reward for "correctness" is that it's often a damned if you're right and damned if you're wrong situation. This often leads to overoptimism in forecasting anything.


Jim
19 Jun 07, 10:10
naivete

the problem isn't that "most economists are naive" but rather, "the newspapers only quote economists who appear naive".


Post Comment

Only logged in users are allowed to post comments. Register/ Log in