Bubble Deniers: Name Names
Scott Sumner’s posted a striking challenge: Name the famous bubble deniers.
In economics people notice bubbles bursting, but fail to pay much
attention to bubbles not bursting. But I admit I might be wrong, so
I’ll give my opponents one more chance. If it’s not really a cognitive
illusion, then bubble deniers who are right ought to be just as famous
as bubble predictors who are right…
At the same time we also know that bubble-like patterns don’t always
yield reliable predictions of future trends. The Australian housing
market looked just as bubbly as the US market in 2005, but since then
has soared much higher. Some day it will fall, but the 2005 prices no
longer look excessive.
If people like Robert Shiller (another person who became famous from
bubble predictions) are right about asset prices being too volatile,
then it should be true that US-type cases are more common than the
Australian case. I don’t think that’s true– in most developed
countries real housing prices have risen since 2005, despite real
upswings before 2005. But let’s say I’m wrong and Shiller’s right.
Then the easy prediction to make is that prices will fall after a big
upswing. The much harder prediction is that prices will keep rising,
even from inflated levels. Those cases would be much rarer, and those
who correctly call them when they occur (as in the Australian housing
case) should be lauded as great heros of the investment world.
So who are they?
The best tries in Sumner’s comments are Fama and Victor Niederhoffer. Are these valid examples? Have you got any better ones?