Saturday, July 19, 2008

Panic About Inflation

Alan Reynolds says "not to panic on inflation," which is a pretty sure sign that inflation is about to explode. In researching for my list of pundits/experts who were wrong about the housing bubble, I found that no one was more comically wrong than Alan Reynolds. For example, Reynolds wrote in the Washington Times in 2005:

In short, we are asked to worry about something that has never happened for reasons still to be coherently explained. 'Housing bubble' worrywarts have long been hopelessly confused. It would have been financially foolhardy to listen to them in 2002. It still is.
Those silly "worrywarts" and their crazy "housing bubble" conspiracies! Don't they look stupid now! Elsewhere, Reynolds ridiculed "housing bust zealots" for being "nonsensical." By any objective standard, Reynolds should not have a job as an "expert" on anything anymore. But I'm kind of glad he didn't immediately lose his job, because his archive of op-eds is a comedic goldmine. Remember, Reynolds is the person who still denies that income inequality has increased in the U.S. over the past 25 years. He's the leader of what Justin Fox aptly describes as "the strange fantasy world of income-inequality denialists." All of his feeble criticisms of the famous Picketty-Saez results have been thoroughly refuted not only by Paul Krugman, Brad DeLong, and Mark Thoma, but also by Picketty and Saez themselves. But Reynolds soldiers on, undeterred by all those pesky facts and logic-based arguments. Perhaps my favorite op-ed in his collection is the one where he tried to take on both Ed Lazear and Ben Bernanke, who had acknowledged that income inequality has, in fact, been rising. This brings new meaning to the phrase, "bringing a knife to a gunfight." But income inequality and the housing bubble aren't the only issues Reynolds knows nothing about. Regarding Hillary Clinton's proposal to freeze mortgage rates for up to 5 years, Reynolds writes:
That has to be unconstitutional—the government can't blithely rewrite the terms of two private parties' contract.
The government can actually rewrite the terms of two parties' private contract. The Contracts Clause doesn't prevent the federal government from impairing private contractual rights, so long as the federal government is acting within its constitutional authority (e.g., regulating interstate commerce under the Commerce Clause). Moreover, the Fifth Amendment due process clause only prevents the federal government from impairing private contractual rights in an "arbitrary and irrational" way (which is extremely difficult to prove). In fact, during the Great Depression, the Supreme Court in Home Building & Loan Assn. v. Blaisdell upheld a state law that was very similar to Hillary's proposal, and state laws impairing private contracts face much stricter judicial scrutiny than federal laws. So add "the law" to the list of topics Reynolds knows absolutely nothing about. Amazingly, Reynolds ends one of his op-eds with this:
I sometimes wish that people who don't know what they're talking about would simply refrain from talking.
I know what you mean.


Alan Reynolds said...

“Reynolds is the person who still denies that income inequality has increased in the U.S. over the past 25 years.” On the contrary, the link to my 2006 paper shows I found “no clear trend toward increased inequality after 1988 in the distribution of disposable income, consumption, wages or wealth”—that’s 18 years, not 25. Nobody denies income inequality increased between 1979 and 1988. The horrific stagflation of 1978-81 slashed top (and bottom) income shares to a postwar low.

I replied to all of the mentioned critics at

I replied to Justin Fox at

When time allows, I may use the blog at to debunk these unexplained assertions that my old columns about housing were factually or logically incorrect. They weren’t about nationwide “bubbles” at all (in Detroit?), but about hysterical predictions that recession was imminent in 2005-2006 and about related claims that cheaper house prices would be a terrible thing (for sellers yes, for buyers no).

Economics of Contempt said...

I've read your "replies" to your critics on income inequality, and they weren't really "replies" at all. You didn't acknowledge any of the serious criticisms leveled against your confused arguments.

You're long on promises to "debunk" your critics, but short on actual debunking. I read your housing bubble columns, and they were undeniably wrong. Your argument wasn't about whether there was a national housing bubble versus regional housing bubbles. Your argument was that because there wasn't a national housing bubble, there wasn't a housing bubble, or at least not one we should be worried about (hence the "housing bubble worrywarts" comment).

For example, you wrote, "Any risk of loan defaults would be negligible. In hot spots where home prices just rose 30 percent, even an unprecedented 25 percent price drop would have no effect on a seller who held a home just one year." That was flat-out wrong. Thanks for playing.

You also wrote: "Although the overworked analogy between housing and tech stocks sounds dramatic, it is quite preposterous. 'The downside of this [housing] bubble,' said Mr. Roach last month, is 'potentially far worse than that of the equity bubble.' Really?" Again, that was wrong. The downside of the housing bubble has been worse than the tech bubble. You tried to play this off by saying that housing prices wouldn't fall as much as the price of tech stocks, but that wasn't the original argument. Either you didn't understand the original argument (more likely), or you were lying about the original argument in order to claim victory. Pick one.

The fact that you can't admit you were wrong is just pathetic. I'm willing to tolerate a wide range of ideological disagreement, but I'm not willing to tolerate Hackonomics in the service of ideology. Every time someone refers to you as an "economist," it makes me want to burn my econ degrees. Please follow your own advice, and refrain from talking about economics.

Anonymous said...

Still think I was wrong about inflation going down rather than up? I shorted oil, basic materials and precious metals, and went long the dollar. One can be ideological or right, but rarely both.


Yes worry about inflation.

Alan Reynolds said...

For such a harsh critic of forecasts, Economics of Contempt was sure wrong to worry about inflation in July 2008.

As for the "top 1%" data, here is a link to my 100-page reply to critics and I doubt that EofC has read it.

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