The Baby Boom, The Housing, And Being Right and Wrong at the Same Time.

Economist N Gregory Mankiw (and colleague David Weil) wrote a much-cited article in 1990 titled "The Baby Boom, The Baby Bust, and the Housing Market". Without going into the econometrics of it all, the basic gist of the article is this: old people demand less housing, so as the baby boomers retire, they move out of their big homes and into smaller homes. Since Baby boomers are such a large proportion of the population, this "trading down" could potentially lead to a large downswing in housing prices.

I replicated the results of this paper as part of my graduate school work. Additionally, I used the 1990 census data (the originally paper only looked at the 1970 and 1980 census data), and it showed that while old people still demanded less housing, they demanded more housing than the previous cohort of old people. And this effect was sufficient to blunt the predicted housing price decline of 40% by 2010 (or something of that magnitude, based on my leaky recollection), as that was Mankiw and Weil's upper bound estimates.

Well, the 40% decline off the top by 2010 doesn't seem so preposterous now eh? Of course this is not due to the baby bust (not entirely at least), but the giant, global financial clusterfuck we find ourselves in. What's more preferable, being wrong and right or being right and wrong?