Thymologists Who Predicted the Housing Bubble
by Walter Block: Rejoinder
on the BP Oil Spill
I think it
is very important that we keep track of, and thank, the Austrians
who predicted the housing bubble. Let this signal contribution of
the praxeological school never fall down that proverbial memory
hole. Why do I say this? For one thing, to give credit where credit
is due. All too often, mainstream economists take credit for all
and sundry; it is time, it is long past time, that some credit be
publicly accorded to Austrian economics and its practitioners, and
predicting the housing bubble will do quite well as one small part
of these accomplishments. For another, I focus on these predictions
in order to promote this school of economics, the last best hope
for humanity. Were the school of thought of Menger, Böhm-Bawerk,
Mises and Rothbard more widely known, and public policy more heavily
based upon it, we would not be suffering from the economic quandary
that now envelopes us. Previously, I blogged
on this subject, mentioning that I was trying to put together a
list of citations of Austrians who had predicted the housing bubble.
I offered there the beginnings of this list, and asked people to
help me make it more complete. I now thank the following scholars
for helping me add to this bibliography: Rick Burner, Matt Dioguardi,
Mike Finger, Kevinz Kevz, Julio Linares, Mickey Propadovich, John
Spiers, Scott Sutton, Scott Weisman. As you will see below from
the TBA’s, this bibliography is not yet in its final stage. So,
gentle reader, please correct any of my remaining errors of omission
or commission. I am determined to put together as complete and accurate
a bibliography of this signal contribution of Austrian economics
you this list, which I hope and trust you will cite in anything
you write about this sorry episode of American economic history,
allow me a few methodological, philosophical words. Austrian economists,
qua Austrian economists, or praxeologists, do not predict. Period.
In what sense, then, am I putting together this list of Austrians
who have predicted the housing bubble? It is in the sense that they
predicted this phenomenon not as formal economists, or praxeologists,
but, rather, in their role as thymologists, or economic historians;
see on this here.
A metaphor that may clarify this distinction is that between a musician
playing scales, and then rendering the music of Mozart. In a basic
sense, the two are very different. Yet, surely, facility with the
former renders the latter ability more sophisticated and knowledgeable.
So is it with praxeology and thymology. Knowledge of the former
offers no guarantee of the latter; but, it surely helps. Praxeology
is the science of (Austrian) economics. It gives us apodictically
certain laws, or basic axioms, or synthetic a priori truths that
need not be, indeed, cannot be, tested; they can only be (empirically)
illustrated. For example, here are a few axioms provided by perhaps
the world’s presently active leading praxeologist, Hans Hoppe:
two people A and B engage in a voluntary exchange, they must both
expect to profit from it. And they must have reverse preference
orders for the goods and services exchanged so that A values what
he receives from B more highly than what he gives to him, and B
must evaluate the same things the other way around.
this: Whenever an exchange is not voluntary but coerced, one party
profits at the expense of the other.
law of marginal utility: Whenever the supply of a good increases
by one additional unit, provided each unit is regarded as of equal
serviceability by a person, the value attached to this unit must
decrease. For this additional unit can only be employed as a means
for the attainment of a goal that is considered less valuable than
the least valued goal satisfied by a unit of such good if the supply
were one unit shorter.
the Ricardian law of association: Of two producers, if A is more
productive in the production of two types of goods than is B, they
can still engage in a mutually beneficial division of labor. This
is because overall physical productivity is higher if A specializes
in producing one good which he can produce most efficiently, rather
than both A and B producing both goods separately and autonomously.
another example: Whenever minimum wage laws are enforced that require
wages to be higher than existing market wages, involuntary unemployment
a final example: Whenever the quantity of money is increased while
the demand for money to be held as cash reserve on hand is unchanged,
the purchasing power of money will fall."
of putting the matter is that praxeology is concerned with contrary-to-fact
conditional statements that are incapable of being refuted (on this
For example, a minimum wage law will raise unemployment higher than
it otherwise would have been, had there been no such law; a rent
control ordinance will reduce the quality and quantity of rental
housing below the level that otherwise would have obtained. But
will a minimum wage law necessarily result in more unemployment,
or rent control in poorer housing? No: other things might have changed,
to render these predictions incorrect. For example, Bill Gates might
hire low skilled workers, in order to refute our analysis, or, wealth
might increase, improving housing. Why are praxeologists so tentative
in their statements about real world conditions? It is because economic
laws are predicated upon ceteris paribus conditions; A causes B,
other things remaining the same. But, in the real world, other things
cannot be relied upon to always remain constant. Therefore, predictions
of the "A will necessarily lead to B" type are strictly
prohibited. Instead, praxeologists, but not thymologists, must limit
themselves to statements of the if-A then-B variety.
In sharp contrast,
the thymologist or Austrian influenced economic historian labors
under no such restrictions. He can go out on a limb, and make predictions
about the future, which are of course subject to refutation. The
scholars soon to be mentioned (I sure know how to keep you on the
edge of your seats, don’t I?) laid it all on the line in the sense
that their economic understanding (verstehen) could be exposed as
hopelessly out of step with reality. But, in the case of the housing
bubble for these economists, this was not at all true. Rather, their
economic understanding was dead on.
I went into this long song and dance about Austrian methodology
and prediction is because of this letter I recently received in
my quest for housing bubble predictions on the part of Austrian
economists; its author shall remain anonymous:
exercise reminds me of the Yogi Berra quote, ‘prediction is very
hard, especially when it is about the future.’ I also recall Burt
Blumert saying, ‘It’s ok to forecast the end of the world, but don’t
ever give a date."
Austrian economics and LvMI in 1989. Here my impressions of the
forecasting record of the Austro-Misesian camp since:
1980s – Japan’s property and equity bubbles were classic ABCT, yet
Austrians were notably silent. Some of this can be attributed to
the small number of Austrians at the time. Joe Salerno gave a speech
about the Japan bubble at a LvMI conference in Toronto in 1999 (see
Unfortunately this was well after the fact.
1990s, early 2000s – Austrians were mostly quiet about the tech/dot-com
bubble. There were exceptions among academics (Christopher Mayer,
George Reisman, Guido Hulsmann, Sean Corrigan) as well as practitioners
(Jim Grant, Tony Deden). I remember discussions with David Tice
during the early 2000s about how Austrians were missing a golden
opportunity to stick their necks out on the forecasting block regarding
the tech bubble.
– Austrians hit a monster home run with regard to the Greenspan
response to the tech bust, the GSEs, housing bubble, credit bubble,
and gold. This is when LRC took off, amplifying any credibility
by getting it right. Btw, the Fed-lite GMU/Koch/Cato camp largely
missed these bubbles, a major forecasting black eye.
– We have more "Austrian" forecasters than ever. Is China
a bubble? The supposedly Austrian-leaning Jim Rogers, Peter Schiff,
Jim Puplava, and Adrian Day say "no." Left-leaning Jim
Chanos says "yes." I tend to agree with Chanos. So what
happens to the credibility of Austrian economics if the China bubble
bursts? Will the fault lie in the theory or those applying it?
years ago, most Austrians were highly skeptical of making economic
predictions. Now, after one good call, the Austrian brand is attracting
a number of self-promoters who have no such qualms. They lack humility
and consistency, and ultimately could discredit the brand. Perhaps
this is simply the downside of gaining in popularity."
further ado, here is the bibliography. Ordinarily, I would use hyperlink
for the URLs that follow. In this case, I will not do so, in order
to make it easier for scholars who want to cite (hint, hint) this
material in their future publications.
2003, 2007; Beale, various dates; Blumen, 2002, 2005; Corrigan,
tba; Crovelli, 2006; DeCoster, 2003; DiLorenzo, 1999; Duffy, 2005A,
2005B, 2005C, 2005D, 2006, 2007A, 2007B, 2007C, 2007D; Economics
of contempt, 2008; Englund, 2004, 2005A, 2005B, 2005C, 2005D, 2006,
2007, 2008; French, 2005; Grant, 2001; Karlsson, 2004; Mayer, 2003;
Murphy, 2007, 2008; North, 2002, 2005; Paul, various dates, 2000,
2002; Polleit, 2006; Ptak, 2003; Rockwell, 2008, 462; Rogers, 2005;
Rothbard, tba; Schiff, Undated A, Undated B, Undated C, Undated
D, 2003A, 2003B, 2003C, 2004A, 2004B, 2005A, 2005B, 2005C, 2005D,
2006A, 2006B, 2006C, 2006D, 2007A, 2007B; Sennholz, 2002; Shostak,
2003, 2005; Thornton, 2004, 2009, Undated; Trask, 2003; Wenzel,
2004; See also Woods (2009, p. 188 for further bibliography).
William L. 2001. "The Party is Over," February 20
William L. 2003. "Recovery or Boomlet?" July 07
William L. 2007. "The Party is Over – Again," August 30
Dominick. 2004. "Memo to Federal Reserve: Increase Interest
Theodore. Various dates.
Robert. 2002. "Fannie Mae Distorts Markets." Mises
Daily, June 17
Robert. 2005. "Housing Bubble: Are We There Yet?" May
Mark R. 2006. "Gold, Inflation, And... Austria?" May
Coster, Karen. 2003. "The House that Greenspan Built: Irrationally
Exuberant Wall Street Welfare Parasites and Their Fed-God."
Thomas J. 1999. "Regulatory Sneak Attack." September 16
Kevin. 2005A "The Super Bowl Indicator," February 5
Kevin. 2005B. "Honey, I Shrunk the Net Worth," March 3
Kevin. 2005C. "Alan, We Have a Problem," August 2
Kevin. 2005D. "Panic Now and Beat the Rush," September
Kevin. 2006. "Are Mortgage Borrowers Rational?" June 24
Kevin. 2007A. "It’s a Mad, Mad, Mad, Mad World," May 22
Kevin. 2007B. "For Whom Do the Bells Toll?" Barron’s,
Kevin. 2007C. "Financial Markets on Crack," August 22
Kevin. 2007D. "Mr. Mozilo Goes to Washington," September
of contempt. 2008. "The
Unofficial List of Pundits/Experts Who Were Wrong on the Housing
Bubble." July 16
Eric. 2004. "Monetizing Envy and America’s Housing Bubble."
Eric. 2005A. "Houses Are Consumer Durables, Not Investments,"
Eric. 2005B. "Diminishing Property Rights Will Lead to a Higher
Rate of Mortgage Defaults."
Eric. 2005C. "When the Housing Bubble Bursts, Will President
Bush Practice Mugabenomics?" July, 19
Eric. 2005D. "When Will America's Housing Bubble Burst?"
Eric. 2006. "The Federal Reserve and Housing: A Cluster of
Errors?" April 22
Eric. 2007. From Prime to Subprime, America's Home-Mortgage Meltdown
Has Just Begun." September 24
Eric. 2008. "Countrywide Financial Corporation and the Failure
of Mortgage Socialism." January 28
Doug. 2005. "Condo-mania." July 11
James. 2001. Sometimes the Economy Needs a Setback." New
York Times. September 9
Stefan. 2004. "America's Unsustainable Boom." November
Chris. 2003. "The Housing Bubble." The Free Market.
Volume 23, Number 8
Robert P. 2007 "The Fed’s Role in the Housing Bubble."
Robert P. 2008. "Did the Fed, or Asian Saving, Cause the Housing
Bubble?" November 19
2002. "How the FED Inflated the Real Estate Bubble by Pushing Down
Mortgage Rates: Report As of 2002," Reality Check, March
Gary. 2005. "Surreal Estate on the San Andreas Fault."
November 25, 2005
Ron. Various dates.
2002. Testimony to U.S. House of Representatives, July 16; text
of speech in Woods (2009, 16–17):
privileges granted to Fannie and Freddie have distorted the housing
market by allowing them to attract capital they could not attract
under pure market conditions. As a result, capital is diverted from
its most productive use into housing. This reduces the efficacy
of the entire market and thus reduces the standard of living of
the long-term damage to the economy inflicted by the government's
interference in the housing market, the government's policy of diverting
capital to other uses creates a short-term boom in housing. Like
all artificially created bubbles, the boom in housing prices cannot
last forever. When housing prices fall, homeowners will experience
difficulty as their equity is wiped out. Furthermore, the holders
of the mortgage debt will also have a loss. These losses will be
greater than they would have otherwise been had government policy
not actively encouraged overinvestment in housing."
Ron. 2000. "A Republic, If You Can Keep It" January 31
Ron. 2002. "Government Mortgage Schemes Distort the Housing
Market," July 16
Thorsten. 2006. "Sowing the Seeds of the Next Crisis."
Justin. 2003. "Government Employees, Go Home!" November
H, Jr. 2008. The
Left, the Right, and the State. Auburn, AL: The Mises Institute
Jim. 2005. "Interview with Jim Rogers on the housing bubble."
Peter. Undated A.
Peter. Undated B.
Peter. Undated C.
Peter. Undated D.
Peter. 2003A. Commentary, March
Peter. 2003B. Commentary, April
Peter. 2003C. Commentary, June
Peter. 2004A. Commentary, May
Peter. 2004B. Commentary, June
Peter. 2005A. Commentary, April
Peter. 2005B. Commentary, July
Peter. 2005C. Commentary, August
Peter. 2005D. Commentary, October
Peter. 2006A. Appearance on CNBC, January
Peter. 2006B. Speech to the Money Show Conference, February
Peter. 2006C. Speech to the Mortgage Bankers Assoc.
Peter. 2006D. Mortgage Bankers Speech to the Western Regional Mortgage
Bankers Conference in Las Vegas; November 13
Proof: How to Profit From the Coming Economic Collapse (1st
edition) New York, N.Y.: Wiley
Peter. 2007B. Appearance on Fox News – January 12
Hans F. 2002. "The Fed is Culpable." November 11
Frank. 2003. "Housing Bubble: Myth or Reality?" March
Frank. 2005 "Is There a Glut of Saving?" August 4
Mark. 2004. "Housing: too good to be true." June 4
2009. "The Economics of Housing Bubbles." America’s
Housing Crisis: A Case of Government Failure, Benjamin Powell
and Randall Holcombe, eds., Transaction Publishers
H.A. Scott. 2003. "Reflation in American History." October
Robert. 2004. "Government
Isn't God: FDIC Sticks Banks With Bad Loans and Sticks Borrowers
With Subprime Junk." July 21
E. Jr. 2009. Meltdown:
A Free-Market Look at Why the Stock Market Collapsed, the Economy
Tanked, and Government Bailouts Will Make Things Worse.
Washington D.C.: Regnery Publishing
Block [send him mail] is a
professor of economics at Loyola University New Orleans, and a senior
fellow of the Ludwig von Mises Institute. He is the author of Defending
the Undefendable and Labor
Economics From A Free Market Perspective. His latest book
Privatization of Roads and Highways.
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