Sleazeballs 1, Distinguished Academics 0.
From Freakonomics, by self-proclaimed "rogue economist" Steven Levitt and journalist Stephen Dubner:
Information can be a beacon, or information can be a cudgel...This is the agent's main weapon: the conversion of information into fear. Consider this true story, related by John Donohue, a law professor who in 2001 was teaching at Stanford University: "I was just about to buy a house on Stanford campus, and the seller's agent kept telling me what a good deal I was getting because the market was about to zoom. As soon as I signed the purchase contract, he asked me if I would need an agent to sell my previous Stanford house. I told him that I would probably try to sell without an agent, and he replied, 'John, that might work under normal conditions, but with the market tanking now, you really need the help of a broker.'" In five minutes, a zooming market tanked. Such are the marvels that can be conjured by an agent in search of the next deal.
I wasn't present when Professor Donohue related this droll anecdote, but my guess is that everyone present chuckled mildly or rolled their eyes wildly or pounded the table hysterically or whatever it is that distinguished academics do when confronted by stupidity in the marketplace (and it's amazing how often this happens to distinguished academics).
I haven't read Freakonomics because what I've seen—it's one of the most excerpted books on the Internet—is everything Professor Black, my statistics instructor, warned his students against. Professor Black was not, alas, particularly distinguished. No, he was something better: an academic numbers cruncher who taught his classes to be critical consumers of numbers, an academic who knew that numbers couldn't speak intelligently unless they had someone intelligent to speak for them. Freakonomics' refusal—or more to the point, its inability—to see the nuances behind the numbers would've gotten distinguished academic Steven Levitt a well-deserved "F" from Professor Black. Freakonomics is nothing more than a highly lucrative exercise in academic hubris: mathematical analysis, the sole weapon of the academic, supposedly trumps hard-won real-life insight. Distinguished academic careers are built on this wobbly proposition.
No, come to think of it, the academic has another, even more potent weapon, one with shock-and-awe firepower the real estate agent can't begin to match: credibility, deserved or otherwise. I'll paraphrase Levitt: credibility can be a beacon, or credibility can be a cudgel. This is the academic's main weapon: the conversion of credibility into fear. Fear the big bad world of the marketplace, trust the make-believe world of the academic. Distinguished academic careers are built on this wobbly proposition.
I'm not qualified to judge the distinguished academic economist's work outside the field of real estate, but I am qualified to judge his analysis of real estate: guilty of naïveté in the first degree. Then let's ask the question that begs to be asked: what if real estate isn't the only marketplace the economist doesn't get? If it isn't—and tell me why it should be—then Levitt's "rogue economist" performance rightly offends his mainstream brethren: Freakonomics is an insider's unconscious and damning burlesque of his own profession, the usual half-baked nonsense but without the usual high-sounding jargon, a candid glimpse of economics caught lounging around the house in baggy clown pants and a red rubber nose instead of the public mask of gravitas.
The excerpt I've quoted caught my eye because, by a happy coincidence, in 2001 I worked briefly with someone who handed me a business card identifying himself as John Donohue, law professor at Stanford University. This John Donohue could be reached via a Stanford email address. When I left this person voicemail, his greeting identified him as John Donohue, Stanford law professor.
Admittedly, the John Donohue of Freakonomics, who I'll call Their John Donohue, doesn't exactly match the John Donohue, who I'll call My John Donohue, I met at a Redwood City open house late in 2001.
For instance, My John Donohue didn't mention he'd be selling a home on Stanford campus. Nor did he mention that he was looking for another home on campus. My John Donohue told me only that he was looking for a home in a Palo Alto neighborhood adjacent to Stanford called College Terrace.
Our relationship was cordial but brief and unremarkable. We corresponded mostly by email. I remember showing him one home. The relationship ended after a few months (as relationships formed at open houses often do) in early 2002 when he informed me that personal circumstances had taken him out of the market.
Admittedly I didn't keep either the card My John Donohue gave me nor the emails I sent and received from him, so I can't document that Their John Donohue is My John Donohue. Nor did I take a picture of My John Donohue, but the online photograph of Their John Donohue, who's now Leighton Homer Surbeck Professor of Law at Yale University, looks like My John Donohue in a nice dark suit.
But just as a theoretical exercise, let's say that My John Donohue is Their John Donohue. Let's also say that this theoretical Composite John Donohue was in the real estate market, planning to sell one home on Stanford campus and buy another on or near campus, when I met him in late 2001. Let's say further that this theoretical Composite John Donohue decided to use me only as his off-campus real estate agent, and that he was selective about the information he gave me.
The date we met is significant, because in late 2001 the Silicon Valley real estate market was indeed as bad as the sleazeball agent of Their John Donohue's anecdote claimed. The Redwood City home where I met My John Donohue was on the market for months, unloved and unwanted, even listed at a price, $495k, so low that it infuriated one neighborhood agent.
Why wouldn't the home sell? Well, for one thing, Silicon Valley was mired in one of its periodic busts. For another, the Tuesday I picked to introduce it to the market on broker's tour was September 11, 2001. My wife and I watched the World Trade Center burn on TV, then left to open the home. I may be the only agent in Redwood City who actually looked at homes that morning. Among its many deleterious effects, the World Trade Center attacks removed in a few seconds what little joie de vivre remained in Silicon Valley real estate as well as about 5 per cent of its market value.
But as you may have heard endlessly over the past six years, the real estate market recovered quickly, especially here in Silicon Valley. In fact, it would be accurate to say that the Silicon Valley real estate market "zoomed", as the sleazeball agent of Their John Donohue's anecdote predicted, in early 2002.
For example, the average sales price of a home on Stanford campus "zoomed" 33 per cent, from $1,132,250 in Q4 2001 to $1,506,250 in the first half of 2002. In the dark days of Q4 2001 a Stanford campus home took an average of 50 days to sell; in the zoomy first half of 2002, just 12 days.
Zoom!
That Redwood City home I couldn't sell for $495k? We did get one offer at $475k, which the buyers rescinded before the sellers could reject it. In November 2001 my sellers gave up and took their home off the market. By the following June it was worth an easy $525k, perhaps a bit more.
Zoom!!!
And now, in December 2007, it's worth at least $760K and maybe close to $800k.
Zooooooom!!!
Here's irony: Their John Donohue's sleazeball agent was right. The market was in the tank. The market did zoom shortly.
Their John Donohue's sleazeball agent wasn't just right. He was damn good.
Don't you just hate it when the sleazeballs know more than the distinguished academics?
Wouldn't it be just terrible if this were the rule rather than the exception?
Here's a "new way of looking at economics" that won't be endorsed either by "rogue economist" Levitt or by the old guard he supposedly differs from: the easier an idea is to swallow—"boy I thought that all along"—the less likely it is to be good for you.
Here's more irony: I think I know who that sleazeball agent is. The Stanford campus real estate market isn't large, and one agent gets most of the listings. And I've seen Levitt on TV. And I'll bet that if you put that sleazeball agent and that distinguished academic—the rank opportunist and the distinguished professional, the pipsqueak hustler and the trustworthy guide—side by side, even for several hours, you might mistake one for the other.