Wednesday, January 22, 2014

The Damage From the Housing Bubble: How Much Did the Greenspan-Rubin Gang Cost Us?

CEPR - Center for Economic and Policy Research

Tuesday, 21 January 2014 21:21


Eduardo Porter asks how much the housing bubble and its collapse
 cost us in his column today. (He actually asks about the financial crisis,
but this was secondary. The damage was caused by the loss of demand
driven by bubble wealth in a context where we had nothing to replace it.)
Porter throws out some estimates from different sources, but there are some
 fairly straightforward ways to get some numbers from authoritative sources.

We can use as a starting point the Congressional Budget Office's
 projections for GDP growth from 2008, before it recognized the
damage from the collapse of the bubble.
 We can then compare these projections with the most recent projections
 from last year.

If we just take the dollar losses through 2013 we get $7.6 trillion, in 2013 dollars.
This is just economic losses, it does not include any effort to quantify the
pain that workers or their families have suffered from being unemployed
 or losing their homes. This comes to roughly $25,000 for every person in
the country. Alternatively, it is 190 times as much as the Republicans hoped to
save from their cuts to
food stamps over the
next decade.

Many folks around
Washington like to talk about
75 year numbers, which is the
period over which we
 project Social Security a
nd Medicare spending and

If we assume that the economy's growth rate in years after 2018 is not affected by the 
collapse of the bubble, then the cumulative loss in output through 2089 as a result
 of the collapse of the Greenspan-Rubin bubble would be $66.3 trillion.
This amount is almost seven times the size of the projected Social Security shortfall.

If we really want to have fun, we can sum the shortfall over the infinite
horizon, an accounting technique that is gaining popularity among those
 advocating cuts to Social Security and Medicare. The loss over the infinite
 horizon due to the Greenspan-Rubin bubble would be over $140 trillion,
or more than $400,000 for every man, woman, and child in the country.

Obviously these numbers are very speculative but the basic story is very simple.
If you want to have a big political battle in Washington, start yelling about
people freeloading on food stamps, but if you actually care about where the
real money is, look at the massive wreckage being done by the Wall Street
boys and incompetent policy makers in Washington

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