Comments on: What Is A Bubble?

By: I Called The Housing Bubble In 1948 « Modeled Behavior

I Called The Housing Bubble In 1948 « Modeled Behavior — Sat, 06 Feb 2010 16:37:27 +0000

[...] 6th, 2010 in Economics | by Adam Ozimek In previous post on the efficient market hypothesis, I sympathized with Scott Sumner’s overly demanding definition of identifying a bubble, because his [...]

By: Dean Baker

Dean Baker — Sat, 06 Feb 2010 13:08:23 +0000

Um, I suppose being right is worthy of ridicule in your world. They year was 2002 [http://www.cepr.net/index.php/publications/reports/the-run-up-in-home-prices-is-it-real-or-is-it-another-bubble/] and any competent economist should have been able to recognize the housing bubble at that point.

The point from a policy perspective is that the housing bubble was driving the economy, which meant that its collapse would have the sort of consequences we are now seeing. There isn’t generally a need from a policy standpoint to worry about bubbles in barley, zinc, or most other commodities. There is a need to worry about a bubble in the largest market in the world.

Yeah, so you missed it — no big deal. We have 15 million people out of work and are going to lose on the order of $5 trillion in output in the U.S. alone. It’s not like the mistake had serious consequences. Let’s go play more with EMH.

By: TheMoneyIllusion » The EMH; reply to my critics

TheMoneyIllusion » The EMH; reply to my critics — Sat, 06 Feb 2010 00:30:36 +0000

[...] for them! That’s been my answer in several comment sections. This relates to a post by Adam Ozimek: I think this is part of the reason Sumner is frustrated by the anti-EMH crowd: he isn’t [...]

By: teageegeepea

teageegeepea — Fri, 05 Feb 2010 18:54:21 +0000

I think we could just look at bubbles within a certain sector. The question then would be does Calculated Risk call bubbles that then fail to occur? When Sumner was making fun of the Economist he restricted his mockery to their analysis of housing (because that’s what they were preening themselves on). American real estate values kept going up over the period when the Economist said they’d go down, and Australian values never fell at all even after that period. So let’s say Calculated Risk uses the following heuristic: if a value is not in housing, assume the market price is correct. If it is in housing, don’t assume that but use your own knowledge of the industry. In that case Calculated Risk should on average beat the market consistently over time. Identifying 1/5 bubbles is no worse than identifying 1/1 small bubbles. Since Sumner doesn’t seem to really believe in “bubbles” (he thinks prices go up and down, but none of that can be considered a bubble or antibubble), Calculated Risk could hardly be penalized for missing any.