Brad DeLong and John Cochrane agree on something. I must dissent.
“The underlying decline in wealth from the housing bust was … around $400 billion. …”
Indeed, relative to the size of the economy the losses during the crash of the dot-com bubble were four times as large.
I object that the two sums being compared are not comparable at all.
OK so this was a comment on DeLong so when you see “you” read “DeLong”
Why do you compare the losses during the crash of the dot-com bubble to the $400 billion rather than to the $25 trillion ?
The losses during the crash of the housing bubble are, you claim, $25 trillion.
Someone who has forgotten 2000 (or 1999 or 2001 or … well I clearly am that someone) would compare the $400 billion to the decline in the value of shares of corporations with names which ended .com. I don’t think that was $ 1.2 trillion.
For some reason, you and Cochrane count the whole loss around that time as the dot.com shock and only losses on subprime mortgages this time. The former value of the former shares of Lehman isn’t in the sum which equals $ 400 billion.
I think that it is possible to distinguish the shock due to burst bubbles from the total consequences in a meaningful way. I’d say the reasonable comparison is the total decline in share values then to the total decline in the value of housing now. The current bubble loss would be about $ 6 trillion for the USA not $ 400 billion.
It doesn’t make sense to compare total losses then to losses born by banks now and conclude that the losses born by banks now are smaller than total losses then, but a lot of damange was done because all of the losses born by banks now were born by banks.
I’d say that in the US alone, and ignoring commercial real estate, about $ 6 trillion in “wealth” was revealed to be a fantasy.
That’s gotta to hurt. It hurt even more because investment banks shared the rubes delusions this time, but the delusion was huge and the so was the delusione (disappointment)