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> No, they weren't particularly few in number -- it was lots of economists (they were few in number compared to the whole population, but the universe at issue

> No, they weren't particularly few in number -- it was lots of economists (they were few in number compared to the whole population, but the universe at issue was economists, not the whole population.) http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=0 http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html... > Paul Krugman > Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy. During the golden years, financial economists came to believe that markets were inherently stable — indeed, that stocks and other assets were always priced just right. So, I mean, you can argue a Nobel Laureate is so ignorant of his field that you are correct if you want. However, you need to provide a great deal of evidence to convince me of that which so far none of you have. For instance the quality of evidence I generally see is on par with this comment: https://news.ycombinator.com/item?id=10760402 https://news.ycombinator.com/item?id=10760402 Yes, one group of folks went out and found something they believed to be true but that doesn't represent the majority view simply by its existence. Signal to noise is a very real problem that requires a very large level of agreement to move the levers of policy for a reason. > They were ignored because there was substantial financial interests among the powerful interests resting on the perception that things were going to continue going well, and because the top-line economic indicators (which aren't particularly good leading indicators, in any case) that the mainstream media likes to look to were strong, so there was a PR effort that was in line with what the media was naturally inclined to follow; the warnings from various different directions were an inconvenience for the interests of the powerful and the comfortable narrative of the media. This is a comforting conspiracy theory but the fact economists, as a class of people, failed to capitalize on this for their own financial gain based on knowing that the public perception was in error ... well, that would imply they failed to predict it in sufficient numbers. > Sure, it proves that it the particular impacts and timing of the impending collapse weren't widely expected by market participants. That's not inconsistent with a significant number -- not very few -- predicting an imminent and significant downturn to be driven by the collapse of the housing bubble. If many economists predicted a recession on that scale, we would have many rich economists. Specifically, a minimum of doubling the value of their investments due to timing the market. Do we? I mean, if you have a vast body of evidence you can present that proves this is the case by all means present it. I've never seen such evidence myself.

dragonwriter 11y ago
> So, I mean, you can argue a Nobel Laureate is so ignorant of his field that you are correct if you want. I rather see Krugman's piece here as leveraging the media narrative on the issue to his own ends; his real issue in the piece is that policymakers are listening to the wrong voices. Accepting the dominant media narrative that "few economists" foresaw the collapse is a lot better for getting people to listen to his explanation of what was wrong with the approaches that were influencing policy than challenging that narrative. > Yes, one group of folks went out and found something they believed to be true but that doesn't represent the majority view simply by its existence. There's a big excluded middle between "few" and "majority". I would characterize the group that predicted a significant, housing-bubble-collapse triggered recession as a significant near term probability before it occurred as a significant (both in number and notability) minority, neither "few" nor a "majority". > This is a comforting conspiracy theory but the fact economists, as a class of people, failed to capitalize on this for their own financial gain based on knowing that the public perception was in error ... well, that would imply they failed to predict it in sufficient numbers. Or that successful economists tend to be fairly likely to be at the income level where increased income has (as studies have shown) minimal contribution to experienced utility -- and unusually likely to be aware of that fact. Or, well, a lot of other things. > If many economists predicted a recession on that scale, we would have many rich economists. If lots of economists actively invested based on such a prediction, sure; but that an economist makes a prediction does not mean that they actively invest based on it (or that they are actively investing at all).
will_brown 11y ago
>If many economists predicted a recession on that scale, we would have many rich economists. Its kind of inflammatory. Using your logic: If many economists predicted a healthy economy and housing market, we would have many poor economists. I mean, if you have a vast body of evidence you can present that proves this is the case by all means present it. Here is just one example: US Federal Reserve Chairman, Alan Greenspan, has gone on record and said he knew of the impending housing bubble in 2005. I think even the most blind economists could have predicted a devaluation in average housing price at $x0,000/house (I really wish I knew that actual average price homes fell by), at 100M homes that is an evaporation of $x,000,000,000,000 of wealth, now from an economists point of view whether that suggest a imminent recession, I don't know, but to me that is unprecedented. Another: http://www.theguardian.com/business/2010/apr/16/goldman-sachs-fraud-charges http://www.theguardian.com/business/2010/apr/16/goldman-sach... Essentially, you had Goldman taking direct payments from a fund to sell the fund's toxic loans to Goldman clients. Home loans are traditionally solid investments (very low default rate), so the fact they were being chopped up and sold the way they were is clue number 1 the sellers knew to get rid of the asset whereas historically these were coveted investments. Its a tiny fine but there was a fraud charge and $1B fine. The catch is you can't simply flood the market, or the market will react. So the toxic loans were sold slowly and steadily for as long as possible. There was just so much bad debt that when the market did catch on the institutions were still holding a massive amount of bad debt...hence the bailouts. Its not like they didn't want to get rid of them sooner, but trying to get rid of it all at once would have been counterproductive.

dragonwriter 11y ago

> So, I mean, you can argue a Nobel Laureate is so ignorant of his field that you are correct if you want. I rather see Krugman's piece here as leveraging the media narrative on the issue to his own ends; his real issue in the piece is that policymakers are listening to the wrong voices. Accepting the dominant media narrative that "few economists" foresaw the collapse is a lot better for getting people to listen to his explanation of what was wrong with the approaches that were influencing policy than challenging that narrative. > Yes, one group of folks went out and found something they believed to be true but that doesn't represent the majority view simply by its existence. There's a big excluded middle between "few" and "majority". I would characterize the group that predicted a significant, housing-bubble-collapse triggered recession as a significant near term probability before it occurred as a significant (both in number and notability) minority, neither "few" nor a "majority". > This is a comforting conspiracy theory but the fact economists, as a class of people, failed to capitalize on this for their own financial gain based on knowing that the public perception was in error ... well, that would imply they failed to predict it in sufficient numbers. Or that successful economists tend to be fairly likely to be at the income level where increased income has (as studies have shown) minimal contribution to experienced utility -- and unusually likely to be aware of that fact. Or, well, a lot of other things. > If many economists predicted a recession on that scale, we would have many rich economists. If lots of economists actively invested based on such a prediction, sure; but that an economist makes a prediction does not mean that they actively invest based on it (or that they are actively investing at all).

will_brown 11y ago

>If many economists predicted a recession on that scale, we would have many rich economists. Its kind of inflammatory. Using your logic: If many economists predicted a healthy economy and housing market, we would have many poor economists. I mean, if you have a vast body of evidence you can present that proves this is the case by all means present it. Here is just one example: US Federal Reserve Chairman, Alan Greenspan, has gone on record and said he knew of the impending housing bubble in 2005. I think even the most blind economists could have predicted a devaluation in average housing price at $x0,000/house (I really wish I knew that actual average price homes fell by), at 100M homes that is an evaporation of $x,000,000,000,000 of wealth, now from an economists point of view whether that suggest a imminent recession, I don't know, but to me that is unprecedented. Another: http://www.theguardian.com/business/2010/apr/16/goldman-sachs-fraud-charges http://www.theguardian.com/business/2010/apr/16/goldman-sach... Essentially, you had Goldman taking direct payments from a fund to sell the fund's toxic loans to Goldman clients. Home loans are traditionally solid investments (very low default rate), so the fact they were being chopped up and sold the way they were is clue number 1 the sellers knew to get rid of the asset whereas historically these were coveted investments. Its a tiny fine but there was a fraud charge and $1B fine. The catch is you can't simply flood the market, or the market will react. So the toxic loans were sold slowly and steadily for as long as possible. There was just so much bad debt that when the market did catch on the institutions were still holding a massive amount of bad debt...hence the bailouts. Its not like they didn't want to get rid of them sooner, but trying to get rid of it all at once would have been counterproductive.