Monday, September 15, 2014

Hubris Is Alive And Well

Some economists saw the Great Recession coming. Certainly Robert Reich did. But, as Paul Krugman writes in this morning's New York Times, an army of economists missed the boat. They did so for a number of reasons:

Clearly, economics as a discipline went badly astray in the years — actually decades — leading up to the crisis. But the failings of economics were greatly aggravated by the sins of economists, who far too often let partisanship or personal self-aggrandizement trump their professionalism. Last but not least, economic policy makers systematically chose to hear only what they wanted to hear. And it is this multilevel failure — not the inadequacy of economics alone — that accounts for the terrible performance of Western economies since 2008.

During those decades, economists focused on idealized models. And,

starting in the 1980s it became harder and harder to publish anything questioning these idealized models in major journals. Economists trying to take account of imperfect reality faced what Harvard’s Kenneth Rogoff, hardly a radical figure (and someone I’ve sparred with) once called “new neoclassical repression.” And it should go without saying that assuming away irrationality and market failure meant assuming away the very possibility of the kind of catastrophe that overtook the developed world six years ago.

Some economists  -- like Joseph Stiglitiz -- got the post crisis right. However,

all too many influential economists did — refusing to acknowledge error, letting naked partisanship trump analysis, or both. “Hey, I claimed that another depression wasn’t possible, but I wasn’t wrong, it’s all because businesses are reacting to the future failure of Obamacare.”

There was a great deal of historical evidence to support the notion that counter-cyclical spending was necessary to reboot ravaged economies:

but European leaders and U.S. Republicans decided to believe the handful of economists asserting the opposite. Neither theory nor history justifies panic over current levels of government debt, but politicians decided to panic anyway, citing unvetted (and, it turned out, flawed) research as justification.

And, so, those who got it wrong led the way. It was not the first time this happened. It happens whenever hubris is given full sway.

This entry is cross posted at The Moderate Voice.


The Mound of Sound said...

Yes, Stiglitz got it right. So too did Nouriel Roubini - in his case eerily right. As for Krugman, in 2005 he released an anthology of his columns under the title "The Great Unraveling" that I have around here somewhere. You couldn't read "Unraveling" without getting a brutally clear idea of how perilously close to the edge America was perched.

Yet our self-styled "economist", old Beelzebub himself, was later to try to excuse his failure to prepare Canada to meet the 2008 meltdown by claiming that "no one saw it coming."

Isn't it funny how these neoliberal bastards always fall back on that old saw whether they're overtaken by a global recession, massive flooding (Calgary), listeria deaths, mass slaughter in Lac Megantic and on and on and on - "no one saw it coming" or "no one could have known". Who is this "no one" and where did they find him?

Anonymous said...

A dose of hubris deserves an antidote.

Owen Gray said...

He's the straw man, Mound. And he's always there to take the blame.

Owen Gray said...

Thanks for the link, Anon. "I heard you paid your dues in Canada."

Anonymous said...

What will happen to Canada when, Steven Treason hands us over to Communist China Oct 1st?

The destruction of BC has been going on for years. Harper and Gordon Campbell began giving BC to China, way back in Campbell's reign of treachery. Harper nearly burst into tears when, the evil Campbell was forced to resign. They weren't quite finished, handing BC to Communist China.

Ditzy Christy is no different than Campbell. She too told some really whopper lies as did Harper and Campbell. However, China has spoken up regarding BC's Teachers strike and Christy will have to obey China.

Fadden of CSIS warned of Communist China's huge inroads into Canada. BC people warned and warned, Harper and Gordon Campbell are snakes in the grass. However as usual, no-one listened.

China is the most hated country on the globe. Harper rips into Putin regarding, the Russia, Crimea and Ukraine issue. However, Harper gave Communist China our country so, Harper is far worse than Putin. Communist China mowed their students down with, machine gun fire. Harper needs to be tried as a traitor, doing acts of treason. Harper and China are totally evil. However, we have lost our country.

Owen Gray said...

I continue to hope, Anon, that we can take our country back in the next election.

e.a.f. said...

some of those politicians and "leaders" choose to go the "wrong" way, because it suited their politics.

there has been a "recovery", its just that the recovery is for an elite few corporations and their owners. It hasn't translated to the average citizen. But that's o.k. the massive corporations to whom many politicians report to have "recovered" their looses.

I always wonder what would have happened in the U.S.A. had the government let the banks fail and gaven the money instead as loans to those who were defaulting on their mortgages, at a 3% interest rate.

Owen Gray said...

True, e.a.f. Once you understand that our politicians are working for those who cut the big cheques, it all makes sense.