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I can think of at least four economists who have accurately analyzed and forecasted the economic crisis in which we have fallen. What each has in common is a very strong understanding of the operation of land markets and how the infusion of credit has fueled the inherently boom-to-bust nature thereof.

These are: Fred Harrison (in the U.K.); Mason Gaffney, Fred Foldvary and Michael Hudson (in the U.S.)

Mason Gaffney's popular articles are collected here:

http://www.masongaffney.org


Gaffney is an expert on forestry economics, with a background in old school capital theory (I once discussed the economics of Wicksell with Gaffney).

Gaffney makes the same point some others have made -- there is a great difference between wealth stored in production goods and wealth stored in "bubble" inflated land values (much of the housing boom in California has taken place in areas with a huge premium due to land scarcity -- an effect you don't get in say, Texas or Idaho).

Gaffney also happens to be something of a Georgist on land taxation.

I would be interested if any full credit was given for answers to this question. If so, was there a market-oriented mechanism outlined?

That would be not only interesting, but helpful at this point.

If there are no explicit or implicit guarantees from a government agency, I wouldn't expect the outcome the question inquires about. Without guarantees investors in securitized mortgages would be buying a pig in a poke. Why would they do that?

However, if regulation creates barriers to entry and investment firms are sheltered from competition, they may do reckless things that they never would do in a competitive environment.

If there are no explicit or implicit guarantees from a government agency, I wouldn't expect the outcome the question inquires about. Without guarantees investors in securitized mortgages would be buying a pig in a poke. Why would they do that?

However, if regulation creates barriers to entry and investment firms are sheltered from competition, they may do reckless things that they never would do in a competitive environment.

Wow that is an amazing question. And I don't just mean because of its prescience, I mean because it actually refers to something in the real world.

I am exaggerating, but only slightly, when I say that at NYU such a question would be deemed unfair because you would have to know what was going on in the financial sector to really get the point, versus knowing how to calculate the shadow price of capital.

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