I think Kevin Erdmann has been convincingly showing that there was no bubble, only a housing supply shock+ a negative housing demand shock due to monetary policy.
He explained a theory, using the same data Austrians used to explain their theory.
In this comment:
“… in the 1970s and 1980s, when home prices had previously risen strongly, they had risen along with broader inflation. In the 2000s, since price increases were due to housing supply constraints, and not monetary expansion, inflation outside of housing was low – generally below 2%”
The word “since” is not justified without recourse to the assumption that the only way monetary expansion can be associated with rising home prices is if broader prices increased. But that isn’t how inflation works. Inflation does not and never has affected all prices to the same extent. Inflation is always and everywhere a truly revolutionary force in relative prices. It is quite possible, indeed likely, that monetary expansion manifests itself in some prices skyrocketing (e.g. healthcare, tuition, houses, oil, etc) while the prices of other goods rise only modestly.
If your income were to say double, it would be silly to believe that you will in the short run spend double on everything, including salt, food, dishwashing liquid, shampoo, and gasoline.
The law of marginal utility will describe your actual choices, which will likely consist of more spending on cars or housing or tuition or healthcare as you “move on up”, and you may even reduce your spending on cheap stuff like potatoes and macaroni and cheese.
What is true for you is true for everyone in the country when there is monetary expansion.
The problem with all these excuses being made to pretend the Fed did not blow up the housing bubble, is faulty mechanistic theories that betray realistic market activities in the real world.
Erdmann did not convincingly show his theory by recourse to historical price data. It is simply not the case that his theory has a monopoly over the data. He is starting with his faulty theory and pretending the data speaks to it.
“… only a housing supply shock+ a negative housing demand shock due to monetary policy.”
There’s no such thing as a negative demand. Demand is *why* it is profitable to produce a consumer good.
If you’re producing something that consumers don’t want, the fault lies with the producer, not with the consumer who is supposedly wanting the wrong stuff.
LK claimed that even Marxists understand that people have to demand something, or else it won’t sell. But concepts such as “negative demand” or “lack of aggregate demand” imply that the consumer is valuing producer goods too low, and are a rejection of that supposed understanding.
If you want to make a profit off of consumer demand, your production processes have to be sensitive to consumer demand, which means, as a producer, you are always at risk of changing demand (which is why central planning can’t work).
Further, what logically follows from this is, if you want to make a profit off of *producers* as an employee, you are exposed to the same risks of changing consumer demand as your employer, as well as the changing demand of your employer in his own capacity as a consumer (which is why he is a producer).
So the producer has to be right about consumer demand, and the employee has to be right about their employer’s skill at determining consumer demand.
Consumers drive the economy, not producers nor, by extension, laborers.
Just plead and cry and beg the centralized counterfeiters to print whatever arbitrary number of dollars is necessary to “force” consumers to pay a profitable price for what producers produce.
Remember, the vulgarized version of the efficient markets hypothesis says that producers as a class can never, ever, not in a million years, make enough mistakes in an environment of socialist banking and money such that aggregate profitability is negative. They just cannot I tell you! What, you don’t believe that? Are you a market attacker or something? Investors are really that stupid are they? Ha! You should be more market oriented like me.
guest, your last sentence is right when interpreted one way, and wrong when interpreted another way.
Consumers drive the economy in the sense that consumers determine where capital is profitably allocated.
Producers drive the economy in the sense that consumers depend on producers in the aggregate. Without production, there can be no consumption. More consumption in the aggregate does not drive more production. Resources consumed are resourced not saved and invested.
“Without production, there can be no consumption.”
I’m not denying that production is necessary for consumption.
What I’m saying is that, absent production via the division of labor, the consumer will still use whatever means are available to him to satisfy ends.
Producers must produce something on a consumer’s value scale, so consumers tell producers what to produce.
Even when consumers’ higher-ranked preferences are forcibly restricted from being satisfied by regulations, the products that the central planners want consumers to buy must still be on consumers’ value scale.
“More consumption in the aggregate does not drive more production.”
True, but consumers set the value of all goods and services, and therefore the profitability of all production processes.
”
Reply
guest at
“Without production, there can be no consumption.”
I’m not denying that production is necessary for consumption.
What I’m saying is that, absent production via the division of labor, the consumer will still use whatever means are available to him to satisfy ends.”
But wouldn’t that make the person a producer first? He or she could not consume unless they produced what is to be consumed, unless you’re talking about limiting consumption to what is naturally available, which I don’t see why that would be a necessary assumption for an individual who provides for themselves. If they want to consume more than what is available, they’ll want to produce. And if there are more individuals around, where sustaining themselves by direct, productionless consumption becomes impossible, then production would be mandatory, and the individuals would be considered producers first.
“But wouldn’t that make the person a producer first? He or she could not consume unless they produced what is to be consumed, unless you’re talking about limiting consumption to what is naturally available, which I don’t see why that would be a necessary assumption for an individual who provides for themselves.”
Consumption is the reason to produce. Production allows consumption to continue.
And, yes, a scenario where the only things available are naturally existing, and somehow no one is using them for production, consumers will just consume until they can’t consume any more.
We’re humans with ends and scales of value, so we’re all at least going to consume – that’s human nature.
If I may cheat a little bit for the sake of time, this is consistent with the praxeological argument that all economic value begin with the consumer’s use of means to satisfy his ends.
The desire to consume is what gives the means of satisfying that desire its value, and therefore its price.
Producers who produce something that consumers don’t want are ignoring the price signals sent by consumers (the actions they take) and attempting to substite their own.
(The same is true of counterfeiters like the Fed.)
That makes that particular production process a malinvestment because it doesn’t align with consumer preferences.
An individual who provides for himself is both a consumer and a producer, so that scenario doesn’t help me isolate consumption from production so that they may be compared and contrasted.
“This removed the last check on the American printing press, giving the Fed the green light to issue new dollars with reckless abandon and leading to double-digit consumer price inflation just a few years later.”
-U.S. NGDP policy only went off the rails after the end of the 1973-5 recession. Before that, it was fairly stable. It was in other places, such as Canada, Greece, and the United Kingdom in which NGDP policy truly became unchained almost immediately after the collapse of the Smithsonian Agreement.
Yeah that is a bad habit the MMs have. They habitually speak about NGDP as if anyone else cares about it, let alone have “policies” in place.
I mean, by their logic the Fed could if they wanted target the price of peanut butter, and the Fed already has influence in the current price of peanut butter, so this means there is such a thing as “US peanut butter price policy”.
Challenge that and we have to say “even if the Fed is not intentionally targeting the price of peanut butter, they are still in complete control of it, because heck, they could if they wanted target the price of peanut butter.”
I think Kevin Erdmann has been convincingly showing that there was no bubble, only a housing supply shock+ a negative housing demand shock due to monetary policy.
http://idiosyncraticwhisk.blogspot.com/2015/12/housing-series-part-94-housing-atm-did.html
He explained a theory, using the same data Austrians used to explain their theory.
In this comment:
“… in the 1970s and 1980s, when home prices had previously risen strongly, they had risen along with broader inflation. In the 2000s, since price increases were due to housing supply constraints, and not monetary expansion, inflation outside of housing was low – generally below 2%”
The word “since” is not justified without recourse to the assumption that the only way monetary expansion can be associated with rising home prices is if broader prices increased. But that isn’t how inflation works. Inflation does not and never has affected all prices to the same extent. Inflation is always and everywhere a truly revolutionary force in relative prices. It is quite possible, indeed likely, that monetary expansion manifests itself in some prices skyrocketing (e.g. healthcare, tuition, houses, oil, etc) while the prices of other goods rise only modestly.
If your income were to say double, it would be silly to believe that you will in the short run spend double on everything, including salt, food, dishwashing liquid, shampoo, and gasoline.
The law of marginal utility will describe your actual choices, which will likely consist of more spending on cars or housing or tuition or healthcare as you “move on up”, and you may even reduce your spending on cheap stuff like potatoes and macaroni and cheese.
What is true for you is true for everyone in the country when there is monetary expansion.
The problem with all these excuses being made to pretend the Fed did not blow up the housing bubble, is faulty mechanistic theories that betray realistic market activities in the real world.
Erdmann did not convincingly show his theory by recourse to historical price data. It is simply not the case that his theory has a monopoly over the data. He is starting with his faulty theory and pretending the data speaks to it.
“… only a housing supply shock+ a negative housing demand shock due to monetary policy.”
There’s no such thing as a negative demand. Demand is *why* it is profitable to produce a consumer good.
If you’re producing something that consumers don’t want, the fault lies with the producer, not with the consumer who is supposedly wanting the wrong stuff.
LK claimed that even Marxists understand that people have to demand something, or else it won’t sell. But concepts such as “negative demand” or “lack of aggregate demand” imply that the consumer is valuing producer goods too low, and are a rejection of that supposed understanding.
If you want to make a profit off of consumer demand, your production processes have to be sensitive to consumer demand, which means, as a producer, you are always at risk of changing demand (which is why central planning can’t work).
Further, what logically follows from this is, if you want to make a profit off of *producers* as an employee, you are exposed to the same risks of changing consumer demand as your employer, as well as the changing demand of your employer in his own capacity as a consumer (which is why he is a producer).
So the producer has to be right about consumer demand, and the employee has to be right about their employer’s skill at determining consumer demand.
Consumers drive the economy, not producers nor, by extension, laborers.
Just plead and cry and beg the centralized counterfeiters to print whatever arbitrary number of dollars is necessary to “force” consumers to pay a profitable price for what producers produce.
Remember, the vulgarized version of the efficient markets hypothesis says that producers as a class can never, ever, not in a million years, make enough mistakes in an environment of socialist banking and money such that aggregate profitability is negative. They just cannot I tell you! What, you don’t believe that? Are you a market attacker or something? Investors are really that stupid are they? Ha! You should be more market oriented like me.
guest, your last sentence is right when interpreted one way, and wrong when interpreted another way.
Consumers drive the economy in the sense that consumers determine where capital is profitably allocated.
Producers drive the economy in the sense that consumers depend on producers in the aggregate. Without production, there can be no consumption. More consumption in the aggregate does not drive more production. Resources consumed are resourced not saved and invested.
“Without production, there can be no consumption.”
I’m not denying that production is necessary for consumption.
What I’m saying is that, absent production via the division of labor, the consumer will still use whatever means are available to him to satisfy ends.
Producers must produce something on a consumer’s value scale, so consumers tell producers what to produce.
Even when consumers’ higher-ranked preferences are forcibly restricted from being satisfied by regulations, the products that the central planners want consumers to buy must still be on consumers’ value scale.
“More consumption in the aggregate does not drive more production.”
True, but consumers set the value of all goods and services, and therefore the profitability of all production processes.
”
Reply
guest at
“Without production, there can be no consumption.”
I’m not denying that production is necessary for consumption.
What I’m saying is that, absent production via the division of labor, the consumer will still use whatever means are available to him to satisfy ends.”
But wouldn’t that make the person a producer first? He or she could not consume unless they produced what is to be consumed, unless you’re talking about limiting consumption to what is naturally available, which I don’t see why that would be a necessary assumption for an individual who provides for themselves. If they want to consume more than what is available, they’ll want to produce. And if there are more individuals around, where sustaining themselves by direct, productionless consumption becomes impossible, then production would be mandatory, and the individuals would be considered producers first.
“But wouldn’t that make the person a producer first? He or she could not consume unless they produced what is to be consumed, unless you’re talking about limiting consumption to what is naturally available, which I don’t see why that would be a necessary assumption for an individual who provides for themselves.”
Consumption is the reason to produce. Production allows consumption to continue.
And, yes, a scenario where the only things available are naturally existing, and somehow no one is using them for production, consumers will just consume until they can’t consume any more.
We’re humans with ends and scales of value, so we’re all at least going to consume – that’s human nature.
If I may cheat a little bit for the sake of time, this is consistent with the praxeological argument that all economic value begin with the consumer’s use of means to satisfy his ends.
The desire to consume is what gives the means of satisfying that desire its value, and therefore its price.
Producers who produce something that consumers don’t want are ignoring the price signals sent by consumers (the actions they take) and attempting to substite their own.
(The same is true of counterfeiters like the Fed.)
That makes that particular production process a malinvestment because it doesn’t align with consumer preferences.
An individual who provides for himself is both a consumer and a producer, so that scenario doesn’t help me isolate consumption from production so that they may be compared and contrasted.
“There’s no such thing as a negative demand.”
Who said there was?
E Harding in the comment prior.
“This removed the last check on the American printing press, giving the Fed the green light to issue new dollars with reckless abandon and leading to double-digit consumer price inflation just a few years later.”
-U.S. NGDP policy only went off the rails after the end of the 1973-5 recession. Before that, it was fairly stable. It was in other places, such as Canada, Greece, and the United Kingdom in which NGDP policy truly became unchained almost immediately after the collapse of the Smithsonian Agreement.
There’s no such thing as “U.S. NGDP policy.”
Yeah, that was my immediate thought when I read that.
Yeah that is a bad habit the MMs have. They habitually speak about NGDP as if anyone else cares about it, let alone have “policies” in place.
I mean, by their logic the Fed could if they wanted target the price of peanut butter, and the Fed already has influence in the current price of peanut butter, so this means there is such a thing as “US peanut butter price policy”.
Challenge that and we have to say “even if the Fed is not intentionally targeting the price of peanut butter, they are still in complete control of it, because heck, they could if they wanted target the price of peanut butter.”
NGDP is a more sensible metric for these purposes than inflation.
Also, what’s with all this moving around? New York, Michigan, Tennessee, Texas. It must be hectic.