The Housing Chronicles Blog: Latest column for Builder & Developer magazine now online

Monday, August 17, 2009

Latest column for Builder & Developer magazine now online

My latest column for Builder & Developer magazine is now online. For August, I discussed my book review of the Robert Shiller book "Animal Spirits" as well as my follow-up interview with him on BlogTalkRadio.com.

An excerpt:

It seems that there’s just nothing better than an old-fashioned boom-and-bust cycle in the housing market to reveal what economist John Maynard Keynes dubbed ‘animal spirits’ in the middle of the Great Depression.

Harnessed appropriately, it fuels the ‘na├»ve optimism’ that builders and developers require to place risky bets on new developments, when a constant barrage of economic externalities can derail even the best-laid plans.

But when these spirits turn dark – as they have in this ‘Great Recession,’ aggregate human psychology can prevent lenders from lending, consumers from spending and homebuyers from venturing into sales offices far beyond what traditional economics alone would dictate.

It is precisely this type of phenomenon that economists Robert Shiller (the Yale University professor and co-founder of the S&P/Case-Shiller Index) and Nobel Laureate George Akerlof (a professor at UC Berkley), discuss in their recent book, “Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism.”

Having recently read this book to review for the Inman News service, I also thought its lessons were appropriate for the building industry, given that it was housing which sparked the economic maelstrom in which we still find ourselves. As an adjunct to the review, I was also able to interview Dr. Shiller for a new show I’m hosting on BlogTalkRadio.com, The Housing Chronicles.

A primary thesis of the book is the failure of macro-economic theory over the past generation to properly account for these animal spirits, which can be subdivided into confidence, fairness, corrupt/anti-social behavior, the illusion of how money really works, and the stories that people and societies tell themselves to explain their place in the world.

Somewhat like the 2005 book “Freakonomics,” the authors then apply these theories to questions ranging from why countries fall into depressions to why real estate markets seem to always go through cycles.


Click here for entire column.

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