The Unassuming Economist

From VoxEU post by Gérard Roland:

“The great Hungarian economist János Kornai, who passed away in October 2021, was a pioneering analyst of shortages, socialist economies and the economics of transition to a market economy. This column outlines what made him one of the most important intellectuals of the twentieth century.

The famous Hungarian economist János Kornai has left us. He was one of the most important intellectuals of the twentieth century. He suffered personally from both Nazism and communism, the two totalitarian regimes of the twentieth century. As a young Jew growing up in Budapest, he lost his father and a brother to the Nazis. Like many young Jews in Central Europe who survived the holocaust, he was for a couple of years an enthusiastic supporter of communism, the arch-enemy of Nazism. He became disillusioned after a few years, especially when learning about the Stalinist purges in Hungary in the early 1950s. He had been a journalist at that time.

His doctoral dissertation in economics, Overcentralization in Economic Administration, was full of facts about the flaws of central planning and represented a great breath of fresh air in the intellectual atmosphere of the times. He defended that dissertation just before the Soviet repression of the Hungarian revolution of 1956. His defence was attended by a big crowd and was one of the important intellectual events of that year. Given the visibility of his doctoral thesis, when the repression came, he lost his job at the Institute of Economics (later a hotbed of thinking about reforms), was interrogated, and eventually got marginal jobs, first at the Light Industry Planning Bureau and later at the Textile Industry Research Institute. 

Instead of becoming discouraged or cynical, he used the free time he had in these obscure jobs to study economics seriously and to get better acquainted with economic research that was being practiced in the West, on the other side of the Iron Curtain. His work on two-level planning with Tamás Lipták was published in Econometrica and became an important paper in the literature on the economics of planning. This earned him the recognition of top economists of the time: Kenneth Arrow, Leonid Hurwicz, Tjalling Koopmans, Edmond Malinvaud and others. The Hungarian authorities, who were more liberal than other communist regimes, even allowed him to travel to conferences in the West, albeit under heavy supervision of the secret police. 

Instead of ‘just’ becoming Central and Eastern Europe’s top economist (together with the more senior Leonid Kantorovich, the inventor of linear programming, who received the Nobel prize in 1975), he wrote in 1971 a book with the provocative title Anti-Equilibrium that represented a thorough criticism of the relevance of general equilibrium theory, the crown jewel of economic theory. That book also proposed to add considerations related to the informational sphere of the economy, developing themes such as informational asymmetry, bargaining, conventions, routines, aspirations – topics that would be developed later by other economists.”

Continue reading here.

On cross-country:

• IMF urges caution as house prices surge globally – Irish Examiner
• Creating Housing Markets in Emerging Market Economies – IFC
• Warning: Some Transaction Prices can be Detrimental to your House Price Index – University of Graz

On the US:   

• RV Capital of America Tops WSJ/Realtor.com Housing Index in Third Quarter. Index ranks cities for appreciating housing markets and lifestyle amenities – Wall Street Journal
• Construction on new homes slows as supply-chain woes hit the housing market. The number of housing projects completed in September fell to the lowest level in over a year – Market Watch
• U.S. homebuilding stumbles as supply constraints mount – Reuters
• Another upward force on American inflation: the housing boom. Property could join energy, shipping, used cars and wages as a contributor to rising consumer prices – The Economist
• Immediate and Longer-Term Housing Market Effects of a Major U.S. Airport Closure – NBER
• Do Restrictive Land Use Regulations Make Housing More Expensive Everywhere? – Economic Development Quarterly
• Psychoanalyzing the Housing Frenzy With Redfin’s CEO. The emotional and financial stakes of buying a home have never been higher. – Curbed

On China

• China new home prices hit by first month-on-month fall since 2015. Data reveal price decline in big cities in September as weakness in real estate sector reverberates – FT
• Chinese developer Sinic defaults as Evergrande deadline looms. More companies miss debt payments as country’s real estate sector contracts in third quarter – FT
• Evergrande: concerns linger even as embattled developer’s Hengda unit makes interest payment on US$327 million onshore bond. – South China Morning Post
• Evergrande’s debt crisis sates appetite for risk, forcing 206 plots to withdraw from China’s land auctions since September – South China Morning Post
• Housing slowdown threatens China’s economic muscle – Axios
• China’s property and construction sectors contract in third quarter as Evergrande crisis and tougher regulation hit home – South China Morning Post
• In Tackling China’s Real-Estate Bubble, Xi Jinping Faces Resistance to Property-Tax Plan. After negative feedback from within the party, an initial proposal to test a property tax in some 30 cities has been significantly scaled down – Wall Street Journal
• Time for orderly resolution for Evergrande is running out. If the state has a grand plan, it will need to make it known soon – The Economist

On other countries:  

• [New Zealand] New Zealand plans new housing density laws to tame red-hot property market – Reuters
• [New Zealand] Sweeping housing legislation could reshape New Zealand cities for decades to come. Housing campaigners welcome changes, saying they will boost businesses, lower emissions and enable better transport links – The Guardian
• [Turkey] Housing prices in emerging countries during COVID-19: evidence from Turkey – International Journal of Housing Markets and Analysis
• [United Kingdom] The problem with new-build property. It loses its premium over time, so mortgage providers are more reluctant to lend to those with small deposits – FT
  

From a VoxEU post by Jörn-Steffen Pischke:

“The 2021 Nobel Prize in Economic Sciences has been awarded to David Card of the University of California, Berkeley, “for his empirical contributions to labour economics”, and to Joshua Angrist of MIT and Guido Imbens of Stanford University “for their methodological contributions to the analysis of causal relationships”. This column explains how the use of natural experiments in empirical economics has ushered in much progress in the analysis of causal relationships. The ensuing ‘credibility revolution’ over the past three decades has been transformational for the study of key policy challenges, including education, immigration and the minimum wage.

I once, naively, asked the late Alan Krueger about the pioneers of natural experiments in economics. His somewhat sheepish answer was that that’s like asking about the pioneers of rock music. It didn’t take much research on my part to reveal the numerous protagonists of a movement in labour economics in the 1980s and 1990s that transformed the way empirical work is done in the field and in many areas of economics beyond. Yet, like rock music, natural experiments have their Fab Four, and they are the 2021 Nobel laureates David Card, Joshua Angrist and Guido Imbens, plus the late Alan Krueger. I hope many will agree with me that this prize honours Krueger as well.

The important questions in economics are causal questions. How does immigration affect the labour market prospects of natives? What is the payoff to an additional year spent in school or to attending university? What are the effects of minimum wages on the employment prospects of low-skilled workers? But these questions are difficult to answer because we lack the right counterfactuals.”

Continue reading here.

On cross-country:

• Euro Area Housing Markets: Trends, Challenges & Policy Responses – European Commission
• Do Foreign Buyer Taxes Affect House Prices? – SSRN

On the US:   

• 10th Annual Housing Conference – American Enterprise Institute
• Why the U.S. Housing Boom Isn’t a Bubble – Wharton
• Borrower Expectations and Mortgage Performance: Evidence from the COVID-19 Pandemic – FHFA
• This Year, Half as Many Metro Areas Are Affordable to Low-Income Homebuyers as Last Year – Harvard Joint Center for Housing Studies
• Maxine Waters ready to battle over potential cuts to housing aid. Waters, who proposed the funding as chair of the House Financial Services Committee, said in an interview that “I’m going to fight as hard as I can to keep as much housing as I can in the reconciliation bill.” – Politco
• Millennials Team Up to Fulfill the Dream of Homeownership. Burdened by debt and facing soaring home prices, first-time home buyers are pooling their finances with partners, friends or roommates – Wall Street Journal
• Is There a Relationship Between Regional Unemployment Rates and Older Adult Housing Stability? – Harvard Joint Center for Housing Studies

On other countries:  

• [Australia] RBA Says Risks Remain for Excessive Borrowing, House Prices – Bloomberg
• [Australia] RBA Sees Financial Stability Risks From Record-Low Rates, Housing Boom – Wall Street Journal 
• China’s Harbin lends hand to property firms; Morgan Stanley upgrades sector view – Reuters
• [United Kingdom] Return of the renters: price hikes, bidding wars and bribes. As cities relax pandemic restrictions and workers move back, competition for rented property is fierce – FT  
• [United Kingdom] Boris Johnson’s Housing Headaches Aren’t Over Yet. His Conservative government has signaled it won’t be obsessed with building homes. That’s fine, but Britain still needs more affordable housing. – Bloomberg
• [United Kingdom] Michael Gove urged to address loss of half a million social homes in England. Campaigners challenge new housing secretary to help more than 1m families on waiting list – FT
  
  

Wharton’s Benjamin Keys explains why the red-hot U.S. real estate market isn’t a bubble that’s ready to burst. Home prices are likely to stay high for years to come:

“In Philadelphia, the median home price has risen 48% in the last decade. In Atlanta, the median sale price of a metro home hit an all-time high in June of $372,500. Not to be outdone by big cities, Boise, Idaho, recently ranked as the nation’s most overvalued market, where homes are selling for nearly 81% more than they should.

While the red-hot real estate market is finally showing signs of cooling, its meteoric rise has many Americans wondering if housing prices are a bubble that is about to burst, much like the collapse that triggered the Great Recession.

Wharton real estate and finance professor Benjamin Keys says that’s not the case.

“I come down very strongly against that view. I don’t think that it’s likely that we’re going to see a bubble burst in the way that we saw in 2008, 2009, and 2010,” he said during an interview with Wharton Business Daily on SiriusXM. (Listen to the podcast above.)

Although the frenzied buying and inflated prices are reminiscent of the run-up to the recession, Keys said there are several factors that make the current market different. First, loan standards that were loosened during the bubble are much tighter now, with stringent requirements for good credit, complete documentation, and a sizeable down payment. In contrast, the pre-recession years were pocked with subprime mortgages, low teaser interest rates that ballooned, weak underwriting, negatively amortized construction, and other questionable practices.

Second, the boom of the early 2000s was also driven by a surge in home construction that led to abundant supply. But there’s been a building shortage over the last 10 years, especially in cities with high demand. The result is a supply-demand mismatch that can’t be resolved quickly or easily.

“I think there was a bit of a hangover coming out of that 2000 boom and bust, and we’re underbuilt in a lot of cities where there’s demand for jobs, where there’s demand for housing,” Keys said.”

Continue reading here.