That's right folks. Alan Greenspan and Ben Bernanke somehow couldn't see a housing bubble over the years 2002-2006 even as it grew to $8 trillion, threatening the U.S. and world economy. But, NPR goes them one better. It still hasn't noticed the housing bubble. Morning Edition had a segment on consumer spending which never once mentioned the generation of $8 trillion in housing wealth by the bubble and the subsequent loss of close to $6 trillion in wealth as the bubble collapsed. This matters because of the housing wealth effect. This is usually estimated at between 5-7 cents on the dollar, meaning that homeowners will increase their annual consumption by between 5 and 7 percent of their housing wealth. That implies that the bubble generated between $400 billion and $560 billion of annual consumption. With the loss of housing bubble wealth, we should expect consumption to fall back by roughly this amount. (The loss of $6 trillion in stock wealth would amplify this effect.) But, that's not what they say at NPR. At NPR it is just a matter of consumer attitudes. This piece is a serious entry for the Pulitzer for bad reporting.
--Dean Baker
