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American Focus > Blog > Economy > The Wisdom of Derek Thompson
Economy

The Wisdom of Derek Thompson

Last updated: April 7, 2025 8:31 pm
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The Wisdom of Derek Thompson
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Ezra Klein and Derek Thompson have recently unveiled their book titled Abundance. Here’s a snippet from its Amazon description:

Abundance argues that contemporary issues are not merely the byproducts of past villains; rather, the solutions once heralded by one generation have morphed into the dilemmas of the next. Regulations established to tackle the crises of the 1970s now obstruct urban development and renewable energy initiatives that could remedy the challenges faced in 2020s. Laws intended to compel the government to consider the long-term effects of its actions have inadvertently hamstrung its capacity to act decisively. We’ve become adept at identifying problems but alarmingly inept at devising solutions over the last few decades.

The authors are advocates for the “Yimby” (Yes In My Backyard) movement, which seeks to alleviate housing shortages by dismantling construction barriers. In a recent interview on CNBC, Thompson expressed his frustrations with misconceptions surrounding housing pricing (you can view the interview here):

Thompson’s exasperation is warranted when addressing the confusion between reduced housing prices stemming from increased supply and those resulting from economic downturns. The former scenario benefits potential homebuyers, while the latter is decidedly detrimental. While both increased supply and decreased demand can lead to lower prices, only the former fosters an actual uptick in housing availability.

I often bemoan the phenomenon of “reasoning from a price change.” You might think this logical misstep is relegated to the halls of introductory economics courses, but it’s astonishing how frequently it trips up even the titans of Wall Street.

Moreover, Thompson challenges the notion that plummeting stock prices are inconsequential. A common refrain suggests that falling stock values indicate short-term pain from tariffs but promise long-term economic benefits. However, several issues undermine this perspective:

See also  3 least impressive Washington Capitals players from 5-2 Game 4 loss to Carolina Hurricanes feat. Logan Thompson

1. This perspective fundamentally misunderstands asset markets. If investors believed tariffs would ultimately benefit the economy, substantial declines in stock prices and a weakening dollar would be unlikely. The so-called “wisdom of crowds” is signaling that tariffs are more likely to hinder long-term economic growth. Were there a futures market for industrial output, it would likely have reflected a significant downturn recently.

2. Proponents of mercantilism did not foresee these market reactions. It’s not merely a case of “Wall Street versus Main Street.” The market’s responses were far from what mercantilists anticipated, demonstrating a disconnect between theoretical expectations and real-world outcomes.

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