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.

Private Wealth and Public Squalor

Today's Toronto Star  reports that things have been as they are in Attawapiskat for decades -- and there's not a lot of hope that they will change:

The community was founded in 1893 by Catholic missionaries. The steepled church, an aging grey structure next to the Attawapiskat River, remains the most striking structure.

In 1901, the Hudson’s Bay Co. built a store here. Most natives lived in the bush at the time, hunting, trapping and fishing, and it was only in the 1930s that the settlement began to grow. Housing came in the 1970s, running water and sewage treatment arrived in the 1990s.

It’s been unravelling since it all began.

The local priest says that the main problem is that there's nothing to do  -- unemployment is at 70%. Therefore, kids there see they have no future, and they simply don't attend school:

The children feel no obligation to attend because they wake up in households where they have never seen their parents go to work. “What is the point, they think,” says Vezina.

No education, no employment. It’s that simple, he sighs. 

Homes and  a new school need to be built. But that work has been stalled. Attawpaiskat is a microcosm of what's happening nationally. While governments tell us we have a debt crisis, Paul Krugman has been writing for years that we have a jobs crisis.

It's not that there are no things which need doing. In Toronto, the Gardiner Expressway is crumbling. In Montreal, pieces of the Ville Marie Expressway fall on cars; and the Champlain Bridge is on the verge of falling into the St. Lawrence. But the chorus from all government benches is the same: "We can't afford it." The books must be balanced.

The American economist Dean Baker wrote recently that, "Of course, the point of economic policy is to produce an economy that improves the lives of the people in a sustainable way." By that measure, what is happening at Attawapkiskat -- and in Canada in general -- is an abject failure.

 In the words of another economist, John Kenneth Galbraith, our economic policy has generated "private wealth and public squalor."