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Article Artículo

Robert Samuelson Continues His Reign of Error: Relies on Realtors for Predictions on Housing Prices

Robert Samuelson pulled a Washington Post special, reporting that:

"Young buyers 'will be able to enter the housing market at bargain prices,' argues NAR [National Association of Realtors] economist Lawrence Yun. When home prices again rise, increases will parallel income gains, meaning that the relative burden of housing costs will remain roughly stable, Yun says."

Actually, home price increases do not "parallel income gains." They track the overall rate of inflation, as has been shown with a century of data compiled by Yale University Professor Robert Shiller.

Relying on the NAR for predictions on the housing market is the standard practice at the Washington Post. All through the build up of the housing bubble, its main source on the housing market was then NAR chief economist David Lereah, who was also the author of the 2006 best seller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It.

Dean Baker / May 09, 2011

Article Artículo

Gregory Mankiw's Pop Quiz on the Economy

In his weekly column in the NYT, Gregory Mankiw gave a three question quiz for economists. His questions are:

1) How long will it take for the economy’s wounds to heal?

2) How long will inflation expectations remain anchored?

3) How long will the bond market trust the United States?

Let's start with questions 2 and 3, because these are easier. 

The answer to question number 2 seems obvious -- as long as there is no inflation. Why should people expect inflation when they are not seeing any? There is no evidence of generalized cost pressure in the economy as all indexes of wages are showing the rate of wage growth remaining pretty much constant. Commodity prices did rise, but this was mostly just a return to pre-recession levels, and it is not clear that these prices are even sticking at their higher level. This question is sort of like asking in the middle of a drought in the desert, when will people expect rain? Presumably when they see clouds on the horizon and not until then.

The answer to question 3 largely follows the answer to question 2. After all, the real threat to those holding U.S. government bonds is inflation, not insolvency, unlike the euro zone countries that Mankiw refers to in his piece. The United States can always print more dollars to meet its obligations. Greece cannot do the same with euros.

Dean Baker / May 07, 2011