When he was speaking at Goldsmiths a year ago, I asked Harrison White whether he thought economic sociology had any policy or performative dimension. He said he thought not, which made me wonder whether it is ever possible to talk about the economy without seeking to shape it in some way. As an example, and in order that I can say 'I told you so' when the time comes, I've recently been wondering whether economic sociology would lead one to predict an imminent housing crash in a way that neoclassical economics itself wouldn't. These are the types of reasons.
- The housing market has become a national cultural obsession. In order to function as neo-classical economics dictates, markets require people to perform in a manner reasonably close to the homo economicus model: rational, individualistic, utility calculating. Thanks to home improvement television shows, DIY culture, gentrification, newspaper supplements and much else besides, homo economicus is pretty much absent from this market. To understand the implications of this, witness what happened with the stock market in the US during the 1990s. As Thomas Frank's brilliant analysis showed, it became a talking point at parties and something which grannies got involved in as a statement of patriotism rather than of rational calculation. The market then lost a third of its value during 2000, against any predictions by economists, who only ever anticipate a 'correction'.
- Inflationary techniques are being deliberately performed. Egged on by estate agents, sellers are asking potential buyers to put in 'sealed bids' (i.e. bidders are unable to view other bids), and then selling to the highest bidder at the price they offered. This last aspect is crucial. eBay uses sealed bids, but its rules state that the price paid ends up being £1 higher than the second highest bid, rather than the highest amount offered. This makes it a far truer market, in terms of producing an 'accurate' valuation of the product. But what's going on in the housing market encourages people to over-estimate the value of the house, and then pay that over-estimated price. This equals inflation, and it ought, neoclassically speaking, to be banned by the Office of Fair Trading.
The other and more obvious reason why a crash is imminent is that the market is losing all relation to the 'real' economy of wages and work, as the Telegraph reported yesterday. These stories themselves - along with this miniature performative intervention of my own - then of course heighten the risk they claim to have calculated. If and when this crash occurs, the other way in which it will resemble the US stock market crash is that the greatest brunt of it will be carried by small time investors who are unable to simply extract their capital with the speed that institutional or professional investors can.