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Murphy vs. the Market Monetarists

Summary:
It is a dirty rotten lie when people say I just go after Krugman. In my latest for Mises.org, I have a long critique of Scott Sumner and Kevin Erdmann’s narrative of the housing boom/bust. An excerpt: On the face of it, Erdmann is trying to demonstrate that if we use an objective measure, then it seems there was nothing unusual—from a historical perspective—about the growth in the stock of housing in the mid-2000s. After all, even at its recent peak, the particular measure of “Housing Units per capita” was still lower than it had been in the late 1980s. There are several responses I’ll give to this line of argument. First, who’s to say that the level in the late 1980s was correct? After all, there had been a devastating crash in the real estate market (and

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It is a dirty rotten lie when people say I just go after Krugman. In my latest for Mises.org, I have a long critique of Scott Sumner and Kevin Erdmann’s narrative of the housing boom/bust. An excerpt:

On the face of it, Erdmann is trying to demonstrate that if we use an objective measure, then it seems there was nothing unusual—from a historical perspective—about the growth in the stock of housing in the mid-2000s. After all, even at its recent peak, the particular measure of “Housing Units per capita” was still lower than it had been in the late 1980s.

There are several responses I’ll give to this line of argument. First, who’s to say that the level in the late 1980s was correct? After all, there had been a devastating crash in the real estate market (and related crises in banking) following the “closing of loopholes” in the 1986 Tax Reform Act.

A second problem is that there is an admitted discontinuity in the data set, which is why Erdmann draws the dotted line in his graph. If we just start with the consistent data set beginning in 2000, then the chart is broadly consistent with the claim that there was an unsustainable surge in housing stock in the mid-2000s.

A third problem is that houses nowadays are much bigger than they were in the 1970s. Mark Perry reports that for new homes (of a certain category), living space per person has nearly doubled since 1973. A much more revealing statistic, then, would be something like, “Housing square footage per capita,” which I imagine would have been at all-time highs circa 2007 (though I couldn’t find the data needed to either back up or reject my hunch).

Finally and perhaps most serious, is the problem that Erdmann is playing central planner. We can’t look at aggregate statistics like “housing units per person” and decide whether “too much” or “too little” housing has been built in the country. If we could, then the socialist calculation problem would be a snap to solve.

Robert Murphy
Christian, Austrian economist, and libertarian theorist. Research Prof at Texas Tech and author of *Choice*. Paul Krugman's worst nightmare.

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