The Washington Post editorial board is now arguing that we should try to maintain bubble-inflated house prices. Of course the Washington Post, which completely missed the housing bubble is widely known for getting things wrong about the economy. Readers recall when it cautioned against a stimulus package earlier this year: "Nor is there any consensus that a recession, if one comes, will be severe; Goldman Sachs thinks it's likely to be short and mild. The slowdown is being counteracted, to some extent, by "automatic stabilizers" such as increased spending on unemployment benefits and lower tax receipts." I know this is Washington, but I still think people should be held accountable for their track record. Anyhow, the basic point here is that the country has no interest in sustaining an over-valued housing market. There is an interest in keeping house prices from falling into a downward spiral which is a real possibility. This would best be prevented through a policy that distinguished between bubble markets that are still in the process of deflating, like Washington, D.C., Los Angeles, New York, and markets where prices are well in line with any reasonable measure of fundamentals. For some reason, the Post seems incapable of recognizing such distinctions, which leads it to argue for an unaffordable housing policy in which taxpayer dollars would be used to artificially prop up house prices. This is really bad housing policy and really bad economic policy.
--Dean Baker
