Bad Science

Robert Posner, from The Atlantic of 9 August 2009:

Government officials (many of them economists), business economists, economic journalists, and academic economists alike were, with rare exceptions, taken by surprise by the bursting of the housing bubble... The reason for the surprise was that leading macroeconomists and financial economists had believed until last September that there could never be another depression, that asset bubbles are a myth, that a recession can be more or less effortlessly averted... All these beliefs have turned out to be mistaken...

Robert Lucas, because of his distinction, and because of his famous (or should it be notorious?) statement in 2003 that macroeconomists had solved "the central problem of depression-prevention" and should move on to other subjects, contributed to the economics profession's, and the government's, complacency about the vulnerability of the economy to severe crashes, and contributed also to deflecting economists from improving their understanding of the risks of economic instability.

Well there it is again, the ego thing: macroeconomists had solved "the central problem of depression-prevention" and should move on to other subjects.

I disagree with the last part of Posner's statement there, where he says Lucas deflected economists "from improving their understanding of the risks of economic instability." That's passing the buck. Maybe it was a meme and they all giddily repeated each other's words and compounded the error, I don't know. If so, that's not Lucas's fault.

What I do know is, it was easy to tell from the Debt-per-Dollar graph that we were getting into trouble, and that when the problem erupted it would be a big one. All else is "distinction" and ego, and bad science.