June 11, 2017
I usually don’t stray directly into political contests and polling here at BTP, but I think there is a very important economic phenomenon here. Dan Balz, the Washington Post’s lead political analyst, had a piece on the election results in the UK. The last paragraph begins by telling readers:
“No one saw Thursday’s British results ahead of time. Even more than the Brexit vote and more than Trump’s victory, this was a shocker.”
This is not true. The polling firm YouGov’s model nailed the results almost exactly, predicting that the Conservatives would lose 20 seats. (They actually lost 19.) This matters not only because Balz is denying YouGov the credit it deserves for getting this one right, but because he is giving an amnesty to everyone else who missed it. According to Balz, the other polling firms can’t be blamed because the outcome simply was unknowable.
This collective amnesty is annoying because these people are paid lots of money to get things right. When they completely blow it, they should suffer the consequences. After all, when the custodian doesn’t do a good job cleaning the toilets, they get fired. The Washington Post doesn’t write a piece on their behalf saying that it couldn’t be done.
Of course, this brings back memories of the housing bubble and the massive “who could have known” amnesty granted all the economists and policy types who completely missed the largest economic collapse in more than seventy years. As a frustrated “no one” in this case, I can say that it absolutely was foreseeable and anyone with open eyes saw it.
The United States had an unprecedented run up in house prices that clearly could not be explained by the fundamentals in the supply and demand in the housing market. We were in a period of relatively slow income and population growth and were building homes at a near record pace. Furthermore, there was no noticeable uptick in rents even as sales prices went through the roof. Also, vacancy rates were already at record highs even as the bubble was still inflating.
And, it was easy to see that the bubble was driving the economy. Residential construction hit a record high as a share of GDP and the ephemeral housing bubble wealth led to a consumption boom through the housing wealth effect. By what magical process did economists imagine this demand gap could be filled when the housing bubble burst?
In the years since the crash, there has been a massive effort to rewrite history and say that the problem was a financial crisis. After all, finance is really tricky and who could figure out where all those credit default swaps were sitting?
But the reality is that the financial crisis was very much secondary. The story of the Great Recession was the bursting of the housing bubble. (Actually, that was largely the story of the financial crisis as well. All the corrupt practices of the industry would not have mattered much if trillions of dollars of loans were not attached to assets that lost 40 or 50 percent of their value in many instances.)
Anyhow, we live in a world in which most people work at jobs where they are held accountable for the quality of their work. It is only the elites who get to mess up again and again (see any weapons of mass destruction in Iraq?) and not pay any price in terms of career advancement. It is not surprising that this leads to support for populist politicians.
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