December 20, 2011
The housing bubble apparently still has not gotten word about the housing bubble. Of course it is easy to see how an $8 trillion bubble whose collapse wrecked the economy could escape the attention of the nation’s premier business publication.
If the WSJ had gotten word about the housing bubble it would not have said silly things about the baby boom cohorts like:
“In part because of improvidence and weak wage growth, in part because many have lost jobs and in part because of the severe recession, Baby Boomers as a group are unready for two or even three decades of life after they stop working.”
See people who have heard of the housing bubble, and the stock bubble that preceded it, know that tens of millions of baby boomers did not save because their house was doing it for them. If a $250,000 home goes up 10 percent in price, this is as good as putting $25,000 into a 401(k).
This is the well-known (among people who have taken intro econ) housing wealth effect. There is also a stock wealth effect. These asset bubbles are the main reason that baby boomers did not save sufficiently for retirement.
This predicted effect of asset bubbles is one of the reasons why people who know economics thought it was incredibly bad policy for Robert Rubin, Larry Summers and Alan Greenspan to celebrate the stock bubble in the 90s and for George W. Bush, Robert Rubin, and Alan Greenspan to celebrate the housing bubble in the last decade. The fact that tens of millions of baby boomers would end up ill-prepared for retirement was a 100 percent predictable outcome from these bubbles.
Unfortunately the people who were making economic policy at the time did not give a damn and the Wall Street Journal is covering up for them now.
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