Bernanke’s Housing Follies

Earlier this month, I noted the curious assertion in Ben Bernanke’s 2006 Economic Report of the President that the U.S. housing market couldn’t be in a bubble situation since “the rent-to-price ratio for housing has likewise fallen across a broad range of OECD countries.” In the real world, of course, it turns out that a broad range of OECD countries were experiencing property bubbles. And that seems to me to be the logical inference to draw from the fact that bubble-like conditions existed in many countries.

Yesterday Binyamin Applebaum and David Cho gave us an example of the kind of sophisticated economic analysis that led Bernanke to dismiss signs of a housing bubble whose epicenter was California:

“Where do you think it will be the worst?” Bernanke asked, according to people who attended the meeting, one in a series of sessions the Fed holds with economists.

“I would have to say California,” said the economist, Richard Dekaser.

“They have been saying that about California since I bought my first house in 1979,” Bernanke replied.

Kevin Drum observes that they were saying this in the eighties because there was a real estate bubble in the eighties:


This is sloppy, sloppy stuff. Again, when Bernanke was wrong pre-crash a lot of people were also wrong. He wasn’t the wrongest guy on the planet or anything. But he certainly wasn’t the rightest guy. And he can’t give any convincing explanations for his passivity in the face of continued slow growth and high unemployment.