Reprinted from neweconomicperspectives.org
One of the many quips ascribed to Winston Churchill is that it was well that Clement Atlee were modest for he had much to be modest about. This article comments on a remarkable article dated September 19, 2009 by the French economist Gilles Saint-Paul that embodies why economics is the only field that purports to be a science that has gotten worse for decades, which actively makes the world worse in its supposed area of expertise, and that is proud of it. I learned of the article through the worthy blog site Unlearning Economics. That site has a special category for theoclasscial sermons, including Saint-Paul's, that exemplify our family rule that it is impossible to compete with unintentional self-parody.
Saint-Paul's title is "A 'modest' intellectual discipline." Saint-Paul is one of the economists who was an architect of the ongoing disaster, so one could hope that writing in 2009 would have led him to conduct a thorough re-examination of his field's catastrophic failures. He should have begun with a personal and professional mea culpa and a series of frank admissions as to what caused him and his discipline to fail yet again and cause such great harm to the world. That's what a representative of a "modest" field that has so very much to be modest about would do.
Saint-Paul's title, therefore gives the reader some reason for hope. The first two questions he poses address the fundamental questions.
"Has economics failed us? Should economists have seen this crisis coming?"
Alas, hope died in the third and every following sentence of his paper. Saint-Paul's "revealed preference" is to continue, indeed, celebrate all of his profession's worst pathologies. Arrogance, a bizarre ode to ignorance, and a manic dedication to repeating the field's worst errors rather than correcting those errors are his motifs. The funniest line is his claim that his arrogance constitutes "modesty." Yes, but for his excessive modesty Saint-Paul would be perfect.
The Answer to His Two Fundamental Questions is "Yes"
Yes, economics and mainstream economists have "failed us." If Saint-Paul cannot bring him to make that simple admission he lacks any integrity.
Yes, "economists should have seen this crisis coming?" More precisely, competent economists did see a likely crisis.
Far more importantly, however, competent economists saw the maladies that created a serious risk of a crisis coming -- and that's what society really needs from economists. Society does not need us to be able to predict exactly when a crisis will begin and how severe the crisis will be. If we identify and warn the public of the maladies and devise and support public policy interventions to counter those maladies that greatly increase the risk of a financial crisis we have done all that economists need to do. That's the good thing about bad things -- it makes sense to fix them regardless of whether we can predict the exact likelihood, magnitude, nature, or timing of the crises they threaten to cause. It makes sense to fix them promptly. Indeed, not fixing them because it is impossible to predict in advance the likelihood, magnitude, nature, or timing of the crisis that the maladies might cause is irrational and will lead to repeated catastrophes. What Saint-Paul has, unintentionally, done is demonstrate that the faux regulatory "reforms" ("better regulation," "principles-based regulation," etc. and the use of cost-benefit analysis) that mainstream economists have demanded before any effective financial regulation can be adopted are a prescription they know will produce repeated catastrophes. Saint-Paul's article makes clear that these economists know that it is impossible to produce even a vaguely reliable cost-benefit analysis.
When mainstream economists demand that no financial regulation be adopted to counter the maladies without support from a cost-benefit analysis it is vital that people understand that they know they have rigged the regulatory "reform" to make it impossible to protect the public from the maladies that cause our recurrent, intensifying financial crises. Economists like Saint-Paul have not "failed" us, they have knowingly betrayed us. They have betrayed us to serve their banking patrons and the ideological hostility that they and their patrons share to democratic governance and government programs. They have rigged the financial system in a way that allows the banksters to become wealthy by looting the public with impunity by destroying effective regulation. They view democratic governance as illegitimate. Saint-Paul, a strong libertarian, labels democratic governments that seeks to help people "tyranny."
Why Didn't Saint-Paul Answer the Fundamental Questions He Asked Himself?
It is very strange to start a paper by asking two fundamental questions about economics and economists and then fail to even address the questions. Let me be clear, he did not ask the two fundamental questions, explain why he believed that they were the wrong questions, and state that he will therefore not seek to answer the two fundamental questions. He simply started talking about other more technical matters that could not answer the fundamental questions that he asked. In essence, he ignored the first question and implicitly rephrased both questions into a single question that he narrowed so greatly that it no longer posed a fundamental question but instead was replaced with a hyper-technical forecasting question. Again, he doesn't discuss how or why he has tortured and twisted the fundamental questions he began with, he simply proceeds to address forecasting.
Economics and economists "failed us" in far greater and more destructive ways than forecasting when and how a bubble will burst. It was economists who were the architects of the criminogenic environments that have produced our recurrent, intensifying financial crises. Economists didn't simply miss the crisis -- they caused the crisis through their embrace of the three "de's" (deregulation, desupervision, and de facto decriminalization), modern executive and professional compensation, and financial pricing models that led to the massive understatement of risk and overstatement of value. They also created complacency, claiming that virtually all the changes that were creating the criminogenic environment were actually making the world far safer. Those are the fundamental ways in which economists failed. Nobody claims that the important way in which "economics failed" was its inability to call the month in which the bubbles hyper-inflated by the three most destructive financial fraud epidemics in history would collapse.
Saint-Paul has no way to answer the fundamental questions with which he began -- so he tried what he apparently thought was a smooth move to redefine the questions out of existence and ignore them. His choice has nothing to do with economics, it is simply a dishonest rhetorical trick that any competent first year law student would spot. He ducked the fundamental questions because he lacks the courage to admit error and drop the ideological blinders that caused him and his field to be the leading architects of these growing catastrophes and the leading (and well paid) apologists for the financial CEOs that were enriched by leading the fraud epidemics.