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The Economic Near Miss


Back when the housing market was inflating, one of the few institutions to try to stick a pin in the bubble was UCLA’s Anderson School of Management. Edward Leamer, director of the school’s Anderson Forecast, and Christopher Thornberg, another economist, were routinely quoted saying the housing market was overheated. They became the subject of scorn by Realtors and mortgage industry folks. That’s Leamer’s photo over there. Now, in what’s becoming an ongoing series on Those Who Got It Right, I figured I’d check in on the Anderson folks.

Thornberg left UCLA and is now a principal with Beacon Economics, a consulting firm in Los Angeles. He was quoted in a front page article in the Los Angeles Times today. The article noted that the number of homes sold in Southern California hit a 15-year low in August. “People just don’t have the income to support these prices except with crazy mortgages—and now the mortgage money is going away, and people are walking away from their homes,” he said.

Leamer is still at Anderson. His group’s third quarterly forecast, released yesterday, said the nation’s economic growth would slow to just 1% the fourth quarter of this year and the first of 2008. That’s actually good news. Those numbers represent “a near recession experience” or a near miss if you will. The report said the slump in new home construction and sales would slow the economy but not enough to send GDP into negative territory. Leamer, meanwhile, delivered an address last month to the same Jackson Hole, Wyoming conclave as Federal Reserve chairman Ben Bernanke. He could have gloated with all the bad housing news. Instead, he urged the Fed to cut interest rates and give homeowners a break.


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