Bryan Caplan  

Bubble Deniers: Name Names

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Scott Sumner's posted a striking challenge: Name the famous bubble deniers.
In economics people notice bubbles bursting, but fail to pay much attention to bubbles not bursting.  But I admit I might be wrong, so I'll give my opponents one more chance.  If it's not really a cognitive illusion, then bubble deniers who are right ought to be just as famous as bubble predictors who are right...

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At the same time we also know that bubble-like patterns don't always yield reliable predictions of future trends.  The Australian housing market looked just as bubbly as the US market in 2005, but since then has soared much higher.  Some day it will fall, but the 2005 prices no longer look excessive.

If people like Robert Shiller (another person who became famous from bubble predictions) are right about asset prices being too volatile, then it should be true that US-type cases are more common than the Australian case.  I don't think that's true-- in most developed countries real housing prices have risen since 2005, despite real upswings before 2005.  But let's say I'm wrong and Shiller's right.  Then the easy prediction to make is that prices will fall after a big upswing.  The much harder prediction is that prices will keep rising, even from inflated levels.  Those cases would be much rarer, and those who correctly call them when they occur (as in the Australian housing case) should be lauded as great heros of the investment world.

So who are they?

The best tries in Sumner's comments are Fama and Victor Niederhoffer.  Are these valid examples?  Have you got any better ones?


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Twitter: Bryan Caplan @bryan_caplan



COMMENTS (4 to date)
Blackadder writes:

The most famous bubble denier is probably Paul Ehrlich. The fact that he is the most famous despite being wrong is, I think, suggestive.

I once saw a graph of GDP in the twentieth century that looked like a straight line except for a small negative blip during the Great Depression. Shouldn't bubbles show up as positive blips? Why only shocks produce dips and booms don't produce bumps? My memory could be failing me though.

Steve Sailer writes:

‘Irresponsible’ Mortgages Have Opened Doors to Many of the Excluded

By AUSTAN GOOLSBEE
Published: March 29, 2007
http://www.nytimes.com/2007/03/29/business/29scene.html

mick writes:

Messrs. Fannie and Freddie are both the biggest deniers and the ones with the most mainstream shielding. Somehow being chartered to broker all the mortgages in the country means Goldman is responsible for failure of said mortgages.

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