Yves Smith adds some excellent commentary in her piece, Why So Little Self-Recrimination Among Economists?, which brings to our attention Jeff Madrick's report on The Daily Beast on the just-concluded annual conference of the American Economics Association, How the Entire Economics Profession Failed. Madrick writes,
At the annual meeting of American Economists, most everyone refused to admit their failures to prepare or warn about the second worst crisis of the century.
I could find no shame in the halls of the San Francisco Hilton, the location at the annual meeting of American economists that just finished. . . .
There was no session on the schedule about how the vast majority of economists should deal with their failure to anticipate or even seriously warn about the possibility that the second worst economic crisis of the last hundred years was imminent.
I heard no calls to reform educational curricula because of a crisis so threatening and surprising that it undermines, at least if the academicians were honest, the key assumptions of the economic theory currently being taught.
There were no sessions about why the profession was not up in arms about the deregulation of so sensitive a sector as finance. They are quick to oppose anything that undermines free trade, by contrast, and have had substantial influence doing just that.
Smith adds a insightful quote from Thomas Palley, in April 2008:
One reason for the changed business cycle is retreat from policy commitment to full employment. The great Polish economist Michal Kalecki observed that full employment would likely cause inflation because job security would prompt workers to demand higher wages. That is what happened in the 1960s and 1970s. However, rather than solving this political problem, economic policy retreated from full employment and assisted in the evisceration of unions. That lowered inflation, but it came at the high cost of two decades of wage stagnation and a rupturing of the link between wage and productivity growth.
Smith also rips into the recent paper by Daron Acemoglu, The Crisis of 2008: Structural Lessons for and from Economics, which, Smith observes, "fell so far short of asking tough questions that it proves Madrik's point. The analysis is shallow and profession serving." Noting that Acemoglu argues that "greed is neither good nor bad in the abstract," Smith writes:
Put more bluntly, greed is the id without restraint. Psychiatrists, social workers, policemen, and parents all know that unchecked, conscienceless desire is not a good thing. Acemoglu calls for external checks ('the right incentive and reward structures"), when the record of the last 20 years is that a neutral to positive view of greed allows for ambitious actors to increasingly bend the rules and amass power. The benefits are concentrated, and the costs often sufficiently diffuse as to provide for insufficient incentives (or even means) for checking such behavior. Like it or not, there is a role for social values, as nineteenth century that may sound. The costs of providing a sufficiently elaborate superstructure of rules and restrictions is far more costly than having a solid baseline of social norms. But our collective standards have fallen so far I am not sure we can reach a better equilibrium there.
I clearly remember how dumbstruck I was about back in May 2006 when someone asserted in a comment to one of my DailyKos diaries that
Economics is not about morals. Nuf said
And four other people agreed with them! I hope they're singing a different tune now.