Dr. Housing Bubble 08/12/08

Housing Perception Foreclosing on Reality: The Fundamental Housing Attribution Error.

Much to my surprise as I was watching the Olympics this weekend, guess who appeared at the events in China? Our own Treasury Secretary Hank Paulson was out on a vacation in China. He was on Meet the Press with Tom Brokaw discussing the economic situation back home in the United States. Everyone is entitled to a vacation so that isn’t the problem. Yet what he said tells us a lot about how our current economy is being managed. Mr. Brokaw brought out a quote from April of 2007 which had Paulson saying that the subprime problem wasn’t going to cause many issues. Paulson’s response was one in which he mentioned it was hard to predict what was going to occur before the August 2007 credit crunch. Welcome to our new fiscal policy. Problems don’t exist until they do. This is the look one-step ahead of you economic philosophy.

Of course, many of you saw this coming years before. In fact, many high level officials and economist saw this coming and made warning signs but no seemed to care. The current narrative from the administration is that no one saw this coming but hey, everything is all good now. Haven’t you heard, we aren’t in a recession? I’m not sure if Paulson was in Beijing to also receive the gold medal in lack of foresight but that seems to be common with others as well.

How can it be that things in reality are pointing to a sluggish economy while so many people think things are improving? Call it the fundamental attribution error. That is, when we observe “others” we like to attribute their problems to personality traits or factors in their control. Yet when we are asked to talk about our own situation, we tend to include environmental and also social influences in how we observe ourselves. This error in logic helps us to understand the logic of many of the Pollyanna views out there. The “mental recession” comment tells us a lot because it tends to blame the “other” as being ultimately responsible for his economic demise. It couldn’t be that the economic infrastructure around him is collapsing because no society can trade houses like baseball cards and go into incredible debt without producing actual products and expect to have sustainable growth.

http://www.doctorhousingbubble.com/housing-perception-foreclosing-on-reality-the-fundamental-housing-attribution-error/