Business Books: U.S. economy was victim of plunder and blunder

By Pedro Nicolaci da Costa

NEW YORK (Reuters) - America's housing debacle was both highly predictable and easily preventable, and those who failed to spot it can no longer be relied upon as experts, according to a new book.

In "Plunder and Blunder: The Rise and Fall of the Bubble Economy," Dean Baker gives readers some basic metrics that clearly show the market was overly ebullient.

Baker, of the progressive Center for Economic and Policy Research, also outlines a set of policies, including taxes on financial transactions, that might prevent similar episodes in the future.

"Underlying all of these developments was an incentive structure that placed an enormous premium on short-term profits, often at the expense of longer-term profits or even long-term corporate survival," Baker writes.

As far back as 2002, Baker wrote a series of articles that argued house prices were out of whack. In one instance, when Ben Bernanke had just been nominated to lead the Federal Reserve, Baker penned a paper rhetorically entitled "Will a Bursting Bubble Trouble Bernanke?"

There is plenty of blame to go around when it comes to this crisis, Baker writes. Economists bear much of it, for not paying attention to the data that was available to them, and for extrapolating the recent run-up in house prices into the future.

But the financial press also shares some culpability, for mistaking industry advocates such as David Lereah, the National Association of Realtors' upbeat chief economist, for impartial observers.

"Somehow it never occurred to reporters that the chief economist of the NAR was in the business of selling real estate," Baker notes. "Otherwise, they might have viewed his prediction of ever rising house prices a bit more skeptically."