I refer to "Why the Housing Bubble Tanked the Economy And the Tech Bubble Didn’t" by AMIR SUFI and ATIF MIAN, here, where they basically blame the spending pullback of the Great Recession on the poorest, most indebted homeowners:
"The poor cut spending much more for the same dollar decline in wealth. This fact is one of the most robust findings in all of macroeconomics, ... It also makes intuitive sense."
Their forthcoming book may show this, but this article surely doesn't.
They present data which tell us about homeowners' housing as a share of their net worth by quintiles, their mortgages as a share of their home values by quintiles, and about the net worth of richest and poorest homeowners. These are useful distributional observations which, unfortunately, in the case of spending are missing in the presentation! You'd think they would be present in a story which attacks traditional economists like Ben Bernanke for ignoring distributional data sets. Ah, yeah.
Apart from whether showing the distributional characteristics of the spending pullback is even possible, I wonder if it makes any sense that the poorest homeowners could cut their spending enough to account for the sums involved, which is what traditional economists wonder. Weren't they the ones primarily represented in the 5.6 million who lost their homes to foreclosure in the first place?
Using November 2007 real retail and food service sales as the baseline ($179.37 billion), the cumulative month to month shortfall from that to November 2012 came to $663.09 billion. Yes, it took five full years for real retail to recover. But the peak to trough decline in real GDP from 4Q2007 to 2Q2009 alone, on the other hand, was $639.2 billion, not even half way through the great retail depression. Retail spending shows only part of the picture.
Which is why it's wrong to imply, as the authors do, that the decline in spending, supposedly linked to the poorest homeowners, explains the Great Recession. It only explains about a third of it, but just how much of that can be blamed on the poorest homeowners remains a mystery.
