Mr. Tabarrok decides to become a Chartist

Professional economists normally have no use for Chartists. The idea that you can predict future price movements based on past behavior of the Chart has not empirical support. Most economists will tell you that there is not much to separate a Chartist from witch doctor.

But one might imagine that Alex Tabarrok has come around to the Chartists way of thinking based on his latest post. For he argues that housing has reached a permanently high plateau (shades of Fisher?) solely the basis of how he interprets a line on a chart.

I am tried to avoid being to snarky, but I don’t think I have ever seen a more poorly supported argument advanced over at Marginal Revolution. But all Mr. Tabarrok did was look at a chart and offer up a gut feeling. In the process he neglected to consider some very important data.

For one thing, he did not consider the stunning growth in the number of houses on the market. If the bubble was a result of the government restriction of supply in some key cities as some of his commentators suggest, how come places like California and Florida saw some of sharpest run ups and now have a ton of houses on the market?

Another thing I would have expected Mr. Tabarrok to do would have to consider the difference between the cost to rent and the cost to own. This has historically been one of the key metrics for trying to decide if housing is overvalued or not.

And of course, there is also the demographic component. If you were going to predict permanently high plateau, you would think you would want a sharp increase of people relative to the housing stock. Where are those people going to come from?

Not from Mexico, and not from natural increase.

But there is one thing that Mr. Tabarrok’s charts tell us. They tell us that housing prices went up really fast and really sharply in the space of 10 years. What, (besides Mr. Tabarrok’s intuition) is to say they will not go down with equal speed and sharpness?

I am happy to read arguments that go against what I personally believe. It keeps me on my toes. But I don’t count looking at a chart and saying “That line looks permanent to me” as constituting an argument.

One Response to “Mr. Tabarrok decides to become a Chartist”

  1. […] _uacct = “UA-1202685-1”; urchinTracker(); Map of the Ethereal Land The Ethereal Voice Front Page – Politics – Money – Knowledge – Art – Food – Fun Masthead About Mr. Tabarrok decides to become a Chartist By Ape Man | February 13, 2008 – 8:40 pm Posted in Category: Front Page, Money Professional economists normally have no use for Chartists. The idea that you can predict future price movements based on past behavior of the Chart has not empirical support. Most economists will tell you that there is not much to separate a Chartist from witch doctor. But one might imagine that Alex Tabarrok has come around Click Here to continue reading. […]

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