Thursday, April 19, 2007

Taking on Steve Dubner, co-Freakonomics author and blogger

The Freakonomics Team of Stevens Levitt & Dubner are extraordinary. I had the great pleasure of seeing them live, at an offsite hosted by my employer last year.

Dubner is a fantastic writer. But I am not sure he checked in with his other half when it came to this recent post, on Robert Shiller's housing values, adjusted for inflationary effects, which basically tries to demonstrate a scary housing bubble since 1998, where housing has nearly doubled according to his index.

Here is my comment on that post, #17:

One thing that Shiller conveniently left out of this graph is a normalization for the increase of income and/or wealth since 1880. Real GDP per capita has jumped over 8 times* in the last 120 years. Applying that to the roller coaster would peg housing values to be 24% of real GDP per capita at the 1880 level.

Yes, we spend 2 times on housing what folks in 1880 did (forgetting, for a moment, that we have plumbing & sewage, electricity, heating, air conditioning, digital wiring, fireproofing, sump pumps …) in houses today. But we have 8 times the buying power. Ultimately, housing is deflationary to the consumer.


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