MIT Professor Jonathan Gruber has inadvertently become a YouTube celebrity as a result of a video of him referring to the public as “stupid.” The immediate point of reference was the complexity of the design of the Affordable Care Act (ACA), which Gruber was describing as being necessary politically in order to deceive the public. With the right-wing now in a state of near frenzy after the Republican election victories, the Gruber comment was fresh meat in their attack on the ACA.
Apart from merits of the ACA, there is something grating about seeing a prominent economist refer to the American public as “stupid.” After all, the country and the world have suffered enormously over the last seven years because the leading lights of the economic profession were almost completely oblivious to the largest asset bubble in the history of the world.
While it should have been easy to recognize an $8 trillion housing bubble in the United States, prices had diverged sharply from their long-term trend with no plausible basis in the fundamentals of the housing market. In particular, rents had only risen in step with inflation, indicating there had not been a sudden upturn in the demand for housing.
It also should not have been surprising that the loss of this wealth when the bubble burst would lead to a severe economic downturn and have a major impact on the financial sector. After all, it was easy to see that the bubble was driving the economy in the last business cycle. Residential construction had hit a record as a share of GDP and the ephemeral bubble wealth led to an unprecedented boom in consumption.