Divorce & The Housing Crisis

Beside being an interesting discussion of economics, this postpresents a novel idea: a surge in divorce rates caused all the household based statistics to go bonkers, causing an incorrect policy response that pushed us unto the housing crisis. It certainly fits with the data and the sequence of events, so it’s hard to believe that divorce rated didn’t at least contribute to the housing mess. This illustrates a general problem in macroeconomics: there can be implicit assumptions buried deep in the models that, in changing circumstances, make the model’s output misleading. This is less than comforting and another reason to be skeptical of macroeconomic forecasts.

Divorce

Divorce (Photo credit: Wikipedia)

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2 responses to this post.

  1. Posted by Alistair Leadbetter on June 26, 2012 at 11:55 am

    It may not just be down to divorce but changing cultural habits. In the UK [and I suspect elsewhere] there are more and more people choosing to live alone but, thanks to the idea of home ownership being more pervasive [as well as more attractive given concerns over market volatility], also choosing to buy properties bigger than daily needs might dictate. I’m still surprised whenever anyone tries to separate economics and culture or ignore the relationship

    Reply

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