The timber bubble that burst : government policy and the bailout of 1984 / Joe P. Mattey.

Format:

Book

Author/Creator:

Mattey, Joe P.

Language:

English

Subjects (All):

Lumber trade--Northwest, Pacific.

Lumber trade.

Lumber trade--Government policy--United States.

Lumber trade--Government policy.

United States.

Physical Description:

viii, 109 pages : illustrations ; 22 cm

Place of Publication:

New York : Oxford University Press, 1990.

Summary:

This is a book about bubble prices, and their consequences, in the timber industry of the Pacific Northwest from 1979-1984. Bubble prices--unusual and rapid rises (and eventual drops) in the prices of a commodity--have been of theoretical interest to economists for many years. This study examines the unusual movements in the price of federal timber and the subsequent recession in the Northwest when timber buyers delayed harvests in order to postpone the realization of their losses on the contracts. Mattey argues that it was not so much the actions of the Federal Reserve, which had been widely blamed for the crisis, but rather the actions of the buyers themselves that caused the recession.

Contents:

The Bubble That Burst 3

The Bailout 6

An Overview of the Book 8

2. Victims of a Macroeconomic Policy Shift? 10

Prima Facie Evidence 10

Macroeconomic Policy Was Blamed 10

Macroeconomic Conditions Did Change 12

Credibility Was a Problem 13

Contraction Was Sharp 14

Demand Shift Was Not Idiosyncratic 15

Opposing Evidence 20

Timber Prices Exceeded Projected Values 20

Barriers to Fast Adaptation Existed 24

3. Risk-Taking by Zombie Firms? 26

Zombie Effect in a Bankruptcy Model 26

Zombie Effect in the Thrift Industry 28

Zombie Effect in the Timber Market 30

Excess Capacity 30

Specific Human Capital and Implicit Contracts 33

The SBA Ratchet Effect 34

Credit Costs Were Insensitive to Risk 36

Patterns in Timber Contract Overbids 38

Patterns in Timber Volume Shares 42

4. Psychology of the Market 45

Beliefs of Timber Buyers 46

We Live in the Long Run 46

Baby Boomers Would Create Record Housing Demand 46

A Timber Shortage Was Impending 47

Forest Service Projections 49

An Overview of the USFS Projection Methodology 49

The TAMM Model 50

Forest Service Housing Start Forecasts 51

Misconceptions 57

Living in the Short Run 57

Baby Boomers and Housing Demand 59

Underestimates of Price Elasticities 62

Development of the Misconceptions 63

Cognitive Dissonance 64

Lobbying for a Larger Budget 66

5. Reform in the Aftermath of the Bailout 68

Timber Assessment Projections 69

Current State of Affairs 69

Proposed Reforms 70

Public Timber Supply 71

Current State of Affairs 71

Proposed Reforms 74

Insolvency and Default Risk 74

Current State of Affairs 74

Proposed Reforms 76

Set-aside Program 77

Current State of Affairs 77

Proposed Reforms 81

Appendix A Model for Projecting Coastal Timber Values 83.

Notes:

Revision of thesis (Ph. D.)--University of California, Berkeley, 1988.

Includes bibliographical references (pages 103-106) and index.

ISBN:

0195062752

OCLC:

20759091