Economists and economics: What does the crisis tell us?
Favorite sentence from this paper… ” Sometimes however this caution is lost in the process of translating the outcome of rigorous research into a product ready for immediate consumption.”
Introduction (Via CEPR)
By now there is little to be added to the narrative of the financial crisis and to the analysis of its proximate and remote causes. A debate on the lessons of the crisis for economics as a discipline and for its practitioners is instead only just beginning. This is the theme of this note, without much pretence to organized thought.The profession’s reaction to these serious and less serious provocations has betrayed embarrassment or has been absent, perhaps in the belief that business as usual, as if nothing had happened, is the best reply. Reputation was not helped by the policy debates that have taken place since mid-2008, where disparate and stridently dissonant pieces of advice were given, belatedly but always with arrogant certainty.
Excerpts (Via CEPR)
What deserves consideration is the way in which economists have helped create an all pervading Zeitgeist that undeniably affected the actions and omissions of policymakers and regulators….the list of those who forewarned that risks to systemic stability were growing a different category from the doomsayers is embarrassingly short….
Favorite Excerpt (Via CEPR)
Actions and omissions were sometimes the outcome of pathologies present in the system revolving doors, currying favour with politicians to obtain more power, selective blindness as a result of regulatory capture. More often, however, they were the consequence of the creeds followed by the authorities: that markets could operate their wonders irrespective of institutions; that there were proper incentives for rational and effective self-regulation; that it was in the interest of management to properly assess risk and to avoid excessive exposure; that public regulation should interfere as little as possible with the spontaneous working of markets and should therefore operate with the lightest possible touch, also in view of the competitive growth of the major financial centres; that capital deepening, as measured by the extent of recourse to external financing, would always and unqualifiedly be welfare enhancing, irrespective of whether it originated in the real sector of the economy or was only endogamous to the financial sector. These propositions, if unaccompanied by ifs and buts, were tainted by ideology.