South By North Strategies, Ltd.

Felix Salmon doesn’t buy the argument that it was impossible for economists to identify the housing bubble. Writes Salmon:

So my conclusion, after reading the arguments of the housing bulls, is that they were mostly bunk. And there’s even a hint of that in one of the footnotes to the paper, which says that “economists at policy institutions may have shied away from making pessimistic predictions for fear of spooking the markets”. It seems to me that if there wasn’t a bubble, no one was likely to be worried about spooking healthy rising markets.
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The bigger conclusion, of course, is that it’s silly to look to economists to forecast anything at all. Not because they don’t have the tools, but just because it’s always possible to find an economist who’ll believe just about anything. Housing bubbles are normally pretty obvious at the time: there’s one right now in Vancouver, for instance. You can see them in the rise of dozens of huge new glass-clad condo buildings; you can see them in massive price increases; you can see them when mortgage payments are significantly larger than the amount of money you could get renting out the place; and you can see them whenever people start making more money from selling their homes than they do from actually working. The only people who can’t see them, it seems, are economists, realtors, and bankers on Wall Street.