Bad economics, bad economists

I came across yet another doomsaying news article about the U.S. housing bubble, this time talking about Miami condo developments going bust. Well, that's what happens when there's a glut in the market that builders and their investors fail to recognize. Entrepreneurs don't have perfect knowledge, and though their Kirznerian side may recognize the opportunity for profit, if their Schumpeterian side fails to calculate the risk, they get burned. But nobody claimed the free market works perfectly. However, it works far better than central planning.

One of the soundbites is one of the stupidest things I've ever heard from someone who claims to be an economist:

"This market was too good to be true," said Lewis Goodkin, a Miami economist and real estate analyst. "But it was a market fueled by speculators, so it wasn't a true market."

I don't know where Goodkin learned his economics, but his teachers forgot to tell him that "speculators" are part of the market too. Didn't Goodkin ever take a basic economics history class where he learned Schumpeter's concept of entrepreneurs as people who spur economic advancement? Such "speculators" are also buyers and sellers, just as those looking to buy homes for their own residences. BTW, I was curious and did a Google search on this guy, who has his own thinkexist.com page of four quotes. Some are obvious, some are just out there:

"I think anybody (who) is willing to sit with it a reasonable period of time will come out OK - if they didn't buy at the absolute peak of the market. Right now, I consider that we are at the peak of the market - or close to it."

What is "a reasonable period of time"? And with the nature of U.S. economic expansion and the resulting effect on housing prices, how can he begin to use "the absolute peak of the market"? Is he saying prices won't be higher 10, 20 or even 100 years from now? Or is his absolute statement really not so absolute?

"People in their 60s don't want to be called seniors. And many don't want to live in adult-only developments."

This is worthy of quotation? But wait, it gets better.

"We're really coming back to a more normal market."

"The market has adjusted since then, but they haven't."

What more needs to be said, except that it's a testament to that site's lack of credibility that apparently anyone can submit quotes?

Declining housing prices in the U.S. are hardly a bubble, and they're also the averages of millions upon millions of homes from many different regions. I can tell you that prices in Westchester, and Putnam County to the north of here, keep rising, despite a high cost of living (especially property taxes). Donald Trump is building a luxury high-rise in New Rochelle, and it's a safe bet that he won't have any trouble building it. So why do economists think it makes sense to average New Rochelle with Miami, Nashville, Denver, Scottsdale and Fresno, and talk about a "bubble"? Well, for the same reason they think it makes sense to talk about "global economic growth," a meaningless term that lumps the United States in with the likes of Zimbabwe and France.

If you let the free market work, there's nothing to fear from home prices adjusting themselves, whether upwards or downwards. Each success and failure, standing on its own merits and not artificially influenced, will serve as a lesson to future entrepreneurs. The one thing we do have to fear is a Federal Reserve that drops interest rates too low, spurring the housing industry more than it should be, or raises interest rates that depresses the housing industry more than its natural state.

As long as the economy does well, I don't believe we won't have a housing "collapse," including these mass foreclosures that all these housing-Armageddon preachers keep predicting. What people should worry about is a Federal Reserve that hits the brakes on the economy, throwing people out of work and then putting them in danger of losing the homes that they previously could afford. Fear not the free market, but the Fed that can flagitiously foul up our otherwise flourishing future.