How an Economy Grows and Why It Crashes

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T H E   H U T   G L U T
N
ow that it is painfully clear to everyone that the 
United States experienced the joy and pain of  an 
infl ating and collapsing housing bubble, we must take pains 
to remember that the vast majority of economists, government 
offi cials, and fi nancial pundits could not see the calamity 
coming even as it stared them down at point-blank range. 
It was as if all the meteorologists in the country failed to predict 
a category 5 hurricane when it was just 10 miles off the coast of 
Miami. Is there any more evidence needed to confi rm the utter 
cluelessness of mainstream economic thinkers?
By any measure of sober valuation, home prices by 2006 
had passed into Fantasyland. Valuations were disconnected 
from every gauge that had been designed to measure their 
affordability. None of the numbers added up. Yet somehow, 
economists came up with rationales that seemingly justifi ed 
the ascent. 
But people failed to see the agendas behind the cheerleading. 
Politicians wanted to keep voter confi dence high through a 
sense of false prosperity; businesses wanted to keep consumers 
spending on products and services that they really couldn’t 
afford; cable networks wanted to keep ratings high with 
optimistic hurrahs; and banks, mortgage originators, and real 
estate brokers wanted to continue making money on fees and 
interest. All of these interest groups had hired guns who put 
lipstick on the biggest, ugliest pig imaginable. And amazingly, 
their explanations were accepted.