Sunday, December 28, 2008

Theme from the Bottom - Part One

Denny Grimes' and Gary Tasman's recent News Press articles (Grimes' from 12/7; and Tasman's from 12/21) got me thinking about the economics of our market here in Southwest Florida. Now this is not something I, an English and classics and J.D., ordinarily do. Economics and math are not my bag, baby. But the little bit of follow up I did after reading the two articles proved interesting and instructive.

Both articles focused on "the bottom." Or, more precisely, both articles focused on the impossibility of pinpointing "the bottom." On the one hand, Grimes mocked those who predict where the "the bottom" will be and himself predicted that "[w]hen the market will hit bottom is anyone's guess." On the other, Tasman noted that sluggish "demand . . . , especially with more rigorous mortgage qualification standards, declining employment and reduced spending in general" impede our ability to pinpoint "the bottom." When the market achieves balance, or equilibrium, the authors noted, is the only time we should expect to reach "the bottom."

This talk of balance and equilibrium moved me to explore these terms in relation to economics. The balance, of course, is the balance between supply and demand. And, as everyone is well aware, we are awash in supply and thirsty for demand here in Southwest Florida. The result of this imbalance is price/value decline in which, of course, we are also awash. The same Wikipedia search that provided the Economics 101 lesson also introduced me to three terms and theories with which I was not familiar. They are:

1) Demand Overestimation
2) Optimism Bias; and
3) Strategic Misrepresentation.

This will be the first of a series of entries that will explore each of these in more detail. Stay tuned and please feel to comment and add to the discussion.

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