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November 13, 2007


Aaron Heath

* Ms Beeny is probably responsible for some of the rise in house prices in recent years. Many of us, when we look at her, think about finishing off a semi. ~ Mr. Dillow

Very good, Chris. Not a "leg man", then?

Mr Eugenides

"Many of us, when we look at her, think about finishing off a semi."



It seems to me that Buiter's cute arguement applies to owner occupied houses but not to rental houses. It amounts to saying if we all owned one house and rented another then changes in rent would not change our income because they would cancel out.

With respect to Hayek, he may have won the argument, but that doesn't make prices more flexible. Keynesianism still has some relevance.

That said, I agree a lot of the story about what is happening is not in the indexes. Relative prices have changed enormously. It is by the way where I find cost-benefit analyses of environmental issues annoying. They are full of money illusion. Lomborg and company should read about King Midas.


The price/earnings ratio was greatly overinflated, the CDOs are next to worthless, the housing market is free-falling, the decrease in interest rate will hardly stem the tide. And you're thnking of shifting house, Chris?


"Later economists, though, lost this scepticism. And the costs of doing so were high, as Hayek pointed out, most strongly in A Tiger by the Tail. Macroeconomic aggregates, he said, "conceal the most fundamental mechanisms of change" - namely, relative prices, which tell people what to buy and sell. Keynesian policy-makers in the 60s and 70s, he said, had fuelled inflation and unemployment by believing they could tweak macroeconomic aggregates to maintain aggregate demand, when in fact they had lost sight of the most important way to maintain employment, which is to ensure the price system is sufficiently flexible."

I think you need to elaborate more on this.


the problem with falling prices in the housing market is that it also becomes illiquid.

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