Tuesday, September 2, 2008
The same group of economists that led the economy into this catastrophe still has its hands on the wheel.
How did we get here? The centerpiece in this story is the United States allowed an $8 trillion housing bubble to grow unchecked. Between 1996 and 2006, house prices rose by more than 70 percent, after adjusting for inflation. In the previous century, from 1896 to 1996, house prices had just kept even with the overall rate of inflation. When there is suddenly a sharp divergence from a long-term trend like this, it is reasonable to look for an explanation. Was there some fundamental factor on either the supply or demand side that was suddenly causing house prices to skyrocket?