Willful ignorance
It boggles my mind that a society that considers itself to be, on average, scientifically-minded and rational persists in completely ignoring the consistently correct predictions of one group while believing the consistently incorrect predictions of another, solely because the latter has political influence the former lacks.
Keynsian and post-Keynsian economists, being the group in power, were as a whole completely blindsided by the economic collapse that started last fall. Right up until the month when things fell apart, prominent economists were happily declaring that things had never been better - that America was leading the world into a new economic age, riding the housing boom into a cycle of never-ending prosperity. After the crash, they went about stating that no one could have predicted the sudden reversal in fortune. The only thing they've suggested to fix the resulting disaster is more of the same: more credit, more spending, more inflationary bubbles. And that's just what the government is attempting to do.
Compare this to the predictions of Austrian-school economists, who have been warning for years of the inherent instability of the housing bubble, and the impending collapse. We've seen this sort of thing before, they were saying, and it cannot end any way but in a crash. These aren't forecasts based on the specifics of this one set of events, but the predictions of basic immutable economic laws. What should we be doing, according to the Austrians? The same thing that the government did in the aftermath of the disastrous market crash in 1921: nothing at all. Unfamiliar with the crash in question? That's because the economy was back on track in a matter of months, rather than the decade-and-change it took to recover from the crash of '29, when the government applied many of the same sort of "remedies" that are being tried at present.
I'm currently reading Economics in One Lesson, by Henry Hazlitt. In this book, originally published in 1946, the author explains in part the conditions that led to the sudden and (according to the "wise" economists of the twenty-first century) "unpredictable" crash of 2008:
Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to "buy" houses they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion.
And yet Hazlitt and other, like-minded economists are dismissed out of hand while the very same people who failed to see the cliff offer to sell us parachutes at very reasonable prices.
Keynsian and post-Keynsian economists, being the group in power, were as a whole completely blindsided by the economic collapse that started last fall. Right up until the month when things fell apart, prominent economists were happily declaring that things had never been better - that America was leading the world into a new economic age, riding the housing boom into a cycle of never-ending prosperity. After the crash, they went about stating that no one could have predicted the sudden reversal in fortune. The only thing they've suggested to fix the resulting disaster is more of the same: more credit, more spending, more inflationary bubbles. And that's just what the government is attempting to do.
Compare this to the predictions of Austrian-school economists, who have been warning for years of the inherent instability of the housing bubble, and the impending collapse. We've seen this sort of thing before, they were saying, and it cannot end any way but in a crash. These aren't forecasts based on the specifics of this one set of events, but the predictions of basic immutable economic laws. What should we be doing, according to the Austrians? The same thing that the government did in the aftermath of the disastrous market crash in 1921: nothing at all. Unfamiliar with the crash in question? That's because the economy was back on track in a matter of months, rather than the decade-and-change it took to recover from the crash of '29, when the government applied many of the same sort of "remedies" that are being tried at present.
I'm currently reading Economics in One Lesson, by Henry Hazlitt. In this book, originally published in 1946, the author explains in part the conditions that led to the sudden and (according to the "wise" economists of the twenty-first century) "unpredictable" crash of 2008:
Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to "buy" houses they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion.
And yet Hazlitt and other, like-minded economists are dismissed out of hand while the very same people who failed to see the cliff offer to sell us parachutes at very reasonable prices.