Boston Notebook
Oct 28th, 2008 | Filed under: Today's PostThere’s no place like home.
No stranger to economic history, Yale professor and housing guru Robert Shiller, told an audience here today that the current situation in the housing market had strong parallels not to the Great Depression as many are beginning to assume, but to the depression of the 1890s. He explains that a US banking crisis came out of nowhere in 1893 and quickly led to deflation, unemployment and eventually (and somewhat ominously perhaps) to labor unrest. Policymakers responded by implementing complex changes to the monetary system. Some of these policies were met with so much skepticism, explained Shiller, that a thinly-veiled political critique was authored in the form of a children’s book. The book is said to have juxtaposed the wizardry of these new policies with those involving more traditional hard assets such as gold and silver. The book was called “The Wizard of Oz“.
Unfortunately, Shiller found that housing price data for the 1890’s is hard to come by. But he suspects that overall, it was a bad time to flip that suburban Atlanta duplex.
The 1990’s, however, was obviously a better time to do this. In fact, the only time in recorded housing history that rivals the last decade’s house price increase was the immediate post-war period. During WWII, explained Shiller, you couldn’t build a house without special wartime permission – leading to serious pent up demand. The recent boom followed no such pent-up demand, suggesting that higher prices were never sustainable in the first place.
Shiller prescribed three things to create long-term stability in the housing market:
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“Lo went on to say that research in the past decade shows that rationality and emotion are not as dichotomous as we might assume. In fact, he says that we need to be able to feel emotion in order to be “logical”. In other words, emotion and logic are two sides of the same coin. ”
Hallelujah! Someone with more academic cred than I have says the same thing that Trader Psyches teaches. Who cares how emotional you are? It is only the action you take that matter. One of our credos of Psychological Capital = “The quickest way to get rational is to be emotional.”
Check out Seo and Barrett 2007 – http://www2.bc.edu/~barretli/pubs/2007/seobarrett2007.pdf