Housing Bubble Week: Can We Predict Housing Bubbles? -- Dean Baker

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I speak with Dean Baker, US economist and co-founder of the Center for Economic and Policy Research based in Washington, D.C.

Dean is widely regarded as one of the first economists to have discovered the existence of the US housing bubble. I learn what indicators led him to make that call and what lessons his experience holds for future bubble-seers.

Show notes

Selected links

Topics discussed

  • What problem is Dean working at the moment that excites him the most? [3:20]

  • The story of Dean selling his house in 2004. [6:11]

  • What was Dean’s probability in 2004 for whether the US housing bubble would burst? [8:40]

  • When did Dean form the view that the housing market was in a bubble? [10:51]

  • What metrics did Dean rely on to ascertain the existence of the bubble? [14:36]

  • Dean also correctly predicted the bursting of the bubble would lead to a recession. What did he see that most economists missed? [18:34]

  • Did Dean predict the housing crash or was he just lucky? How would we know either way? [22:50]

  • What in neoclassical models made them blind to the housing bubble? [29:38]

  • Why do retirees put downward pressure on house prices? [33:23]

  • Why did price falls lead to defaults in the US? [34:58]

  • What is the ‘wealth effect’ and how do economists calculate its impact? [38:07]

  • Are rising interest rates necessary for pricking housing bubbles? [40:27]

  • What is the most dangerous type of asset bubble? [44:17]

  • In economics, why do the “historians” seem to do better at predicting than the “mathematicians”? [47:46]

  • Has Dean heard what’s happening in the Australian housing market? [55:27]

Jolly Swagmen