Thursday, April 06, 2006

CEPR: ‘A Strong Case For A Preemptive Strike’

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The Center for Economic and Policy Research, which some liken to the Chicken Little of think tanks (see description below*), is not mincing words in a piece by its co-director, Dean Baker. In his opinion piece, Baker goes so far as to call for a "preemptive strike" to intentionally pop the bubble.

Here's an excerpt, but read the entire piece at this link:
An unprecedented run-up in the stock market propelled the U.S. economy in the late nineties and now an unprecedented run-up in house prices is propelling the current recovery. Like the stock bubble, the housing bubble will burst. Eventually, it must. When it does, the economy will be thrown into a severe recession, and tens of millions of homeowners, who never imagined that house prices could fall, will likely face serious hardships.
The bit about a preemptive strike is further down:
Given the prospect for a collapse of the housing bubble and its impact on the economy and the financial system, there is a strong case for a preemptive strike. The government cannot prevent the market from collapsing and sustaining the bubble just leads to more overbuilding, which will make the eventual collapse even worse. The government should have taken steps to prevent the bubble from ever getting this large. Having failed thus far, the best it can do at this point is to burst the bubble before it gets even larger, creating the conditions for an even bigger disaster down the road.
* The CEPR is described by The Philadelphia Inquirer this way: "The CEPR is a center-left economic opinion center run by Dean Baker and Marc Weisbrot, two very experienced economists. Their approach is that economic opinion-writing is a form of advocacy for the public, especially groups left out of the Western economic expansion. They are very critical of the WTO and the IMF and warn of the dangers of the stock market and the perils of globalization."

-- The Boy in the Big Housing Bubble/Los Angeles and Beyond