Rudebusch on "Housing Demand"
By David Henderson
This is another installment in my posts on my visit to the San Francisco Fed on April 9.
My talk was in the afternoon, but I always like to see the talks that precede mine so that I can get a feel for the audience–what they know and don’t know, what they’re thinking about, etc. The first talk was in the morning. It was titled “The Economic Outlook” and was by Glenn Rudebusch, Executive Vice President and Director of Research at the San Francisco Fed.
My big impression was how Keynesian he was/is. A large part of his focus was on household spending, auto and truck sales, home sales, and home building. There wasn’t even one slide, in his 18 slides, about investment. (Of course, to some extent, housing and car and truck sales are investment. Maybe that’s what he would argue.)
Of course, whether you think that’s sensible will depend on whether you think the Keynesian model is basically right and also on whether the focus should be on the short-run (consumption) or the long run (investment).
But I was surprised that he made a basic economic error, one that I would expect my students not to make after we’ve gone over it in class. After showing a slide on sales of existing homes–it showed a big drop in the last few months–he referred to this as “housing demand.” But it’s not housing demand, nor is it housing supply. The only thing that a figure on home sales tell us is how many homes were sold. The drop could be due to a drop in demand. One could even argue that it’s likely due to a drop in demand. But it also could be due to a drop in supply. At most, it’s an equilibrium quantity determined by the intersection of supply and demand.
I’ve even seen one sharp petroleum economist from the American Petroleum Institute make the same mistake: he presented data on consumption and referred to it as “oil demand.”