Housing Discussion

RogerRafter and others who say that "individuals" are responsible are right, of course, but they are ignoring one very important point. A market economy is directed by the price system and entrepreneurial behavior is directed by profit opportunity. The housing boom/mania graphically shows why the Austrian business cycle theory is so relevant -- and correct. Namely, the inflationary credit expansion distorted the price system and made it very clear to everyone that there was a seemingly limitless demand for housing.

The price signals were not screwed up because of bad individual decisions. The individual behavior was screwed up because of the price signals. Prices ran to these extremes for clearly defined reasons -- Fed policies, an unconstrained fractional reserve banking system, and many, many government policies that favored both debt and housing. It is true, I believe, that individuals should have eventually begun to understand what was happening -- but by then a great deal of damage had already been done.

Tom