When asked yesterday by a Congressional committee why he had not understood a dangerous housing price bubble was building, former Fed chairman and economist Alan Greenspan said, "[W]e're not smart enough as people. We just cannot see events that far in advance."
Economist Dean Baker disagrees.
In fact, the problem is not that "we" cannot see events that far in advance. The problem is that the Federal Reserve Board and the economics profession as a whole functions more like a fraternity than a real forum for debate and truth seeking. Those whose views are taken seriously mimic the views of those with status and power within the profession, they do not think independently.
The failure of the economics profession to recognize the bubble and the harm that it would cause was due to the sociology of the profession. For any competent economist, the bubble was easy to see and the damage that its collapse would cause was entirely predictable.
Baker also points out that there is neither "market discipline" nor other accountability in the profession.
Unlike custodians, cab drivers, or dishwashers, economists are not held accountable for their job performance. They can be wrong on everything they do every day of the week, and still be viewed as respected authorities by the Washington Post, and other media outlets, as well as members of Congress and others in policy positions.
Baker is by no means alone in his assessment of the profession. The real-world economics review (fka post-autistic economic review) was started to circumvent the established journals which would not publish work that was outside of or inconsistent with the dominant economic paradigm.
Skeptic
Economist Robert Shiller, who was an advisor to the New York Fed, engages in self-criticism and says the competition for stature causes normal people like himself to downplay contrary opinions.