This episode is about why housing busts cause recessions. Few understand their nexus better than Ed Leamer.

Ed is the Chauncey J. Medberry Professor of Management, Professor of Economics and Professor of Statistics at UCLA and director of the UCLA Anderson Forecast.
Joe and Ed discuss the problem of causal inference in economics, why housing bubbles burst, and why they ultimately lead to recession.
Show notes
Selected links

Follow Ed: Website
Macroeconomic Patterns and Stories, by Ed Leamer
‘Bubble Trouble? Your Home Has a P/E Ratio Too’, Ed’s 2002 UCLA Anderson Forecast paper
An article explaining Bill Gross’s Plankton Theory
‘Housing IS the Business Cycle’, Ed’s 2007 paper

Topics discussed

What is the problem of causal inference in macroeconomics? [7:42]
Why can house prices never diverge too far from rents for too long? [11:30]
Why do housing bubbles burst? [17:33]
Housing IS the business cycle. [25:40]
What is the business cycle? [32:40]
What is the nexus between housing and recessions? [34:51]
Why does the sales volume dry up in a housing down market? [40:05]
Why are housing busts so drawn out? [46:23]
How do we get a grip on the housing cycle to improve macroeconomic stability? [48:32]