Tuesday, April 13, 2010

Keynesian Dean Baker and the media

That's the alleged topic of his blog.  Here, he finds Steven Pearlstein of the WaPo minimizing how poor reporting by the press (I call it ghastly and horrible) exacerbated our present crisis.
He [Pearlstein] tells readers that:
"Three years after the onset of what was then thought of as the "subprime crisis," there remarkably is still no consensus on why it happened, who is to blame, how necessary the government bailouts were and what needs to be done to prevent such a cataclysm from happening again. Over time, the issues have been overwhelmed by populist anger, infused with political ideology, distorted by partisan maneuvering and special-interest pleading, and ultimately eclipsed by economic recovery."
Yeah, it's all really really complicated. Except it isn't.
Nationwide house prices had diverged from a 100-year long trend, increasing by more than 70 percent in real terms. There was no remotely plausible explanation for this run-up. What is hard to to understand to about this? What is complicated? Third grade arithmetic was all that was needed. It's simple, not complicated.

The run-up in house prices was driving the economy. This was also really easy to see. The government publishes GDP data every quarter. The data showed that housing construction had exploded as a share of the economy. You just had to look at the data. It's simple, not complicated.

The data also showed that consumption was booming and savings had fallen to near zero. This was driven by the well-known housing wealth effect. It's simple, not complicated.
It's even more simple than Baker thinks because the entire mess was caused by his beloved Fed and its program of theft and fraud.

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