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Who Predicted the Financial Crisis

The Accuracy and Reliability of Dean Baker's Predictions
Can they be relied on for investment decisions?

Dean Baker Predictions

Dean Baker Bio -Dean Baker's Predictions - Wrong Economic Predictions and Right Economic Predictions

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. He is frequently cited in economics reporting in major media outlets, including the New York Times, Washington Post, CNN, CNBC, and National Public Radio. He writes a weekly column for the Guardian Unlimited (UK) and the Huffington Post. His blog, Beat the Press, features commentary on economic reporting. His analyses have appeared in many major publications, including the Atlantic Monthly, the Washington Post, the London Financial Times, and the New York Daily News. He received his Ph.D in economics from the University of Michigan.

Dean previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He has also worked as a consultant for the World Bank, the Joint Economic Committee of the U.S. Congress, and the OECD's Trade Union Advisory Council. He was the author of the weekly online commentary on economic reporting, the Economic Reporting Review (ERR), from 1996 - 2006.

Expertise: Housing, consumer prices, intellectual property, Social Security, Medicare, trade, employment

Source: CEPR.NET

Politics: Democrat

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Wall Street / Economic Predictions	Source & Date	Accuracy	Comments
The housing enthusiasts, led by Alan Greenspan, insist that the run-up is not a bubble, but rather reflects fundamental factors in the demand for housing. Instead of warning prospective homebuyers of the risk of buying housing in a bubble-inflated market, Greenspan gave Congressional testimony in the summer of 2002 arguing that there is no such bubble	August 9, 2004 The Nation	True	Uncannily True However, his timing was wrong for 5 years of warning before (2002 to 2007). Mr Baker also went quite on the issue from August 2005 indicating that he had doubts about his conclusions after they did not materialize in 5 years. To his credit most economists and experts ignored the signs until the markets crashed in summer of 2008. The two exceptions are: Med Jones' (US Economic Risks 2006) and Reuters March 11, 2007 Peter Schiff's warning December 16, 2006
The Run-Up in Home Prices: Is it Real or Is it Another Bubble? A sharp drop in home prices will send this ratio far below its previous low point. Since there are considerable differences in housing markets across the country, if housing prices fall 10 percent nationally, then many regions will see price declines of 20-30 percent. In the late eighties Japan experienced a simultaneous bubble in its stock market and its real estate market. The collapse of these bubbles has derailed its economy for more than a decade. A similar collapse in the United States, coupled with a poor policy response, could have similar consequences here	July 21, 2005 CEPR Note: (1) (original paper 2002)	True	Alan Greenspan was wrong. Dean Baker was right. Later Alan Greenspan reversed his position on September 18, 2007 Also it remains to be seen if the recovery of 2010 is sustainable or we will enter a decade of stagflation like Japan
Social Security - The Phony Crisis “Dean Baker and Mark Weisbrot have no trouble at all demonstrating that even on highly conservative assumptions about economic growth, the much-forecast insolvency of the Social Security system by about 2030 is most unlikely to happen then, if indeed ever.”—The Economist The simple truth is that our economy is generating more than enough income to provide a rising standard of living for future generations while meeting our commitments to Social Security	1999 University of Chicago Press	False	CNN Fortune reported on Feb 2, 2010 - Next in line for Bail Out
(About Social Security) What Crisis? It Ain't Broke, So No Need To Fix It - January 23, 2005. A Washington Post op-ed by Mark Weisbrot and Dean Baker	Jan 23, 2005 University of Chicago Press	False	CNN Fortune reported on Feb 2, 2010 - Next in line for Bail Out
But that time will come, and the mass uprisings in support of collective bargaining are a great and inspiring start where new leadership and organizing will emerge	March 12, 20111 Analytical Liberal	To be determined

Note (1) the date of the paper shows August 2002 but the first independent reference to the prediction is in August 9, 2004. Since that date it is before our cut off date of September 18, 2007 (Alan Greenspan first public warning on PBS News Hour). Therefore it is our conclusion that he did predict warn about the housing bubble and its impact on the economy. In fact he is probably (so far in our research) the first among the experts to warn about the housing bubble and its impact on the economy. The strange thing is after that report. Dr Baker, went silent on the issue. It appears that after his predictions did not come true from 2002 to 2006, he simply dropped the issue. In May 2008 he claimed a credit for predicting the housing bubble. He was right about the crisis and wrong about its timing. Although he appears to be the first to predict the crisis, all the media credit went to Nouriel Roubini and Peter Schiff instead.

Another note. Although Dean Baker warning was observational of price based on statistical and historical correlation. He did not identify the root cause of the housing bubble (subprime mortgages). On the other hand Med Jones and Peter Schiff were more specific. So is it a lucky guess? Not really, we believe he was close enough in his prediction. He did not need to know the workings of subprime mortgages to know that the housing prices were not sustainable.

How accurate are Dean Baker's economic predictions? Can they be relied on for investing?

Despite the fact he foresaw the crisis before anyone else and warned about it, if you followed his predictions you could have lost or made money depending on the time you listened to him. Whether you made money or lost money by or selling your house it depends on the time you listened to his advice. If you sold your house in 2002, 2003, or 2004 you would have lose money. If you listened to him in 2005 you would have saved yourself a lot of money. Dean Bakers went quiet on the topic in 2006 and 2007. The problem with Dean's prediction is timing, while other economists who predicted the crisis warned about it in 2006 & 2007.

Dean was also wrong on the Social Security. He said it was not a problem.

Research conclusion: Even if an economist is an expert in one sector or area, and was right once or several times, the complexity and number of variables in the economy make it almost impossible to be right all the time. So the value of these predictions is just to become aware of different risks. We only recommend that you follow your own conclusion rather than theirs.

Compare Dean Baker's Predictions to

Med Jones Predictions

Peter Schiff Predictions

Nouriel Roubini Predictions

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