I generally give the NYT magazine more license than the rest of the newspaper. After all, it prints longer, more literary pieces, not straight news. But, I am still old-fashioned enough to think that being literary should not prevent one from being able to use logic. The "Pop Psychology" piece in Sunday's NYT fails the logic test badly. Roger Lowenstein dismisses the promulgators of the housing bubble view (Shiller is his target, but I'll claim preeminence having raised the issue before Shiller [BS?]). He tells us that the National Association of Realtors (NAR) reports that house prices on average rise by 2 percentage points more than the rate of inflation each year. That's a good source -- the NAR would never have reason to mislead anyone. I assume that Mr. Lowenstein gets his views on the link between cancer and cigarette smoking from the Tobacco Institute and no doubt he has learned about global warming from the oil lobby. The government's data show that, until 1995, house prices almost exactly tracked inflation (i.e. they did not increase by 2 percentage points more than inflation every year). Robert Shiller has constructed his own index that shows house prices had tracked inflation since the 1890s until 1995. That is the reason that Shiller and I believe that the 50 percent run-up in real house prices over the last decade constitute a bubble. Lowenstein also points out that the biggest jump in defaults has been in depressed areas that have not seen rapid run-ups in house prices, not the coastal areas where prices did increase a great deal. Let's get out the big "DUH." In areas where there have been big price hikes people will still have some equity in their home. No one ever defaults on a home in which they have equity -- they either sell it or they borrow against the equity to keep the home. I can appreciate the NYT's desire to have more literary pieces in its magazine, but they should be able to find someone who can understand the topics on which they write, in addition to being a good writer.
--Dean Baker
