November 18, 2011
John Cassidy, the long-time economics writer for the New Yorker, apparently still has not gotten word about the housing bubble: you know, that $8 trillion run-up in house prices that collapsed and caused the financial crisis and the downturn. In a piece telling readers that President Obama has done about as good as could have been expected, he commented:
“And bailing out underwater homeowners on the scale necessary to raise house prices would have been a huge logistical and political challenge.”
Of course there was no reason to expect or want house prices to rise. The bubble has largely deflated. Why on earth would we try to re-inflate a housing bubble as a matter of policy? Do we want the stock of Pets.com and other bankrupt loon tune companies to again sell for billions?
It was both inevitable and good that house prices corrected from their bubble peaks. The unforgivably policy mistake was to allow the bubble to grow so large in the first place and to be so unprepared to provide some support (e.g. Right to Rent and serious countercyclical policy) for the victims of this incompetence.
[Thanks to Keane Bhatt.]
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