Krugman: "To fight this recession - Greenspan needs to create a housing bubble" | Hacker News Reader

Krugman: "To fight this recession - Greenspan needs to create a housing bubble"

nytimes.com

20 pointschaostheory13 comments

While that 2002 is probably Krugman's most blatant call for a housing "bubble". Mises.org just compiled a list of 7 other pre-2002 Krugman calls for lowering interest to stimulate home buying: http://blog.mises.org/archives/010153.asp

Like another commenter on this page states, Krugman didn't think a housing bubble was a good idea...but it was necessary to avoid a recession. Still, why not just deal with the consequences of the dot-com bubble then? Inflating another market just kicked the recession down the road and made it worse.

Unfortunately, Krugman and most politicians think we can fix the housing bubble by creating a currency bubble. Instead of focusing on a single market like housing, the current plan is to, yet again, kick the recession down the road. This time, however, we're promoting spending across all government-controlled and regulated markets with massive stimulus. Obviously, creates a bubble of dollars. When the dollar bubble deflates, there won't be anything left to blow up.

Wicked. So, can we predict the future (policy actions) based on his current words then?

I keep wondering what bubble they will create next to offset the burst of the housing bubble... any guesses? I am thinking it will either be another housing bubble (housing starts are already up 17% this quarter) or maybe a green energy bubble?

Certainly the alt-energy bubble. Read this, it's old from 01/2008 but still relevant:

http://seattlest.com/2008/01/17/the_next_market.php

not sure why this was modded down. The bubble was due to perverse incentives to invest in housing debt (massive mortgage interest deductions, implicit underwriting of fannie/freddie, etc.)

Based on many quotes that are starting to surface from Paul Krugman, there were a lot of serious economists who thought that creating massive incentives for investment in the housing sector was a good idea:

http://blog.mises.org/archives/010153.asp

Published: Friday, August 2, 2002

(It made much more sense to me after realizing I was reading something from 7 years ago.)

Yeah with an 80 character limit for titles - I was forced to be minimalist

it's analysis, not an advocacy for a bubble

http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the...

Exactly. Not sure how this bit of "gotcha" suddenly popped up in so many places, but it's missing the point. If you read the article, Krugman isn't saying that a housing bubble is a good idea at all. What he's saying, in essence, is that the only way to avoid a recession (again, this was in 2002) was for Greenspan and the Fed to kick off a housing bubble to sustain consumer spending. And, by implication, that that was unlikely to work.

As it happened, he was wrong about that. We did experience a housing bubble (although one driven more by irresponsible bank behavior than by interest rates), and it did keep consumer spending high for the next 4-5 years. And, now that it's popped, we're experiencing the recession that Krugman predicted. He was just off by a few years, and missed one proximate cause.

Krugman is not to fault for the recession I agree. But he is still advocating the theory of creating a new bubble to keep us from the effects of a previous bubble. I would have more respect for him if he had a solution to reign in the bubble he said the US had to create to fight of the recession.

imo it's only analysis when it's wrong.

I'm not a mises guy; I'm just trying to bring more awareness that economists at large aren't much different from criminal profilers and tarot card readers.

http://www.newyorker.com/reporting/2007/11/12/071112fa_fact_...

http://www.reason.com/news/show/134059.html

Although I don't think this is relevant to HN, I think I should point out that the title is somewhat misleading. Here's the quote in context:

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

His current advise is just as suspect. His calls for government to jack up spending even higher (despite record levels) seems plain stupid, and I can't believe people take him seriously.

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