The Post Still Gets It Wrong on Consumption and the Housing Bubble

Students in introductory economics classes learn about the housing wealth effect. The basic story is that consumption depends in part on housing wealth. The size of the effect is usually estimated at between 5 to 7 percent, meaning that for every additional dollar of housing wealth annual consumption will increase by between 5-7 cents.

This effect was very important during the years of the housing bubble. The $8 trillion of housing bubble wealth led to a consumption boom that pushed the...