Great Moments in Punditry: Calling Dean Baker

46: "And so defenders of faith in the Bush boom abounded, typically in and around the Bush administration. Early in 2005 in the Washington Times, James Miller III, who had served as Ronald Reagan's budget director, lauded "the efficient U.S. arrangements for housing finance" as "the envy of every other country." The trillions going into home loans reflected the accumulated wisdom of a competitive financial system: "Gone are the days of mortgage credit crunches and exorbitant mortgage rates spreads. American homeowners . . . are assured of a steady, liquid, and generally affordable supply of mortgage credit. And investors, both domestic and foreign, are provided a flow of debt- and mortgage-related securities that are highly liquid, transparent, and secure." Miller, James III. 2005. "Should Homeowners Worry?" Washington Times (7 January): p. A 17.

46: "Also in 2005, Alan Reynolds of the Cato Institute disparaged " the economic pessimists, who try to persuade us terrible things are about to happen. A perennial favorite is the 'housing bubble' about to burst, with a supposedly devastating impact on household wealth. ... In short, we are asked to worry about something that has never happened for reasons still to be coherently explained. 'Housing bubble' worrywarts have long been hopelessly confused. It would have been financially foolhardy to listen to them in 2002. It still is." Reynolds, Alan. 2005. "No Housing Bubble Trouble." Washington Times (8 January).

46: A few months later Larry Kudlow, the National Review's economics editor, wrote a column titled "The Housing Bears Are Wrong Again," whose subtitle claimed that the housing sector was "writing [a] how-to guide on wealth creation." In it, Kudlow dismissed "all the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market." [Kudlow, Larry. 2005. "The Housing Bears and Wrong Again." National Review online (20 June). In the subsequent three years, the housing sector oversaw the destruction of trillions of dollars in household wealth; and housing prices in Las Vegas and Naples, Florida, declined by over 50 percent, bringing down the consumer, rest of the economy, and the entire stock market. And despite Miller's faith in the mortgage market, the lack of transparency and liquidity in the securities being snapped up by investors, domestic and foreign, very nearly brought down the entire international financial order."

46-7: "The fact that many of the optimists worked for the housing industry might have been a tip-off. One David Lereah, then chief economist of the National Association of Realtors, published a book in 2005 called Are You Missing the Real Estate Boom? and re-released it in February 2006 with an even less subtle new title: Why the Real Estate Boom Will Not Bust. Of course, Lereah's advice devastated those who followed it. Nonetheless, as he told BusinessWeek several years later, after leaving his position with the housing lobby, "I worked for an association promoting housing, and it was my job to represent their interests." Gopal, Prashant. 2009. "Former Housing Industry Economist Who Famously Said There Is No Housing Bubble Now Admits He Was Wrong." BusinessWeek (5 January).

Source: Chinn, Menzie D. and Jeffry A. Frieden. 2011. Lost Decades: The Making of America's Debt Crisis and the Long Recovery (New York: W. W. Norton).