Monday, August 10, 2009

Greenspan's mea culpa

Bill Bonner, co-author of Financial Reckoning Day and other books on finance, has deservedly harsh words for economists generally and Alan Greenspan in particular:
At least something good has come out of the economic crisis; it blew off the purple robes that clothed economists and exposed their naked flanks. Still, they don’t deserve the beating they’re getting in the press – with snide remarks and sarcastic comments; they deserve better. A beating with sticks!

Even Alan Greenspan admitted he had “found a flaw” in his own thinking. We will have to imagine the giggles from the back of the room – if anyone had been awake. It was as if Stalin had confessed to being rude to his mother or Bernie Madoff copped a plea for shoplifting. The mea was fine, but the culpa didn’t seem to measure up to the facts. He, more than any living human being, was responsible for the biggest financial debacle in history; you’d hope he’d be a gentleman about it and hang himself.

Meanwhile, the queen of England visited the London School of Economics and had a question: why weren’t economists on top of this thing?

They replied to this question last month. In a three-page letter, they avoided the simple truth – that their trade was no more reliable than fortune telling and marriage counseling. The letter claimed that a “psychology of denial” prevented government and financial eyes from seeing the catastrophe in front of them. It was “a failure of the collective imagination of many bright people,” they said.

In fact, it was the exact opposite – imagination run wild. Economists imagined a world without yesterday or tomorrow…a world in which you could run up debts forever and never have to pay them back.
Have they at least learned from their mistakes? Not a bit. They love Keynes more than ever.
From one scam to another…from bailing out Wall Street to bailing out the entire world economy, the more stimulus programs fail to bring a recovery, the more economists call for more stimulus.

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