Thursday, September 25, 2008

Affirmative Action and the Housing Crisis

First, read Dr. Perry’s summary.

Then, click the image & read the rest:

click the image & read the rest
I would add that:
Despite turmoil in some areas, we are not currently in a recession.
Personally, I do not expect a recession in 2008 or 2009.

Click here to read the primary post on this topic
(and all the rest).


Ivin said...


As a fellow economist with similar leanings, let me go on record to say that I have recently changed my outlook on the potential for recession. I belive that 2008/2009 will likely be recessionary. This is primarily because recessions are highly correlated with changes in consumer and producer behaviors that are tied closely to confidence.

The current actions by the market, government, and news media have shaken confidence in the markets substantially and I belive that we will see a shift in consumer behavior that will persist beyond the recession. Like the way people who experienced the depression were hiding money in coffee cans, modern consumers will start putting money into savings accounts rather than cars and houses.

In the long run this is a healthy shift that most economists thought needed to happen. But in the short run, it will be somewhat painful.

The frustrating part is that we will come out of the recession no matter who is in the White House and both candidates will try to claim some amount of credit for it when this all shakes out.

SBVOR said...


Your points are reasonable. You could be correct. Certainly a recession will come. The question is when. My prediction is 2010. As we both know, it is a natural cycle which is largely, but not entirely, independent of any actions from politicos.

Media hysteria has already done considerable damage to the economy (as evidenced in “Real Retail Sales”). The flip side is real GDP growth, which remains healthy, if not robust. Ironically, just today, the BEA issued their “final” revision to Q2 GDP (which, despite the name, remains subject to further revision). That report shows real GDP grew at 2.8% during Q2 of 2008.

The current media/political hysteria is an order of magnitude (or more) worse than anything we’ve seen to date. But, the good news is that the folks do not seem to be falling for it. Ergo, we may have seen the worst of the media hysteria induced damage. Or, it could be that the public has fallen for the latest iteration of the hysteria, but not the “cure”. Time will tell.

The real damage may come if the politicos defy the economists and implement this turkey of a bailout.

Ivin said...


I agree in principal with your points, but still stand behind my 2008/2009 prediction. I belive that Q3 2008 will mark the start and it will likely continue through Q3 2009.

That having been said, I would like to point out that recessions, while painful, are largely necessary. Recessions represent an economy-wide reassesment of risk and investment that helps move capital and labor out of underperforming sectors.

The key, of course, is to help them be efficient and short. I use the US Forest Service policies as an analogy for what happens when we are too afraid of recession. Their policies of not clearing undergrowth and never allowing small burns to clear dead limbs directly contributed to the record-setting fire seasons in 2007 and 2008 here in California.

Politicians have been so afraid of recession for so long that they have essentially allowed dead wood (in the form of sub-prime mortgages) to pile up without being cleared. What we are witnessing is a painful, but necessary clearing of finanical dead wood that should free up capital for better uses.

In the end, you are right about the fact that recessions are a natural part of the economic cycle and can only be delayed or prolonged, but never avoided entirely. Let's follow the advice printed on the cover of the Hitchhiker's Guide to the Galaxy and "DON'T PANIC!!"

~ Ivin

SBVOR said...


I agree almost entirely with everything you said.

1) Do you disagree with the current GDP forecast from The Conference Board? Or, do you think this will be the first recession ever to witness only one quarter of negative GDP growth (and, according to your prediction, that one coming before the beginning of the recession)?

2) Would you consider placing money on your forecast? If your forecast is correct, you could clean up at Intrade (on the 2008 side).

Advisory: That last link may (harmlessly) resize your existing window. It is beyond my control. It can be easily sized back to your preference.

Ivin said...


In answer to your questions:

(1) Yes I disagree. I belive Q3 2008 will be around -.02 and Q4 2008 will be -1. 2009 seems less certain, but my bet is slightly negative in Q1, slightly positive in Q2 with the official recession end date at the end of Q2 2009.

Also, I think they will call Q3 2008 as the start of the recession, not Q2. Just my hunch based on watching the data develop, but it is reasonable.

(2) As for putting money on intrade, I don't gamble on recessions for one reason - objectivity. If I were to put money on one side of the issue, I would then have a personal stake in one outcome over the other. This could cloud my judgement and make any biases I have even more difficult to overcome. But you are right about being able to make money if I am right!

SBVOR said...


May the best forecast win!

My (play) money is on The Conference Board. But, I would not rule yours out.

I would, however, note that The Conference Board has (as best as I recall), over the last 2 quarters (or more), underestimated GDP growth.

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