housing bubble

Paul Krugman wasted no time responding to the claims by Megan McArdle and others that he was the spiritual father of the housing bubble.

No, Paul. We don't think you were on the grassy knoll. Maybe Arlen Specter might. He was the investigator for the Warren Commission. We'll check if you want..

Problem is, Paul, the charge here isn't about pulling the trigger. It's about inciting the riot. And Clusterstock pulled up abundant evidence the McArdle quote was not out of context and entirely consistent with your agenda in 2001 and 2002.   

Paul, we understand. We've all called things wrong. Jeez, even people here think I'm wrong for writing at Dow 7000 the market had yet to reach bottom.  And it didn't until 6500. But people still say I got it wrong. Oh, well.  Maybe a little humility might be a good thing here, too.  Guess they forget my calling the 2008 mortgage hurricane. Oh well.

Now Paul, it you want to hang Alan Greenspan for botching the execution of the proposed strategy, I'm all ears.  How the "Maestro" didn't realize low short term bond rates=low ARM mortgage rates=excess housing appreciation---well, maybe that's what happens when you stop looking at the war in the trenches. 

If you do that, I'll back off thehack  charge for awhile.

The bigger problem , Paul, is once again you are out urging that the economy be pumped up when the track record in 1999-99 and 2005-07 is the Fed and the Congress are completely unable to turn off the spigot before things overheat.  Why will this time be any different unless you think liberal Democrats are immune to the avoidance of short-term political pain?   

I'm actually glad Krugman is an economist. Had he been an engineer, he would still be telling operators of nuclear plants to pull out the control rods to gain added power even after what happened at Chernobyl.

I chime in with Megan McArdle (H/T)

Wow.  Just . . . wow.  .Paul Krugman, circa 2002

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble. (emphasis added)

My word, was this ever nonsense on steroids.

I can assure you that the people actually involved in real estate finance out in the hinterland in the early '00's would have explained quite concisely the risks in "bubbling" real estate---since Mr. Krugman obviously ignored the popped bubble circa 1989-1990. But we aren't Ivy League eggheads and we weren't asked.

Let's deconstruct the impact of this remarkable paragraph

A) It was easy for Paul Krugman to identify the real estate bubble in 2006 since it was exactly what he lobbied for in 2002.

Worst still, you spent the second Bush term bashing him for presiding over policies you endorsed. 

B) Krugman often scoffed that the only tool Republicans ever want to use is cutting marginal tax rates. Look in the mirror, Paul.  Everytime the economy hits the least bit of trouble, you immediately demand the fire hose of stimulus --either monetary or fiscal or both--be turned on.  It' a Johnny-one-note approach.

C) The solution to the popped Nasdaq bubble was the real estate bubble. Now the solution to the popped real estate bubble is the federal budget bubble. When the Chinese stop lending to us. are we going to find another bubble to blow up?  What is this--Bazooka economics?

There's always a crisis in capitalism for Paul, and there's always a bubble to fix it.  Should the guys in Oslo do a recount about that award about now?