Review of the Book:
The Secret Life of Real Estate
by Phillip J. Anderson
The Secret Life of Real Estate is published by
Shepheard-Walwyn Ltd., 2008.
This review is reprinted from GroundSwell, July-August 2009]
This is an exciting, important and timely work; it will sell well.
Anderson has ferreted out and marshaled dozens of sources on the
18-year cycle of boom and bust in real estate, its history, its
mechanics, and its dynamics. Some sources are old and neglected;
some are current and neglected; but after Anderson it will be hard
for macro-economists to continue neglecting them. He melds the
dramatic skills of a raconteur with the industry of a scholar and
the discipline of a field marshal, to keep readers wide awake while
they follow and most likely accept Andersons take on economic
One test of an hypothesis is prediction. Anderson accepts that
challenge, even providing us with a clock to let us know
where we are in the cycle. His theme is Understanding the Past
to Predict the Future. After guiding us through many 18-year
cycles, from 1800 to date, he sums up with a chapter disarmingly
titled, Knowledge we Gained along the Way. Here are some
1. The prices of land peak before other measures do, i.e. it is a
leading indicator. Construction peaks after land prices do, but
before recession hits, where recession is measured in
GDP and other familiar metrics used by the NBER.
2. Few people study history, so few under about 42 even know there
is a land cycle. All they know is their own recent experience, so in
the heat of a land boom, lasting several years, they easily fall
prey to projecting the boom indefinitely forwards. Few leading mainstream
experts forecast crashes, even as they are beginning to happen;
quite a few deny them even as they turn catastrophic. Anderson names
names, including Ben Bernankes, and most of us could add more.
3. Bank credit swells and shrinks in synch with the land cycle.
The two interact in a positive feedback process: swelling bank
credit raises land prices; buyers need more credit to purchase the
land; the appreciated land then serves as collateral for more bank
loans, and so on.
4. Banks are highly vulnerable to downturns because they borrow
short to lend long. In the heat of a land boom they carry inadequate
capital reserves to cover the 18-year crash, even though that is, to
Anderson, predictable. Insuring deposits, and bailing out failed
banks, creates moral hazard that leads to repeated excesses.
5. Economists recently have programmed their computers not to
predict a downturn of more than 25% of the standard deviation (a black
swan moment). This is only the modern manifestation of a group
delusion that has marked every boom in history, a cautious
tuning-out of extremes. (This propensity is also manifested in their
choice of statistical measures: medians instead of means; standard
deviations instead of mean deviations, for example.)
6. Several credit crunches and minor disasters occur before a
major tsunami hits. It takes a real estate cycle to generate the
proverbial 9th wave. There is usually at
least one mid-cycle slowdown from which we recover nicely. Most
economists are conditioned to blank out land prices from their
analyses, so their histories fail to distinguish major from minor
cycles. Accordingly, they (e.g. the NBER) jumble them together
indiscriminately, and so miss the 18-year cycle of land prices.
Anderson finds, on the contrary, that land value is the key to
7. Anderson gives us dates. There were land-price troughs starting
in 1955, 1973, 1991, followed by slow recovery with a hockey-stick
boom at the end. Accordingly the next trough is due in 2009. Going
back to 1800 he gives us peaks: 1819, 1836, 1857, 1873, 1893. The
peak of 1911 is curiously muted, and 1926 came a little ahead of
schedule, even though one could pick 1929. World War II
understandably upset the schedule, which picks up again, however,
after the Korean War, from a trough in 1955.
8. The system of government-granted licenses (privatization) is
spreading. Privatization is the precondition for trading in and
monetizing land titles, which creates the land cycle. He mentions
The World Bank making its loans conditional on privatization, and
no-bid military contracts, but might have added items closer to
home: fishery licenses, pollution permits, spectrum assignments,
aircraft slots, water-pumping permits, mining and drilling leases,
preferential zoning, subsidies to water licensees, and a host of
evolving forms of private privileges.
9. Some reliable indicators of a forthcoming peak are: A,
unusually high land prices and price/rent ratios;
B, a rash of extra-tall buildings; C, a boom in copper prices; and
D, an inverted yield curve.
The NBER cycle-dating committee, led by Robert Hall of the Hoover
Institution, did not announce the downturn of December 2007 until 11
months after the fact! That was said to make it official.
Actually, the NBER is private. Calling it official
displays an authoritarian cast of mind within the economics
profession. Choosing a Hoover Fellow to make the official
calls betrays an unhealthy dependence on far-right think tanks,
whose forecasting record is dismal.
And yet, the Secret life of real estate is not really
so secret. Anderson has found it from secondary sources, which he
simply marshals. Whats secret is why this open secret is
closed to our most prominent macro-economists. One reason is they
choose to ignore economic history, as shown by their rooting it out
of their required curricula, replacing it with courses in abstruse
theory and econometric techniques that mark modern mainstream
writers and journals. "...the institutions that teach American
elites to think about the modern world are unconcerned with teaching
them to look at it" (Ada Louise Huxtable).
Another reason is that they disdain the study of land values and
other privileges, lowball their values, and avoid integrating them
into their models and hypotheses. This is partly from an
overreaction to the historical Henry George, who put land values at
the core of his analyses, and bitterly condemned academicians for
not following his lead. Being both an intellect and a political
force he stirred up throngs of disciples, some of them unlearned and
crass, to make of this feud a tradition. That seems too petty,
however, to explain such systematic dismissal of the obvious role of
land. The greater and enduring reason is probably the defensiveness
of rentiers against any challenge to their rents and unearned
increments. This has led them to found and fund leading
universities, and more recently think-tanks, and to pack the boards
of public universities with regents supportive of their views. Governors
of universities fall into their natural place behind the golden
calf, bearing shovels (Tom Beer). Critics label this as deep
lobbying, and it now dominates the intellectual and media
Another reason is the overemphasis on manipulating data as opposed
to gathering and evaluating raw data itself. Give us data to
chew, and we will chew is the prevailing attitude, even when
the data is garbage and the output night soil. There is little work
on the quality or relevance of the data, and that little comes from
the fringes of the profession without penetrating the core, as
engraved in the stone of dozens of new and ongoing textbooks. Few
heed Jonas Salks saying, "I get into a dialogue with
nature and put the question to nature, not to my colleagues, because
that's whence the answer must come."
On the negative side, The Secret Life falls short of
being the classic it might be because of Andersons haste. This
is understandable, considering the timeliness of his thesis, but he
leaves many loose ends to trouble a critical reader. Worse, they
provide fuel for captious critics, who are sure to materialize with
arson in mind.
Anderson is an investment counselor and popular speaker, like one
of his favorite sources, Roy Wenzlick. Anderson has stitched
together many newsletters written over many years, aimed at clients
looking for investment counsel, leaving two things unclear. For one,
it is not evident whether he is addressing public policy or advising
speculators when to buy or sell. His major social value judgment,
which appears often, is so drastic, and so vaguely specified, it
does not amount to a specific workable idea. He blames private land
tenure, which he calls enclosure, for the boom/bust
cycle. One assumes his investment clients filter that out, while
appreciating his prescient forecasting. Those seeking a guide to
public policy, however, will wish he had attended more to it. He
does draw heavily on Georgist sources, especially Fred Harrison,
George Miller, and Fred Foldvary, so one could infer that he favors
the Georgist policy of taxing land heavily, with the corollary of
reassessing it often, to abort incipient booms of irrational
exuberance. Or he might favor leasing, which he mentions once,
except there he leaves us hanging with but thats another
Secondly, it is often unclear to what year his present tenses
refer. The originals, he writes, came from client newsletters he
sent out 1998-2004. Some of them read that way. However the book is
copyrighted 2008, with some additions up to about 2007, again using
present tenses. Worse yet, he signed off on the book
Sept. 7, 2008. This is curious since the book says nothing about the
great crash of 2008, except to claim it as a forecast made earlier.
This is probably the result of haste, but seems a little unfair.
He uses too many long quotations. For example, Chapter 2 on the
peak of 1818 is built around 9 such long quotes from Murray
Rothbard, along with several from other authors. A reader wonders if
he is not reading Rothbards work with filler by Anderson. At
the same time, Anderson shows no signs of being a doctrinaire
Rothbardian: he quotes J.K. Galbraith as often as he does Rothbard,
and draws on an eclectic range of historians including R.C.O.
Matthews, Alfred Chandler, Aaron Sakolski, Roy Robbins, H.D.
Simpson, Paul Johnson, Clarence Long, Reginald McGrane, Harriet
Martineau, John Steele Gordon, Charles Kindleberger, A.H. Cole, and
many others. He has read widely, without an ideological filter.
The coverage is extensive, but the scholarship leaves something to
be desired. Some older sources he omitted are Carter Goodrich, Homer
Vanderblue, Lewis Maverick, Ernest Fisher, Harry Scherman, Philip
Cornick, Alexander Field, and others. On the other hand, to his
credit, he has exhumed the neglected research of Roy Wenzlick.
Scholars have undervalued Wenzlick because he was, like Anderson,
something of a showman and promoter of his consulting business. Like
Anderson, he took his material on lecture tours with dramatic
display tools, and catered to the self-interest of clients. Yet he,
too, discovered the 18-year cycle, and left a trove of research
materials, which Anderson has studied, at the University of
Missouri, St. Louis.
The more serious omission is the current work of Robert Shiller,
Karl Case, Nouriel Roubini, Bryan Kavanagh, Michael Hudson, Piet
Eichholtz, Anne Goldgar, Eitrheim and Erlandsen, and others, not to
mention the foolhardy optimism of Bernanke, Lereah, Mandel,
Greenspan, and other false prophets. It seems that Andersons
extensive reading stopped around 2006. Thus he cites Foldvarys
1997 work, but omits his timely 2007 forecast, The Depression of
On the nitpicking side, Anderson cites several long quotes only to
virtual sources, without naming the authors. I searched for one on
banking at www.college.hmco.com/history, and found only ads for what
look like high school texts, with nothing on banking, and no clue as
to whom he is citing. This and other signs of impatience with
sourcing need correcting in a sequel or second edition.
He does a good job of hitting the high spots of major land cycles
after 1800, along with many vignettes to keep the work readable and
entertaining. As much as he may digress, however, he keeps his eyes
on the main chance. He marshals all his material to illustrate and
confirm his basic thesis about the key role of land pricing in the
18-year cycle. His randomness optimally tempers his
At one point he calls 1818 the first U.S. economic
downturn (p.57). Worse than the dating error is the bizarre reason
Anderson advances for it, an alleged Federal land monopoly that
converted what had been a commons into taboo territory. That is
simply bad history, so bad that Anderson himself later ignores it.
Elsewhere he makes out 1792 to have been a major crash.
We can overlook the contradiction as a product of haste. More
seriously, though, he omits the major crash of 1798. This is odd, in
a work based on the thesis of an 18-year cycle. 1798 is tolerably
close to 1818 less 18, but 1792 is not. The crash of 1792 was real
enough, but was simply the mid-cycle downturn that Anderson has
noted in other 18-year cycles. Englands banks survived, and
her internal improvements moved ahead. The American crash was abated
by application of the cotton gin and expansion of the slave economy
of the south. These events in America broke the last bottleneck to
applying Arkwrights inventions of 1769-70 to allow the
explosive growth of Englands cotton industry in Lancashire,
archetype of the industrial revolution. Slaters Mill of 1793
in Rhode Island helped bring the industrial revolution to the new
As to 1798, though, it was 1797 when the B of E suspended cash
payments; when Pitt imposed the first income tax to raise funds to
fight Napoleon; when English capital was diverted on a grand scale
from America to subsidizing Napoleons enemies; when Robert
Morris, financier of the American Revolution, lost 200,000 acres and
went to debtors prison; when Andrew Jackson lost his lands and
conceived his hatred of banks; this was a major crash, and the
likely reason John Adams lasted only one term, Hamilton lost
favor, and Jefferson became President.
It would be an error to think that economic history began in 1800
or 1798. There were capitalism, land tenure, banking, and boom/bust
cycles all the elements that Anderson analyzes so well from
1800 to date, that one can trace back for centuries: the Mississippi
Bubble of 1720; the Tulip Bubble of the 1630s, which Eichholtz
and Shiller showed to have been a land bubble; the end of the Great
Migration to New England after 1630; the Florentine and Medici
banking collapse of 1494; and so on. M.E. Levasseur has traced such
cycles back to the year 1200.
Whatever its minor faults, Andersons Secret History
is a book to study, remember, and steer by. It reminds me of a
German barber I once patronized. However I squirmed to defer the
next trim he would repeat compulsively, vierzehn Tagen, vierzehn
Tagen! Andersons readers will learn to repeat, achtzehn
Jahren, achtzehn Jahren!
Whoever wins the Presidential election of 2024, Be Prepared! This
future President would also be well advised to select economists
who, like Hudson, Harrison, Foldvary, Kavanagh, Shiller, Roubini,
and Anderson, foresaw the Great Crash of 2008, rather than insiders
like Romer and Bernanke who foresaw only a Great Moderation
because we had, so they said, conquered the business cycle.