Looking over the vast landscape of foreclosures in New York City graphically illustrated at the Queens Museum of Art show on the predations of real estate finance the other day, I couldn’t help but think about a long James Grant essay I had read in last weekend’s Wall Street Journal, from “Bear to Bull,” predicting a stronger-than-expected recovery.
Barry Ritholtz’s blog and others have taken issue with the main premise of the piece, but my eye was drawn to a paragraph on Detroit, which, of all places, was used to illustrate the “self-regenerative power of markets” that over the years has “lifted us off the rocks.” I kid you not (my emphasis):
Bargain-hunting is the balm of recovery even today, dead set against low prices the Federal Reserve might be. Detroit is a living laboratory in many things, including the so-called real balance effect. As Marshall Mandall, a RE/MAX agent in that city, tells the story, house prices are still falling at the high end of the market, though they have stabilized at the low end. Transaction volumes are rising. Speculators are on the prowl, but so, too, are ordinary home buyers. It seems—who’d have guessed it?—that value sells. “They can buy something for half of what they could three years ago,” Mr. Mandall says. “Everybody perceives bargains in their house-hunting.” At the end of the second quarter, according to the Detroit Free Press, the supply of unsold houses was equivalent to 8.5 months’ sales, down 39% from the year before.
To offer Detroit as an example of the “so-called real balance effect,” or any other good effect, without further comment strikes me as hilariously out of it, a distilled example of but one of the intellectual pathologies that afflict the business press generally. To this extreme out-of-touch-ism, we can add a touching faith in markets and especially market-y jargon—“real balance effect,” “so-called”; James, stop, you’re killing me. I’d also thrown in the Olympian perspective, as well as prose, that, well, grates.
Ah, bargain hunting, the “balm of recovery.” Take Detroit, par example.
Did you know that the median home price in Detroit was $7,500 (h/t Ritholtz again)?
This kind of stabilization “at the low end” is basically the stabilization of a body hitting the pavement. If Detroit is an example of the real balance effect, “so called” and whatever that is, I’d say that to rely on it is a really, really bad idea.
Commentary here feels superfluous, and I don’t want to make too much of this—nobody’s perfect—though I can’t help but note that this passage was backed up by reporting with a RE/MAX broker. This is another bizpress problem: too much talking to people just like you.
For a refresher on Detroit, as well as some eye-opening photos, revisit our Elinore Longobardi’s essay on Detroit coverage, which, among other things, singles out for praise Matt Labash’s disturbing 10,000 word piece for the Weekly Standard. As that piece shows, and as if we didn’t know all ready, the real balance effect is not to be relied upon.
James Grant is a dean of financial journalism, and we’d all be poorer, intellectually and literally, without him. But I’ve also found he articulates commonly held, and unhelpful, business press beliefs that should not go unchallenged. At the start of the crisis, I couldn’t help but notice his passing along the everybody-is-to-blame school of thinking in a New York Times op-ed.
Who’s to blame? The human race, first and foremost. Well-intended public policy, second. And Wall Street, third — if only for taking what generations of policy makers have so unwisely handed it.
The human race. I’m still getting over that one.
First and foremost, business journalism needs to rethink its most comfortable assumptions. Let’s start with the real balance effect and go from there.Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.